MediaTek shares hit by target price reduction
CNATAIPEI -- Shares of MediaTek Inc., one of Taiwan's leading integrated circuit designers, came under strong downward pressure Friday after French broker BNP Paribas cut its target price on the stock, dealers said.
January 5, 2013, 12:06 am TWN
The downgrade reflected the brokerage's concerns over rising competition in the smartphone chip market in China, which could have an impact on MediaTek's bottom line, they said. Chinese smartphone makers have served as the largest buyer of the Taiwanese IC products.
Shares of MediaTek fell 6.29 percent that day to close at NT$305.50 (US$10.53) with 25.02 million shares changing hands. The benchmark weighted index on the Taiwan Stock Exchange ended down 0.39 percent at 7,805.99 points.
The stock encountered heavy selling soon after the local bourse opened in reflection of a research report released by BNP Paribas.
In the research note, BNP Paribas said it has cut a target price on MediaTek shares to NT$292 from NT$384, and also downgraded its recommendation on the stock to “reduce” from “buy.”
The brokerage said there have been worries over MediaTek's profit margin as competition in the China smartphone market has escalated due to the launch of new chips by U.S.-based rival Qualcomm Inc.
To take on fierce competition in the China market, MediaTek may cut product prices, a move that could hurt the company's profit margin next year, it said.
As a result, BNP Paribas lowered its forecast for MediaTek's net profit for 2013 by 26.4 percent to NT$22.15 billion. Earnings per share (EPS) are expected to stand at about NT$16.42.
BNP Paribas said it is afraid that MediaTek will fail to reach its sales target of between NT$28.9 billion and NT$30.9 billion for the fourth quarter of last year as the China smartphone market encountered inventory adjustments during the three-month period.
The brokerage has forecast that MediaTek will report NT$15.67 billion in net profit for 2012, with and EPS of NT$12.56.