Taipei-Some foreign brokerages have raised their target price on shares in iPhone assembler Hon Hai Precision Industry Co. after the world's largest contract electronics maker reported an 80 percent sequential increase in net profit for the third quarter.
In a research note, a securities house based in Hong Kong said the bottom line of Hon Hai, also known as Foxconn on the global market, was partly strengthened in the July-September period by improving the profitability of several of its major subsidiaries, including Hong Kong-listed FIH Mobile Ltd., which rolls out devices for international brands in the non-Apple Inc. camp.
The better operations of its subsidiaries helped Hon Hai report higher profit margins boosting the parent company's net profit in the third quarter, the brokerage said, adding it has hiked its target price on the stock from NT$105 to NT$112 (US$3.67) and left a "buy" rating unchanged.
On Friday, shares of Hon Hai, the second largest listed company in Taiwan in terms of market capitalization, rose 0.90 percent to close at NT$90.10 on the Taiwan Stock Exchange, where the benchmark weighted index ended up 0.66 percent at 11,525.60 points as large cap tech stocks, including Hon Hai, served as a driver to the gains.
At an investor conference held on Wednesday, Hon Hai reported its third quarter results, with net profit for the July-September period at NT$30.66 billion, up 80 percent from NT$17.05 billion in the second quarter. The third quarter figure was also up 23 percent from a year earlier.
The company's earnings per share rose from NT$1.23 in the second quarter to NT$2.21 for the third quarter, while also growing from NT$1.57 in the same period of last year.
In the third quarter, Hon Hai's gross margin -- the difference between revenue and cost of goods sold -- rose from 5.31 percent in the second quarter to 6.01 percent, while its operating margin -- the difference between sales, the cost of goods sold and operating expenses -- stood at 2.41 percent, up from 1.34 percent.
In addition, Hon Hai's net margin -- the difference between its gross profit and total expenses, including interest payments and taxes -- also rose from 1.47 percent in the second quarter to 2.21 percent in the third quarter.
Looking ahead, the Hong Kong brokerage said as Apple is likely to introduce 5G iPhones next year, demand for the gadgets are expected to grow, accordingly, and benefit major suppliers such as Hon Hai in 2020.
The securities house said it has raised its forecasts of Hon Hai's EPS by 2.3 percent and 4 percent, respectively, to NT$9.7 in 2020 and NT$10.17 in 2021.
Embracing a similar upbeat mood, a Japanese brokerage said Hon Hai's Wednesday investor conference strengthened the company's transparency, and such a move is expected to enhance investors' faith in the company and encourage them to hold onto the stock.
The Japanese securities house, which has maintained a "buy" recommendation and a target price of NT$107 on the stock, said an expected significant upgrade of iPhone specifications in 2020 and eased tensions between Washington and Beijing are likely to benefit Hon Hai.
A brokerage from the United States said Hon Hai's efforts in digital technology development are expected to boost sales generated from electric car-related devices, digital medical care and robot operations, while the securities house gave a thumbs-up to the company's efforts at reining in operating costs.
The brokerage, which has raised its target price on Hon Hai shares from NT$86 to NT$95, said it has also hiked its forecast of Hon Hai's EPS by 6 percent, 9 percent and 8 percent, respectively, to NT$8.7 in 2019, NT$8.75 in 2020, and NT$8.81 in 2021.
Source: Focus Taiwan News Channel