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UBS Investment Research
Asia Tech Strategy
Treacherous path near term
Momentum waning for Asia Tech after another decent month for perf.
Asia Tech has continued to decently perform in January, about 2% ahead of the
broader markets, although less so ahead of CNY. 4Q10 earnings however have
been mixed. And although on average ‘11E consensus EPS has gone up 6% over
the past four weeks (UBSe remaining 8% below this), we would argue stocks have
been ahead of this, with the sector trading at 15.5x ‘11E EPS. We remain neutral
on Asia Tech, and continue to call for a likely near term correction.
Some reasons for concerns
We note out of the 4Q10 results season so far some reasons for concern. For nonmemory
semis, (1) an increase in inventory days almost across the board; (2)
capital intensity ticking up materially for the first time since 2006 (14.4% for
Logic+Analog in ‘11E). On the hardware side, we note largely in-line guidance so
far, not indicative of top line being materially better than expected beforehand.
Upgrading Memory Semis, downgrading PC Hardware and IT Services
Our revised forecasts on DRAM industry supply, with Powerchip possibly moving
one fab out of the sector (c. 3% of industry supply), leave us reinforced in our view
that DRAM prices are troughing. Valuation is supportive for PC Hardware stocks
(11.8x ‘11E PE), but we see little upside to demand near term and few catalysts.
Valuation for IT Services (19.7x ‘11E PE) is unsupportive at this juncture.
Pick up share gainers on weakness; avoid high multiple stocks
Most Preferred: We add Samsung Electronics to Catcher, Lenovo, LGD and
Realtek, and remove Novatek. Least Prefs: ASMPT, Mediatek, Quanta,
LG Innotek and HCL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia Tech Strategy
Treacherous path near term
Momentum waning for Asia Tech after another decent month for perf.
Asia Tech has continued to decently perform in January, about 2% ahead of the
broader markets, although less so ahead of CNY. 4Q10 earnings however have
been mixed. And although on average ‘11E consensus EPS has gone up 6% over
the past four weeks (UBSe remaining 8% below this), we would argue stocks have
been ahead of this, with the sector trading at 15.5x ‘11E EPS. We remain neutral
on Asia Tech, and continue to call for a likely near term correction.
Some reasons for concerns
We note out of the 4Q10 results season so far some reasons for concern. For nonmemory
semis, (1) an increase in inventory days almost across the board; (2)
capital intensity ticking up materially for the first time since 2006 (14.4% for
Logic+Analog in ‘11E). On the hardware side, we note largely in-line guidance so
far, not indicative of top line being materially better than expected beforehand.
Upgrading Memory Semis, downgrading PC Hardware and IT Services
Our revised forecasts on DRAM industry supply, with Powerchip possibly moving
one fab out of the sector (c. 3% of industry supply), leave us reinforced in our view
that DRAM prices are troughing. Valuation is supportive for PC Hardware stocks
(11.8x ‘11E PE), but we see little upside to demand near term and few catalysts.
Valuation for IT Services (19.7x ‘11E PE) is unsupportive at this juncture.
Pick up share gainers on weakness; avoid high multiple stocks
Most Preferred: We add Samsung Electronics to Catcher, Lenovo, LGD and
Realtek, and remove Novatek. Least Prefs: ASMPT, Mediatek, Quanta,
LG Innotek and HCL.
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