[FIDES ASSETS: HANA MICROELECTRONICS – SET)
7th June 2019
Action: SELL/SHORT for HANA MICROELECTRONICS (HANA-R.BK) listed on SET)
Hana Microelectronics Public Company Limited (HANA), together with its subsidiaries, manufactures and trades in electronic components. It offers printed circuit board assemblies and integrated circuits. The company also provides agent and customer services. It has operations in Thailand, Malaysia, China, Taiwan, the United States, Hong Kong, and internationally. The company was founded in 1978 and is headquartered in Bangkok, Thailand (as per Bloomberg). Hana Microelectronics has an existing market capital USD$642m (close approx.). As of today, the 52-week high is at THB41.25, and 52-week low of THB24.10. The current share price is THB25.10.
Target Price: THB21.90
Upside: -12.75% (close approx.)
In the past one-month, the Company’s stock underwent a price correction of 23%. We are pessimistic about HANA despite an analyst meeting as it is evident that concerns have formed pertaining to delayed orders as parties awaits a more-concrete progress in the US-China trade war negotiations. Furthermore, it is foreseeable that sales will be weaker for 2019, which mainly pressured by weaker demands of computers and smartphone components, given the reported slowdown in smartphone sales.
World-Wide Semiconductors Sales
According to the Semiconductor Industry Association (SIA), semiconductor sales continues to drop by 15% year-on-year in April 2019 worldwide, with sales dropping across all major regional markets and semiconductor components categories. This is reflected as a 11% decrease year-on-year just four months into 2019, which is essentially caused by good sales records in 2018 and a fragile macro backdrop. It is therefore evident that the industry has entered into a down-cycle with clear signs of sales-slowdown which mainly impaired by the US-China trade war (20%-25% of HANA manufacturing plants are based in China), compounding the already decreasing electronics demand. The SIA also forecasts that worldwide semiconductor sales will decline 12% year-on-year to USD$412b in 2019, suggesting a negative outlook for the industry for the rest of the year. It is important to note that semiconductor sales is a significant indicator for HANA as it constitutes almost 90% of of HANA’s total sales, if not more.
In the last five years, HANA shareholders have enjoyed dividend yields of 5%-7%. However, as the near-term outlook is uncertain, it can be reasonably implied that dividends payments will rely on upcoming business situations. It is highly foreseeable that dividend payments will be decreased as compared to past years. With the reported numbers, HANA’s first quarter 2019 results in a net profit decrease of 48% year-on-year. As such, we foresee that the decrease for net profit for second-quarter 2019 to be within the range of 40%-50%.
Fides Assets’ Recommendation
Hence, as we factor in lower gross margin assumptions and slower-than-expected electronics demand, we recommend a SELL/SHORT given the negative outlook. Furthermore, there is no evidence of near-term catalysts that is likely to cushion against all of the above-mentioned downside risks.
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*** This report is neither an offer nor the solicitation of an offer to sell or purchase any investment. Comments are based on information obtained from sources believed to be reliable but Fides Assets makes no representation and accepts no responsibility or liability as to its completeness or accuracy.