U.S. brokerage raises target price on MediaTek shares

Taipei--A U.S.-based brokerage has raised its target price on shares of integrated circuit designer MediaTek Inc. (???), citing a decline in smartphone chip inventories and a recovery of smartphone demand in emerging markets.

In a research note, the brokerage also said that MediaTek is expected to benefit from its relatively low valuation caused by a disappointingly small gross margin in the first quarter of the year.

Amid hopes that MediaTek will make a comeback after a slow first quarter, the brokerage has raised its target price on the stock from NT$215 to NT$250 (US$8.28) and upgraded its recommendation from "neutral" to "outperform."

On Friday, MediaTek shares rose 0.44 percent to close at NT$229.50 on the Taiwan Stock Exchange, outperforming the broader market on the back of bargain hunting. The weighted index ended down 0.06 percent at 10,101.95 points as select heavyweights such as MediaTek lent support.

The U.S. brokerage said that global inventories of the smartphone chips in which MediaTek specializes have been dropping since the third quarter of last year and are expected to level off soon.

This indicates that market conditions have become more stable and healthy, said the foreign brokerage, which under Taiwan regulations cannot be named in the local media because it is giving price forecasts for a specific stock.

The brokerage said that due to efforts by smartphone brands to use up their inventories, demand for smartphone chips is likely to pick up in the third quarter, which will benefit MediaTek as about 45-50 percent of its first-quarter sales were from smartphone and tablet chips.

MediaTek had been lagging behind the main board, in particular after the IC designer reported disappointing earnings for the first quarter, usually a slow season in the global IC industry.

In the January-March period, MediaTek's gross margin fell to a new low of 2.2 percent from 5.8 percent the previous quarter.

Its consolidated sales for the three-month period also dropped, slipping 18.3 percent from the previous quarter and 0.3 percent from a year earlier to NT$56.08 billion, amid escalating price competition in the high-end smartphone chip market, largely from Qualcomm Inc.

However, MediaTek's low valuation offered good buying opportunities for investors, the brokerage said.

MediaTek is likely to adjust its product portfolio, focusing more on low and mid-range smartphone chips, which could help secure orders from Chinese smartphone brands such as OPPO and Vive in the fourth quarter of the year, the brokerage said.

Source: Focus Taiwan News Channel