Hon Hai still 'overweight': Morgan Stanley
May 4, 2014, 12:09 am TWN
TAIPEI--Morgan Stanley has maintained an "overweight" recommendation of shares of Taiwan-based Hon Hai Precision Industry Co. (鴻海) amid optimism toward the manufacturer's bottom line ahead of expected launches for the next generation of Apple iPhones.
Hon Hai, the world's largest contract electronics maker and assembler of iPhones and iPads, is known as one of the "Apple concept stocks" in the local bourse.
In a research note, Morgan Stanley said the new model, which many expect will sport a larger screen and hit the market in the second half of the year as the iPhone 6, could have a longer sales cycle than its predecessors, meaning good news for Hon Hai's shipments.
In addition, the brokerage said a team-up with U.S. PC maker Hewlett-Packard Co. on cloud-optimized servers announced in late April is expected to further boost Hon Hai's profitability.
Morgan Stanley has upgraded its forecasts of the Taiwanese firm's earnings per share for 2014 and 2015 by 3 percent and 9 percent, respectively, to NT$9.08 (US$0.30) and NT$10.07.
The brokerage has expected Hon Hai to post NT$10.38 in EPS in 2016. In 2013, Hon Hai's EPS stood at NT$8.16.
Morgan Stanley has raised a target price on Hon Hai shares to NT$101 from 88 in reflection of an upbeat mood about the company's earnings outlook.
Shares of Hon Hai rose 2.54 percent to close at NT$88.80 on the Taiwan Stock Exchange Friday as foreign institutional investors served as net buyers of 24.12 million Hon Hai shares.
Holding a similar optimistic attitude, Daiwa Securities said it has left a "buy" recommendation on Hon Hai shares unchanged, while upgrading a target price on the stock to NT$105 from NT$98.
Daiwa Securities said Hon Hai's consolidated sales for the first quarter fell 34 percent from a quarter earlier due to slow season effects, and revenue for the second quarter could rise by as little as 1 percent sequentially.
But, the brokerage said, new Apple products are expected to accelerate Hon Hai's sales growth momentum in the second half of the year, adding it is possible for the Taiwanese firm to witness its 2014 revenue grow 10 percent from a year earlier.
It said Hon Hai's operating margin could improve to 3.1 percent in 2014 from the 2.8-percent seen in 2013, while the manufacturer's EPS for 2014 and 2015 could hit NT$9.03 and NT$9.94, respectively.