Under our tech sector coverage, Venture Corp (VMS) reported earnings which were in-line with our expectations for the recently concluded 2QCY13 results season. However, core PATMI for ECS Holdings missed due to weaker-than-estimated gross margin. Encouragingly, a number of companies which we spoke to highlighted an improvement in sentiment amongst their key customers, which is in-line with the expected uptick in the global economy. However, we maintain NEUTRAL on the tech sector, as we believe that the economic recovery remains fragile. ECS [BUY; FV: S$0.56] is still our preferred pick within the sector given its cheap valuations (FY14F PER of 5.0x and P/NTA of 0.5x).
2QCY13 results roundup
Under our tech sector coverage, Venture Corp (VMS) reported earnings which were in-line with our expectations for the recently concluded 2QCY13 results season. However, core PATMI for ECS Holdings missed due to weaker-than-estimated gross margin. Within the sector, other notable results came from Hi-P International, which recorded a PATMI of S$10.9m (partly boosted by S$3.8m of fair value and forex gains), as compared to a net loss of S$2.1m in 2Q12. In contrast, Elec & Eltek suffered a 64.1% YoY decline in its 2Q13 PATMI to US$4.2m due to rising minimum wages in China and teething production problems at its new Yangzhou plant.
Still a backend loaded year
Encouragingly, a number of companies which we spoke to highlighted an improvement in sentiment amongst their key customers, which is in-line with the expected uptick in the global economy. Companies such as VMS and Hi-P have new programmes which are scheduled to undergo mass production in 2H13, and this should aid their 2H13 operational performance. Despite this positive development, we note that actual sales and subsequent orders will still have to depend on the actual end-user demand, which remains volatile, especially for consumer electronics products.
PC sales outlook still weak as mobile devices dominate
Due to the continued cannibalisation of PCs by mobile devices such as tablets and smartphones, industry watcher IDC now expects 2H13 worldwide PC shipments to decline by 7.0% YoY (previously forecasted a 3.2% dip). On the other hand, sales of tablets and smartphones are estimated to grow at 34.7% and 21.4% in 2013, respectively. This growth is expected to moderate to 18.6% for tablets and 12.6% for smartphones in 2014, which we believe is partly attributed to increasing saturation, especially within the high-end smartphones space.
Maintain NEUTRAL
Despite expectations for a firmer macroeconomic recovery in the second half of the year and 2014, we believe that the global economy remains fragile. Hence we maintain NEUTRAL on the tech sector. ECS [BUY; FV: S$0.56] is still our preferred pick within the sector given its cheap valuations (FY14F PER of 5.0x and P/NTA of 0.5x).
Under our tech sector coverage, Venture Corp (VMS) reported earnings which were in-line with our expectations for the recently concluded 2QCY13 results season. However, core PATMI for ECS Holdings missed due to weaker-than-estimated gross margin. Within the sector, other notable results came from Hi-P International, which recorded a PATMI of S$10.9m (partly boosted by S$3.8m of fair value and forex gains), as compared to a net loss of S$2.1m in 2Q12. In contrast, Elec & Eltek suffered a 64.1% YoY decline in its 2Q13 PATMI to US$4.2m due to rising minimum wages in China and teething production problems at its new Yangzhou plant.
Still a backend loaded year
Encouragingly, a number of companies which we spoke to highlighted an improvement in sentiment amongst their key customers, which is in-line with the expected uptick in the global economy. Companies such as VMS and Hi-P have new programmes which are scheduled to undergo mass production in 2H13, and this should aid their 2H13 operational performance. Despite this positive development, we note that actual sales and subsequent orders will still have to depend on the actual end-user demand, which remains volatile, especially for consumer electronics products.
PC sales outlook still weak as mobile devices dominate
Due to the continued cannibalisation of PCs by mobile devices such as tablets and smartphones, industry watcher IDC now expects 2H13 worldwide PC shipments to decline by 7.0% YoY (previously forecasted a 3.2% dip). On the other hand, sales of tablets and smartphones are estimated to grow at 34.7% and 21.4% in 2013, respectively. This growth is expected to moderate to 18.6% for tablets and 12.6% for smartphones in 2014, which we believe is partly attributed to increasing saturation, especially within the high-end smartphones space.
Maintain NEUTRAL
Despite expectations for a firmer macroeconomic recovery in the second half of the year and 2014, we believe that the global economy remains fragile. Hence we maintain NEUTRAL on the tech sector. ECS [BUY; FV: S$0.56] is still our preferred pick within the sector given its cheap valuations (FY14F PER of 5.0x and P/NTA of 0.5x).
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