Brokerage cuts target price on Hon Hai shares due to iPhone X worries

Taipei-A Japan-based brokerage has cut its target price on iPhone assembler Hon Hai Precision Industry Co., citing worry over the company's bottom line due to weaker-than-expected demand for the premium iPhone X.

In a research note released earlier this week, the Japanese brokerage said that after visits to several Apple suppliers, it had determined that the U.S. electronics giant had cut orders to those companies by 15-25 percent for the first quarter of this year due to disappointing demand for the 5.8-inch iPhone X, which went on sale globally in early November.

Hon Hai, which is believed to be the sole assembler of the iPhone X, is one of those suppliers, the Japanese brokerage said, cutting its target price on Hon Hai shares from NT$108 to NT$95.00 (US$3.22), while maintaining a "hold" rating on the stock.

On Friday, shares of Hon Hai rose 0.43 percent to close at NT$93.00 on the local main board as late session buying helped the stock recover from an early low of NT$91.60.

The stock had faced downward pressure in recent sessions as worry over iPhone X sales weighed on its share price.

While the weighted index on the main board gained 2.23 percent in the first four sessions of the year, Hon Hai shares fell 2.31 percent.

The Japanese brokerage said iPhone X shipments for the first quarter of the year are expected to total about 31 million units, falling short of an earlier market estimate of 35 million to 40 million units.

Attributing the slower-than-expected demand to high selling prices, the brokerage said consumers in major markets such as the United States, the United Kingdom, Hong Kong, Singapore, Japan and China can obtain an iPhone X within two days of placing their orders.

It forecast that all iPhone shipments for the January-March period will fall by a quarterly 31 percent to about 56.60 million units, far short of an earlier market estimate of 65 million to 70 million units.

Nonetheless, shipments of 56.60 million units will represent an 11 percent increase from a year earlier, said the brokerage, which CNA cannot identify because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price forecasts for specific stocks.

Hon Hai's operating margin, the difference between sales and the cost of goods sold and operating expenses, is expected to stand at 3.5 percent in the first quarter, down from 3.7 percent from a year earlier.

The Japanese brokerage's estimate is also lower than an earlier market forecast of 3.7 percent to 4.5 percent.

Apple is expected to report its 2017 fourth-quarter results at an investor conference on Feb. 2.

Source: Focus Taiwan News Channel