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Macquarie MarQuee Ideas
Tech: Switching ASE for Hon Hai
Switching to Hon Hai and out of ASE
We are switching two names in our technology sector, removing ASE after a
relative outperformance against its peers and adding Hon Hai – an
underperforming name in the sector.
Removing ASE
Since January 2010, ASE has outperformed its close peer SPIL by more than
60% and we are concerned that there is maybe some near-term pressure as
SPIL has narrowed its copper technology gap with ASE. We still like ASE’s
fundamentals and keep its Outperform rating and NT$40 price target but see the
possibility of some short-term share price underperformance.
Adding Hon Hai
Hon Hai is one of the most underperforming names in the Taiwan technology
space in 2010 – indeed, it has underperformed the Taiex by nearly 20% since
January 2010. We believe consensus’ margin expectations are too conservative
and expect the lowered cost structure and improvement of unprofitable business
(NB and TV) to help its margin and EPS growth momentum should turn positive
from 1Q11 onward. With its solid sales momentum and the Street’s lowered
margin expectation, we think the stock should now catch up with its peers. HH
may still face poor results for its 4Q10 and 1Q11 but we believe those are priced
in and suggest investors to look beyond 1Q11
Today, we have also upgraded Hon Hai’s target price to NT$150, giving it 25%
upside potential from yesterday’s close.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Macquarie MarQuee Ideas
Tech: Switching ASE for Hon Hai
Switching to Hon Hai and out of ASE
We are switching two names in our technology sector, removing ASE after a
relative outperformance against its peers and adding Hon Hai – an
underperforming name in the sector.
Removing ASE
Since January 2010, ASE has outperformed its close peer SPIL by more than
60% and we are concerned that there is maybe some near-term pressure as
SPIL has narrowed its copper technology gap with ASE. We still like ASE’s
fundamentals and keep its Outperform rating and NT$40 price target but see the
possibility of some short-term share price underperformance.
Adding Hon Hai
Hon Hai is one of the most underperforming names in the Taiwan technology
space in 2010 – indeed, it has underperformed the Taiex by nearly 20% since
January 2010. We believe consensus’ margin expectations are too conservative
and expect the lowered cost structure and improvement of unprofitable business
(NB and TV) to help its margin and EPS growth momentum should turn positive
from 1Q11 onward. With its solid sales momentum and the Street’s lowered
margin expectation, we think the stock should now catch up with its peers. HH
may still face poor results for its 4Q10 and 1Q11 but we believe those are priced
in and suggest investors to look beyond 1Q11
Today, we have also upgraded Hon Hai’s target price to NT$150, giving it 25%
upside potential from yesterday’s close.
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