Taiwan market remains cold for earnings growth: Citigroup

With more than half of all tech companies having reported results for the second quarter, Citi has forecast the overall earnings of the Taiwan market to drop 0.5 percent this year.

This follows a decline in earnings in the Taiwan market by 28.2 percent last year, according to Citi, as the market's earnings fell 35 percent from its 2007 peak.

The single largest cuts in Citi's 2012 full-year earnings forecast were for contract electronics maker Hon Hai Precision Industry Co. and smartphone vendor HTC Corp., both down 40 percent.

Other big cuts in the notebook sector were Compal Electronics Inc. and Quanta Computer Inc., for which Citi revised down its full-year earnings estimates by 31 percent and 14 percent, respectively.

The chemical sector was the second largest driver to Citi's aggregate earnings cuts during the past month. The U.S. bank slashed 2012 earnings forecast for Formosa Petrochemical Corp. by 54 percent and for the chemical sector by 37 percent.

“The cuts in the chemical sector appear to be more cyclical, while cuts to tech appear more structural,” Peter Kurz, head of Taiwan research at Citigroup's securities' arm, said in the note.

“The good news is that mostly all of the big adjustments have now been made, at least for this quarter. However, along with these earnings downgrades have come cuts in our dividend forecasts as well,” he wrote.

Citi, the third-largest U.S. bank, has reduced the dividend yield for the Taiwan market in 2012 from 3.7 percent to 3.2 percent, and in 2013 from 4.4 percent to 4.0 percent.

Following these adjustments, Citi announced its new target prices of NT$115 (US$3.83) for Hon Hai, NT$192 for HTC, NT$28 for Compal, NT$68 for Quanta and NT$75 for Formosa Petrochemical.

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