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UBS Investment Research
Asia Tech Strategy
W here to go in current market turbulence
Relative performance of Tech to Asia markets could stabilise
Being early cyclical, Asia Tech has sharply corrected over the past week, down
15% from its most recent peak in April ’11 and 8% vs. Asia MSCI. The markets
have started toying with the possibility of an outright downturn. We are still more
of the view that this is a cyclical correction, which we called back in January. Near
term absolute downside could prevail but relatively, we affirm our Neutral view.
How to think about 2012 forecasts risks in light of macro uncertainty
We now forecast ‘12E mobile phone units to grow 6.1% and constant ccy US$ revs
+5.9% - both fairly conservative. For PCs, we forecast 10.1% YoY unit growth /
9% revs. growth; macro risks could present downside, but the ‘11E base is also
fairly undemanding. We forecast 5% YoY semis revs growth, implying a trough of
YoY growth in 1Q12 and utilisation rates likely troughing in 4Q11 or 1Q12..
Upgrading Foundries to Overweight; adding TSMC to Most Preferred
So far this year, we stayed away from the sector as company/Street expectations
were not in sync with cyclical risks. Post TSMC/UMC cautious guidance, this is
less the case. We do not expect a strong 4Q recovery (we believe TSMC revs. will
likely be flat QoQ), but we believe that the broader non-memory semis inventory
correction may end by early 4Q. At 2.52x ‘12E Book TSMC is now trading below
historic av. (3.09x) in spite of stronger longer term fundamentals ahead. .
ZTE added to Most Prefs., Lenovo removed; Compal added to least Prefs.
We also add ZTE to Most Preferred following recent correction. We remove
Lenovo from our Most Preferred list post relative outperformance. We add Compal
to Least Preferred on near term risks.
Most Preferred
Added: TSMC
We add TSMC to most preferred list as Q3 lower outlook already priced in and
if as company expects Q4 momentum better than Q3, then further downside
risks for stock is limited, and we believe recent price correction is a good entry
point. However, under current visibility we expect TSMC to show flat QoQ into
Q4. Also with stock currently trading at 2.52x '12E book value vs. average of
3.09x hence reflecting some degree of cyclical correction.
Added: ZTE
We also add ZTE to our most preferred list, as we believe recent correction now
overdone and correctly reflect concerns on margin erosion. Also, market was too
optimistic on the domestic capex at the year beginning while we maintain
cautious stand (the YTD performance proved we are right) but now the market
turns the opposite way and being too pessimistic - this is also overdone in our
view. According to our checks, domestic capex growth so far remains well on
track.
Removed: Lenovo
We remove Lenonvo from Most preferred list on the back of strong recent
performance, stock has outperformed broader market by 16% in last 3 months.
Also on Valuation stock now at 13x '12E PE vs. group trading at 10.4x.
However, UBS analyst Arthur Hsieh have Buy rating on the stock.
Least Preferred
Added: Compal Electronics
We add Compal Electronics to our least preferred list, as we expect a slow Q3
dragged by Acer (largest customer) and downside to consensus earnings
expectation for 2011E. We expect 10% QoQ Q3 revenue growth for Compal on
5% QoQ NB shipments growth as Compal’s NB shipment to its largest customer
Acer could be flat to down QoQ, while there’s limited contribution from non-
NB businesses. LCD TV business outlook remains intact, however, lingering
weak TV demand and intense competition we expect moderating growth for
Compal's LCD TV business. The recent share strength in past most is attributed
to pre ex-dividend buying and as stock as gone ex-dividend on 4th Aug. we
expect share price to pull back on profit taking and expected uncertainties ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia Tech Strategy
W here to go in current market turbulence
Relative performance of Tech to Asia markets could stabilise
Being early cyclical, Asia Tech has sharply corrected over the past week, down
15% from its most recent peak in April ’11 and 8% vs. Asia MSCI. The markets
have started toying with the possibility of an outright downturn. We are still more
of the view that this is a cyclical correction, which we called back in January. Near
term absolute downside could prevail but relatively, we affirm our Neutral view.
How to think about 2012 forecasts risks in light of macro uncertainty
We now forecast ‘12E mobile phone units to grow 6.1% and constant ccy US$ revs
+5.9% - both fairly conservative. For PCs, we forecast 10.1% YoY unit growth /
9% revs. growth; macro risks could present downside, but the ‘11E base is also
fairly undemanding. We forecast 5% YoY semis revs growth, implying a trough of
YoY growth in 1Q12 and utilisation rates likely troughing in 4Q11 or 1Q12..
Upgrading Foundries to Overweight; adding TSMC to Most Preferred
So far this year, we stayed away from the sector as company/Street expectations
were not in sync with cyclical risks. Post TSMC/UMC cautious guidance, this is
less the case. We do not expect a strong 4Q recovery (we believe TSMC revs. will
likely be flat QoQ), but we believe that the broader non-memory semis inventory
correction may end by early 4Q. At 2.52x ‘12E Book TSMC is now trading below
historic av. (3.09x) in spite of stronger longer term fundamentals ahead. .
ZTE added to Most Prefs., Lenovo removed; Compal added to least Prefs.
We also add ZTE to Most Preferred following recent correction. We remove
Lenovo from our Most Preferred list post relative outperformance. We add Compal
to Least Preferred on near term risks.
Most Preferred
Added: TSMC
We add TSMC to most preferred list as Q3 lower outlook already priced in and
if as company expects Q4 momentum better than Q3, then further downside
risks for stock is limited, and we believe recent price correction is a good entry
point. However, under current visibility we expect TSMC to show flat QoQ into
Q4. Also with stock currently trading at 2.52x '12E book value vs. average of
3.09x hence reflecting some degree of cyclical correction.
Added: ZTE
We also add ZTE to our most preferred list, as we believe recent correction now
overdone and correctly reflect concerns on margin erosion. Also, market was too
optimistic on the domestic capex at the year beginning while we maintain
cautious stand (the YTD performance proved we are right) but now the market
turns the opposite way and being too pessimistic - this is also overdone in our
view. According to our checks, domestic capex growth so far remains well on
track.
Removed: Lenovo
We remove Lenonvo from Most preferred list on the back of strong recent
performance, stock has outperformed broader market by 16% in last 3 months.
Also on Valuation stock now at 13x '12E PE vs. group trading at 10.4x.
However, UBS analyst Arthur Hsieh have Buy rating on the stock.
Least Preferred
Added: Compal Electronics
We add Compal Electronics to our least preferred list, as we expect a slow Q3
dragged by Acer (largest customer) and downside to consensus earnings
expectation for 2011E. We expect 10% QoQ Q3 revenue growth for Compal on
5% QoQ NB shipments growth as Compal’s NB shipment to its largest customer
Acer could be flat to down QoQ, while there’s limited contribution from non-
NB businesses. LCD TV business outlook remains intact, however, lingering
weak TV demand and intense competition we expect moderating growth for
Compal's LCD TV business. The recent share strength in past most is attributed
to pre ex-dividend buying and as stock as gone ex-dividend on 4th Aug. we
expect share price to pull back on profit taking and expected uncertainties ahead.
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