Hon Hai shares hit by Q1 results

Taipei, Shares of Taiwan-based Hon Hai Precision Industry Co. were hit hard Tuesday morning after the world's largest electronics contract manufacturer reported a more than 66 percent sequential decline in its first quarter net profit, dealers said.

The selling also reflected a decline in Hon Hai's gross margin, operating margin and net margin in the first quarter from the same period a year earlier, they said.

As of 11:02 a.m., shares of Hon Hai had fallen 2.13 percent to NT$87.10 (US$2.92) with 42.75 million shares changing hands on the Taiwan Stock Exchange (TWSE), where the weighted index was down 0.19 percent at 10,931.09.

The stock opened unchanged from a session earlier but selling quickly set in as investors reacted to the company's first quarter results released on Monday evening, dealers said.

"After yesterday's significant gains caused by Hon Hai's capital reduction plan, investors today simply seized on the first quarter results to lock in profits from a day earlier," Xincheng International Investment Consultant analyst Chang Chih-cheng said.

Hon Hai shares soared 4.71 percent on Monday after the company announced a plan on Friday to cut its paid-in capital by about 20 percent in a bid to boost its earnings per share (EPS) and return on equity.

"In addition, Hon Hai was also hit by a higher Taiwan dollar in the quarter, which hurt its profitability," Chang said.

In a statement Monday, Hon Hai said its net profit fell 66.4 percent in the first quarter from the previous quarter to NT$24.08 billion because of the traditionally slow first quarter.

EPS fell to NT$1.39, down from NT$4.14 a quarter earlier.

First quarter net profit also was down 14.51 percent from the same period of 2017, when its EPS was NT$1.63, in part because of the strength of the Taiwan dollar this year.

Hon Hai's gross margin -- the difference between revenue and cost of goods sold -- fell to 6.19 percent in the first quarter from 7.36 percent a year earlier, while its operating margin -- the difference between sales and the cost of goods sold plus operating expenses -- dropped by 1.34 percentage points from a year earlier to 2.40 percent.

Its net margin -- the difference between its gross profit and total expenses, including interest payments -- also fell to 2.34 percent in the first quarter from 2.89 percent a year earlier.

Hon Hai said the year-on-year fall in gross margin largely resulted from the U.S. dollar falling to around NT$29.4 against the Taiwan dollar from NT$31.5 a year earlier, causing foreign exchange losses. But the company did not disclose figures for the losses.

According to Hon Hai, while the company posted about NT$5.2 billion in profit from non-core businesses, an increase in research and development spending to support the unveiling of new products by its clients still eroded its first quarter bottom line.

"Despite today's pullback in its share price, the stock is expected to return to a growth pattern as investors have high hopes for its capital reduction plan," Cheng said. "I think the stock is likely to find technical support."

"Moreover, foreign institutional investors have resumed their buying in Hon Hai, a positive sign for the stock," Cheng added.

According to the TWSE, foreign institutional investors bought a net 32.77 million Hon Hai shares Monday, the largest net buy among all of the stocks on the exchange.

Source: Focus Taiwan News Channel