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May 29, 2017

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Cheng Uei shares down on Q1 results

TAIPEI -- Shares of Cheng Uei Precision Industry Co. (正崴精密), one of Taiwan's leading connector suppliers, moved lower Friday morning after the company reported disappointing results for the first quarter of this year, dealers said.

The selling reflected global index provider MSCI Inc.'s move to delete the stock from the Taiwan index of its MSCI Global Standard Indexes, they said, which could cut foreign investors' buying in Cheng Uei.

As of 11:47 a.m., shares of Cheng Uei had lost 1.90 percent to NT$56.80 (US$1.88) with 2.68 million shares changing hands. The weighted index on the Taiwan Stock Exchange was down 0.47 percent at 8,838.88 points.

Cheng Uei is an affiliate of Hon Hai Precision Industry Co., the world's largest contract electronics maker. Cheng Uei's chairman T.C. Gou is the younger brother of Hon Hai Chairman Terry Gou.

"The fall in Cheng Uei's bottom line sparked downward pressure in the stock soon after the local bourse opened," Asia Securities Investment Consultant analyst Chang Chih-cheng said.

"Cheng Uei is one of the local electronics companies which fell victim to the Chinese yuan's depreciation against the U.S. dollar to incur foreign exchange losses and impact its profitability in the quarter," Chang said.

In a statement released Thursday, Cheng Uei said it posted NT$250 million in net profit during the January-March period — down 55.14 percent from a year earlier — on consolidated sales of NT$23.78 billion, or 12.07 percent less than last year.

The first quarter earnings-per-share stood at NT$0.5, compared with NT$1.13 EPS recorded in the same period last year.

Cheng Uei said it incurred about NT$100 billion in foreign exchange losses in the first quarter, compared with NT$160 million in foreign exchange gains it posted over the same period of last year.

In the quarter, its gross margin fell 0.59 percentage points from a year earlier to 9.61 percent, the lowest level in seven quarters, due to seasonal factors.

"In addition to the weaker bottom line, investors have been bothered by MSCI's exclusion of Cheng Uei shares from its global standard indexes," Chang said. "As the MSCI indexes are closely watched by foreign investors, it is likely that foreign interest in the stock will be impacted."

With the removal, MSCI has moved Cheng Uei to the Taiwan index of the MSCI Global Small Cap Indexes. The index adjustments will take effect after the local market closes on May 30.

Looking ahead, Cheng Uei said its operations for the second quarter are expected to remain haunted by slow season effects and its consolidated sales for the three-month period could fall from a quarter earlier. The company added that a turnaround is unlikely to come until the third quarter

"So, I expect Cheng Uei shares will continue to trend lower until the stock sees some technical support at around NT$55 amid dampened market sentiment," Chang said.

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