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September 20, 2017

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JP Morgan upbeat on Hon Hai plans

TAIPEI--JP Morgan Securities has raised its price target for Hon Hai Precision Industry Co. (鴻海精密), the world's largest contract electronics maker, to NT$130 (US$4.33) from NT$100 on optimism over Hon Hai's recently unveiled transformation plan.

The plan, announced by Hon Hai Chairman Terry Gou (郭台銘) at the company's annual shareholders' meeting on June 25, aims to transform Hon Hai, known also as the Foxconn Technology Group, from a technology product manufacturer into an integrated technology product and service provider.

"Hon Hai's newly announced transformation plan appears to be a 'catch-all' strategy to us," JP Morgan analyst Gokul Hariharan said in a July 13 research note.

"While the ambition is good, we believe Hon Hai may have to refine its approach as it moves forward with the transformation plan and focus on two to three areas where it can dominate and bring its core strengths into play," he wrote.

The analyst said Hon Hai's traditional strengths in high volume manufacturing, factory automation, global logistics and mechanical components should make electric vehicles (EVs) and robotics "a natural fit."

Hariharan believed that Tesla Motors Inc. could be a key customer for Hon Hai in tapping into the emerging EV market, given that the U.S. electric pioneer aims to move to the US$30,000 price band in the next two years and expects its volume to grow 20 times by 2020.

Robotics and automation are also promising areas for Hon Hai in the longer term despite the limited market size at present, Hariharan said, adding that Hon Hai has started manufacturing service-centric robots such as the "Pepper" with Japanese mobile company SoftBank Corp.

Hariharan was more cautious about Hon Hai's foray into the telecom, broadband and cloud sectors, however, because "strong incumbent players" already exist and because Hon Hai's success in Taiwan is unlikely to provide a springboard for other markets.

With Apple Inc.'s business expected to provide strong sales momentum for Hon Hai in the next three quarters, JP Morgan has raised its estimates for Hon Hai's earnings per share in 2014 by 2 percent to NT$9.15 and in 2015 by 9 percent to NT$10.50.

Hon Hai shares gained 0.91 percent to end at NT$111 in Taipei yesterday.

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