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June 23, 2017

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Merrill Lynch raises target price on Zhen Ding Technology Holding

TAIPEI, Taiwan -- Bank of America Merrill Lynch has raised its target price on shares of flexible printed circuit board (FPCB) maker Zhen Ding Technology Holding Ltd. amid optimism toward the company's sales growth after Apple Inc. unveils new products later this year.

Zhen Ding has been dubbed one of the "Apple concept stocks," as it is part of the U.S. consumer electronics giant's supply chain.

In a research note Friday, Merrill Lynch said that with an increase orders from Apple, the Taiwanese firm's sales are expected to rise sharply, starting in the second half of the year.

The FPCB maker could enjoy a sequential increase of 44 percent and 60 percent in sales for the third and fourth quarters, respectively, the brokerage said.

As a result, Merrill Lynch said, it has upgraded its target price on Zhen Ding shares to NT$102 from NT$90 and issued a "buy" recommendation on the stock.

On Friday, shares of Zhen Ding rose 0.80 percent to close at NT$88.00 (US$2.91), outperforming the broader market, where the weighted index ended up 0.25 percent at 8,966.66 points.

In the first quarter, Zhen Ding posted NT$14.7 billion in consolidated sales, down 35 percent from the previous quarter on the slow season in the global electronics sector, but 20 percent higher year-on-year.

Merrill Lynch said Zhen Ding's sales for the second quarter are expected to fall 13 percent from the first quarter due to the lingering slow season effects and could be a low point for the company this year before its sales pick up in the second half.

The brokerage noted that no new FPCB competitors have entered the turf since 2013 since the products usually require high production quality, design change flexibility, and large production capacity to meet demand from individual customers, in particular Apple.

It said Zhen Ding is taking advantage of its highly competitive technology and could win more orders, which would improve its bottom line.

Merrill Lynch also raised its forecast for Zhen Ding's 2014 earnings per share by 11 percent to NT$8.4, and for 2015 by 15 percent to NT$9.2. In 2013, the FPCB maker posted NT$7.41 in EPS.

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