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September 20, 2017

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Morgan Stanley upgrades Zhen Ding shares on wearable growth

TAIPEI -- Morgan Stanley has upgraded its rating on shares of Zhen Ding (臻鼎) Technology Holding Ltd., a Taiwanese flexible printed circuit board (PCB) maker, on growing demand for wearable devices and its market share gains in Apple Inc.' supply chain.

In a research note dated June 6, the U.S. brokerage upgraded its investment rating for Zhen Ding to "overweight" from "equal-weight" and raised its price target to NT$110.5 (US$3.68) from NT$80.8, ranking the stock as its top pick among the local PCB sector.

"We believe it (Zhen Ding) will be the major beneficiary of the takeoff in wearable devices in 2015-2016 thanks to its superior flexible PCB production capability and scale, full-range PCB product offerings, and solid execution," said Sharon Shih, a Morgan Stanley analyst in Taipei.

The optimism was also based on Zhen Ding's gradual market share expansion within the Apple supply chain, Shih said.

Shares of Zhen Ding closed up 3.09 percent at NT$96.9 Friday in Taipei trading. The PCB maker is a subsidiary of Taiwan's Hon Hai Precision Industry Co., which assembles iPhones and iPads for Apple.

Shih added that the adoption of flexible PCBs in wearable devices will be higher than in other handheld electronics, such as smartphones, due to the need for light weight and compact design made bendable or flexible for use in wearable devices like smartwatches.

She estimated that total PCB value in wearable devices will reach US$123 million in 2015 and US$310 million in 2016, implying that the developments in the market will offer potential opportunity to PCB suppliers.

For other local PCB stocks, the analyst upgraded her ratings on Unimicron Technology Corp. from "underweight" to "equal-weight" and held "underweight" ratings on both Kinsus Interconnect Technology Corp. and Flexium Interconnect Inc.

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