• Another lacklustre quarter of results
• Weak visibility and uncertain outlook
• Venture still our top pick
3QCY12 results marred by weak macro landscape
Companies within the tech sector continued to deliver drab results during the recently concluded 3QCY12 reporting season due to the lacklustre macroeconomic environment. Under our coverage, ECS Holdings (ECS) and Venture Corporation (Venture) reported revenue which met our expectations, while the rest fell short. On the basis of PATMI, ECS and Valuetronics Holdings (VHL) beat our estimates, while Venture and Micro- Mechanics Holdings (MMH) came in below. Besides increasing cost pressures, a new risk also emerged in 3QCY12, which was the rising political tension between China and Japan. This has adversely impacted several Japanese companies and correspondingly their suppliers. Examples of affected SGXlisted companies include Amtek Engineering and InnoTek. The former experienced a delay in orders from some of its Japanese customers due to disruptions at their factories in China.
Tepid guidance by bellwether U.S. tech companies
The outlook provided by bellwether U.S. tech companies has largely painted a tepid picture, especially in the
PC segment. For instance, Dell expects continued macro headwinds to impact its 4QCY12 results, as its enterprise customers are still deferring spending on technology. Intel Corp also said that its corporate customers are displaying caution in their orders, while there is sluggish demand on PCs from consumers in developed markets. The earnings visibility of SGX-listed tech companies has thus also been adversely affected by the weak macro conditions.
Maintain NEUTRAL
Although there are some positives emanating from recent economic data from U.S. (such as better-than-expected housing starts in Oct), we believe that there are still significant uncertainties and downside risks for us to turn more positive on the broader sector at this juncture. Hence we advocate investors who are seeking cyclical exposure to be selective on stocks within the tech sector. We maintain our NEUTRAL stance on the sector, with Venture [BUY; FV: S$9.22] remaining as our top pick. We believe that FY13 would be a turnaround year for the group, given expected new programme launches from new and existing customers. We also like its strong balance sheet and sustainable FY12F dividend yield of 7.2%, supported by its healthy free cashflows generating ability.
No comments:
Post a Comment