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Barclays ups HTC earnings estimates on cost reduction

TAIPEI -- British bank Barclays Plc raised its estimates for HTC (宏達電) Corp.'s earnings per share (EPS) for this year and next year Thursday, citing an improved cost structure and lower inventory risk in China for the Taiwanese smartphone maker.

The bank has revised its 2014 EPS forecast for HTC by 12 percent to NT$1.78 (US$0.06) from NT$1.58, driven by the company's cost reductions and better channel management.

For 2015, Barclays has raised HTC's EPS estimate to NT$2.98, from a loss per share of NT$0.30, based on stronger sales and deeper penetration of the China market, it said in a note to clients.

Barclays analyst Dale Gai found that Chinese component maker BYD Electronics, which has 50 percent of the orders for metal casings for HTC's new flagship M8, has indicated that the M8's casing cost is 20 percent lower than its predecessor due to a shorter cycle time needed for the computing numerical control (CNC) cutting machine.

Moreover, HTC has started to promote the M8 aggressively in stores of Suning Commerce Group Co., one of China's leading retailers of electronics and home appliances, with the device already available ahead of rival Samsung Electronics Co.'s Galaxy S5 in the world's largest smartphone market, he said.

“This implies that HTC's gross profit margin could improve year-on-year in 2014, driven by a better cost structure and reduced inventory risk in China,” Gai wrote in the note, adding that HTC's gross margin could rise to 21.9 percent this year from 20.8 percent last year.

The analyst maintained his forecast for HTC's shipments at 23 million units in 2014, up 12 percent from last year, with an estimated 11 percent decline in its average selling price because of the company's increasing sales in the mid-range segment.

He kept his “underweight” rating on the stock, with a NT$112 price target, predicting limited potential for HTC to make meaningful market share gains in the future.

HTC shares closed up 0.33 percent at NT$154 Thursday in Taipei.

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