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UBS Investment Research
Asia Tech
Alpha Preferences
�� Least Preferred: Removing Siliconware
We are removing SPIL from our least preferred list as we upgrade to Neutral under
the turnaround story and think its share price might perform well in the near term.
However, we do not recommend chasing the stock as it is not attractive at current
levels (2.0x P/BV with 9.2% ROE). The share price has risen 13% YTD and has
already partially reflected the good news; so further upside should be limited, in
our view.
�� Least Preferred: Adding HCL Tech
We are adding HCL Technologies to our least preferred list. We expect HCL's PE
trading premium to peers will widen due to the growing margin differential
between HCL and Infosys/TCS, without a significantly large revenue growth
outperformance. We believe Q311 volume growth for HCL Tech could be slower
than Q2's. This could imply higher lateral hiring to service volume growth
(utilisation up by 1% to 75% in Q2). We maintain Sell rating with PT of Rs385.
�� Neutral view on Asia Tech
In Most Preferred: Catcher, Lenovo, LG Display, Novatek Micro and Realtek. In
Least Preferred: ASM Pacific, HCL Tech, LG Innotek, Mediatek, and Quanta.
We believe Q3 volume growth for HCL Tech could be slower than Q2’s. This could also
imply higher lateral hiring to service volume growth (utilisation up by 1% to 75% in Q2).
HCL Tech is currently trading at a PE discount to Infosys (Mar 12), lower than the 25%
average over the past three years. We expect this to widen due to the growing margin
differential between HCL and Infosys/TCS, without a significantly large revenue growth
outperformance.
— Valuation: We have a DCF-based price target of Rs385.
— 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
�� Least Preferred: Removing Siliconware
We are removing SPIL from our least preferred list as we upgrade to Neutral under
the turnaround story and think its share price might perform well in the near term.
However, we do not recommend chasing the stock as it is not attractive at current
levels (2.0x P/BV with 9.2% ROE). The share price has risen 13% YTD and has
already partially reflected the good news; so further upside should be limited, in
our view.
�� Least Preferred: Adding HCL Tech
We are adding HCL Technologies to our least preferred list. We expect HCL's PE
trading premium to peers will widen due to the growing margin differential
between HCL and Infosys/TCS, without a significantly large revenue growth
outperformance. We believe Q311 volume growth for HCL Tech could be slower
than Q2's. This could imply higher lateral hiring to service volume growth
(utilisation up by 1% to 75% in Q2). We maintain Sell rating with PT of Rs385.
�� Neutral view on Asia Tech
In Most Preferred: Catcher, Lenovo, LG Display, Novatek Micro and Realtek. In
Least Preferred: ASM Pacific, HCL Tech, LG Innotek, Mediatek, and Quanta.
We believe Q3 volume growth for HCL Tech could be slower than Q2’s. This could also
imply higher lateral hiring to service volume growth (utilisation up by 1% to 75% in Q2).
HCL Tech is currently trading at a PE discount to Infosys (Mar 12), lower than the 25%
average over the past three years. We expect this to widen due to the growing margin
differential between HCL and Infosys/TCS, without a significantly large revenue growth
outperformance.
— Valuation: We have a DCF-based price target of Rs385.
— Risk: A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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