UBS cuts Acer's target price over write-down
January 24, 2013, 11:47 am TWN
TAIPEI -- Swiss brokerage UBS Securities cut its target price on shares of Taiwanese computer vendor Acer Inc. late Tuesday after the company announced it would take a NT$3.5 billion write-down on the value of its trademark rights.
UBS trimmed its target price for Acer from NT$19 to NT$18 and maintained its "sell" rating on the stock while also lowering its estimate of Acer's earnings per share in 2012 from NT$0.07 to a loss per share of NT$0.94.
"We are skeptical about the assumptions behind the impairment test given the write-down does not include anything from goodwill," UBS chief electronics hardware analyst Arthur Hsieh said in a note to clients.
"With Acer's declining market position, the acquired entities including Packard Bell, Gateway, e-Machine, and E-Ten clearly did not generate the expected cash flow that Acer had originally projected when it made all acquisitions," he wrote.
Hsieh added that there is limited room for Acer to cut operating expenses given that it already is one of the most tightly run companies in the industry.
As a result, he believed Acer's thin profit margin could easily "turn red" should its competitors price their products more aggressively.
Acer shares closed down 0.61 percent at NT$24.55 in Taipei trading yesterday.
Acer said Tuesday that the NT$3.5 billion intangible asset impairment charge was for losses in the value of rights to four trademarks — Gateway (NT$2.4 billion), Packard Bell (NT$398 million), E-Machines (NT$432 million) and E-Ten (NT$298 million).
The loss, which will be reflected in the company's 2012 annual report, accounted for 8 percent of Acer's total intangible assets as of the fourth quarter of 2012, the company said in a statement.
Acer noted that the write-down would not affect the company's business operations.
Japanese brokerage Nomura Holdings Inc. maintained its "reduce" rating and its target price of NT$19 on Acer, saying the NT$1.3 per share loss in book value represented by the one-time charge was much smaller than the NT$2 to NT$3 range it had expected.
"Longer term, we think Acer still needs to face the reality of how to rebuild the brand positioning/image for Packard Bell and Gateway amid intense competition and slowing PC industry growth," said Nomura analyst Eve Jung.
It is still too early to turn positive on Acer before the company delivers more concrete evidence of market share gains and margin improvements, and a new strategy for cost reduction and restructuring, she said.