Brokerage cuts target price on Hon Hai shares

Taipei, Nov. 23 (CNA) A European brokerage has cut its target price on shares of Hon Hai Precision Industry Co., an iPhone assembler, citing Apple Inc.’s plans to reduce orders to the Taiwanese supplier amid weaker-than-expected demand for the three latest iPhones.

In a research note on Friday, the European securities house said its decision to cut its target price on Hon Hai also reflected expected continued losses by FIH Mobile Ltd., which is about 70 percent owned by Hon Hai. Amid such unfavorable circumstances, the brokerage said, it has lowered its target price on Hon Hai shares from NT$80 (US$2.58) to NT$76, but kept it “neutral” recommendation on the stock.

Apple’s reduction in orders for its three latest iPhones, in particular the iPhone XR, is expected to affect Hon Hai’s shipments this year and next year, according to the European brokerage.

The market had anticipated that the more affordable iPhone XR would see better sales than the iPhone XS and iPhone XS Max but demand for the cheaper model has been weaker than expected.

As a result, the brokerage said, it has cut its forecast for the number of iPhones assembled by Hon Hai in the fourth quarter of this year from 61 million units to 50.50 million. In its forecast for 2019, the brokerage also lowered the number, from 148 million units to 142 million.

In addition, FIH Mobile, a contract manufacturer for handset brands such as Nokia, is expected to show greater losses this year as its restructuring continues in the wake of its acquisition by Hon Hai in 2016, the brokerage said.

It also lowered its forecast for Hon Hai’s earnings per share by 8.8 percent for 2018 to NT$7.8, and by 8.2 percent for 2019 to NT$8.39, compared with NT$8.01 in 2017.

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.

Earlier this month, FIH Mobile, which is listed in Hong Kong, issued a profit warning, saying its net loss for 2018 is likely to exceed the US$525.39 million recorded last year. The company reported US$575.25 million in net loss for the first nine months of 2018.

On Friday, shares of Hon Hai rose 0.72 percent to close at NT$70.00 on the Taiwan Stock Exchange, with 22.35 million shares changing hands, after the company said the previous day that it planned to increase its budget for research and development but was reviewing other areas of spending with a view to cutting costs in 2019.