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June 29, 2017

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Shares of Hon Hai rise on June sales, prospects in H2

TAIPEI -- Shares of Hon Hai Precision Industry Co., the world's largest contract electronics maker, extended gains Friday morning from a session earlier after the company reported a more than 18 percent month-on-month increase in sales for June, dealers said.

Buying reflected continued optimism toward Hon Hai's earnings prospects for the second half of this year as Apple Inc., the Taiwanese firm's largest client, is expected to launch its next generation of iPhones, likely in September, they said.

As of 11:03 a.m., shares of Hon Hai had added 1.84 percent to hit NT$110.50 (US$3.70) with 41.61 million shares changing hands after the stock rose 3.3 percent a day earlier. The weighted index on the Taiwan Stock Exchange was down 0.06 percent at 9,559.59 points.

"Judging from the June sales, I suspect Apple has started placing orders to Hon Hai in preparation for the launch of the new iPhone later this year," Taishin Securities Investment Advisory analyst Tony Huang said.

"Many investors who picked up Hon Hai shares this morning seemed happy as the company did not feel much of the pinch of the slow season effects in the second quarter and (instead) reported better than expected sales in June," Huang said.

In addition to the orders from Apple, Hon Hai also secured orders from other consumer electronics brands, such as Xiaomi and Huawei in China and Amazon in the U.S. to further boost its June sales, Huang said.

Last month, Hon Hai posted NT$316.99 billion in consolidated sales, the highest level so far this year, up 18.3 percent from a month earlier and also up 4.06 percent from June last year. Huang said he was surprised that Hon Hai's June sales managed to breach the NT$300 billion level.

In the second quarter, Hon Hai's consolidated sales totaled NT$879.40 billion, down 0.46 percent from the first quarter. In the past six months, the company posted NT$1.76 trillion in consolidated sales, up 3.22 percent from a year earlier.

"After Apple unveils its new smartphones later this year, Hon Hai's sales growth momentum could pick up significantly in the second half of the year," Huang said, adding that it is possible for the manufacturer to enjoy a 10-15 percent sequential increase in sales in the third quarter with growth continuing into the fourth quarter.

Huang said Apple accounts for more than 40 percent of Hon Hai's total sales in a slow season, and after the U.S. firm puts up its new products for sale, the weighting in the Taiwanese firm's sales could rise further.

"That's why many foreign institutional investors favor Hon Hai shares on strong prospects for the second half of the year. A recent strong showing of the stock largely reflected solid foreign institutional buying," Huang said.

Since the beginning of this year, foreign institutional investors have bought a net of about 990 million Hon Hai shares. On Thursday, foreign institutional investors served as net buyers of 13.19 million Hon Hai shares.

"Before Hon Hai reports its third quarter sales, an upbeat mood about the company is expected to continue to push up its share price," Huang said.

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