Brokerage backs Hon Hai shares on profit optimism

Taipei-A U.S. brokerage is recommending investors to buy shares of iPhone assembler Hon Hai Precision Industry Co., arguing that solid sales of the iPhone 11 series that went on sale globally in September will boost the company's profits.

An improving bottom line for Hong Kong-listed subsidiary FIH Mobile Ltd., which reported a much smaller net loss in the first three quarters this year than last year, should also benefit the parent company, the brokerage said in a research note.

The U.S. securities house said it has maintained its "overweight" recommendation on Hon Hai shares and left a target price of NT$100 (US$3.28) unchanged over optimism on Hon Hai's profitability.

On Friday, Hon Hai shares rose 5.21 percent to close at NT$84.80, with 123.14 million shares changing hands. The gains help push the broader market's benchmark index 0.36 percent higher to 11,399.53.

Beyond the good start to iPhone 11 sales, the brokerage said, the arrival of the peak fourth quarter consumers electronics season should further boost sales of the phones, sending shipments from Hon Hai's Zhengzhou and Shenzhen plants higher.

Apple will ship 20 million to 25 million units of the iPhone 11 series by the end of 2019, accounting for about 50 percent of its total iPhone shipments this year, the market has estimated.

Apple makes up about 40 percent of Hon Hai's total sales.

Meanwhile, the brokerage said FIH Mobile, in which Hon Hai has a 62 percent stake, will see its net loss for 2019 fall sharply from its net loss of US$857 million in 2018 largely because of adjustments to its product portfolio and reduced foreign exchange losses.

In the first three quarters, FIH Mobile, which makes products for non-Apple brands such as Xiaomi, OPPO and Huawei Technologies from its production base in China, had a net loss of US$65 million, down from a net loss of US$575 million over the same period last year.

The brokerage said Hon Hai remains one of its top tech picks in Asia.

Foreign institutional investors have concurred, buying a net 47.99 million Hon Hai shares in the last 15 trading sessions through Friday, and the stock gained 13.8 percent during that time.

Hon Hai will hold an investor conference on Nov. 13 to detail its third quarter results and give guidance for the fourth quarter.

CNA cannot identify the brokerage because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price-moving forecasts for specific stocks or the wider market.

Source: Focus Taiwan News Channel