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UBS Investment Research
Asia Tech
Alpha Preferences
Removing Mediatek from our Least Preferred List
We remove Mediatek from our Least Preferred List. Jonah Cheng believes MTK’s
share price could see some strength in the next one to two months as revenue
momentum improves slightly in March and April. However, our long-term
concerns remain unchanged given low profitability and a lack of new product
cycles, and Jonah retains a Sell rating.
Removing Realtek from our Most Preferred List
We remove Realtek from our Most Preferred List on the back of PC demand still
being on the weaker side. Risks include ASP erosion due to competition and on a
YoY basis currency, and subsequent impact on gross margins. On the other hand
Realtek will likely continue to gain market share in WiFi and combined
WiFi/Ethernet/ADSL solutions. Jonah Cheng rates Realtek Buy.
Remain cautious on Asia Tech; affirm O/W Wireless, LCD and Memory
We keep a positive bias towards Wireless, LCD and Memory. We recommend
investors to selectively buy share-gainers, particularly on weakness, and avoid high
multiple stocks for now.
Least Preferred
HCL Technologies (HCLT.BO)
Sell
For HCL margins remains disappointing. Despite inline revenue growth in 2FQ11 (backed by
IT services vol. growth of 6.7% QoQ), EBITDA margin remained at 16.3% lower than
expectation, 2FQ11 IT services (72% of revs.) EBITDA margin declined 40bp QoQ. Also,
attrition remained relatively high with the segment losing 2,055 employees during the quarter.
Gross addition of employees declined to the lowest in the past four quarters, vs. INFY and
TCS where it remained relatively firm. We believe this implies 3FQ11 volume growth could
be slower than 2FQ11.
HCL currently trading at 18% PE discount to Infosys, lower than 25% average over the past
three years. We expect this to widen due to growing margin differential between HCL and
INFY/TCS, without revenue growth outperformance.
— Valuation: We derive our price target of Rs425 from a DCF-based methodology and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool.
— Risk: A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia Tech
Alpha Preferences
Removing Mediatek from our Least Preferred List
We remove Mediatek from our Least Preferred List. Jonah Cheng believes MTK’s
share price could see some strength in the next one to two months as revenue
momentum improves slightly in March and April. However, our long-term
concerns remain unchanged given low profitability and a lack of new product
cycles, and Jonah retains a Sell rating.
Removing Realtek from our Most Preferred List
We remove Realtek from our Most Preferred List on the back of PC demand still
being on the weaker side. Risks include ASP erosion due to competition and on a
YoY basis currency, and subsequent impact on gross margins. On the other hand
Realtek will likely continue to gain market share in WiFi and combined
WiFi/Ethernet/ADSL solutions. Jonah Cheng rates Realtek Buy.
Remain cautious on Asia Tech; affirm O/W Wireless, LCD and Memory
We keep a positive bias towards Wireless, LCD and Memory. We recommend
investors to selectively buy share-gainers, particularly on weakness, and avoid high
multiple stocks for now.
Least Preferred
HCL Technologies (HCLT.BO)
Sell
For HCL margins remains disappointing. Despite inline revenue growth in 2FQ11 (backed by
IT services vol. growth of 6.7% QoQ), EBITDA margin remained at 16.3% lower than
expectation, 2FQ11 IT services (72% of revs.) EBITDA margin declined 40bp QoQ. Also,
attrition remained relatively high with the segment losing 2,055 employees during the quarter.
Gross addition of employees declined to the lowest in the past four quarters, vs. INFY and
TCS where it remained relatively firm. We believe this implies 3FQ11 volume growth could
be slower than 2FQ11.
HCL currently trading at 18% PE discount to Infosys, lower than 25% average over the past
three years. We expect this to widen due to growing margin differential between HCL and
INFY/TCS, without revenue growth outperformance.
— Valuation: We derive our price target of Rs425 from a DCF-based methodology and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool.
— Risk: A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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