Hana Microelectronics

Hana Microelectronics Plc (HANA)
Event
- We reiterate our Outperform recommendation on HANA and lift our TP to Bt33.5
from Bt25.0 to reflect the better outlook for global electronics demand and multiple
supportive factors, including the weakening of the THB, capacity addition and
expected insurance claim payment. On a recurring yield of over 6% while trading at
7.7x 2014E PER adjusted for net cash, HANA remains attractively valued, in our view.
Impact
- Beneficiary of a well-balanced portfolio. 2014 should be a good year for HANA,
given the upturn in global electronics demand, especially in consumer electronics. A
full-year recovery of its IC business – from the impact of the late-2011 floods – could
leverage HANA further during an upturn, as it benefits from better economies of
scales. At the same time, we expect its microelectronics business to grow steadily
given its relatively high exposure in the non-consumer electronics segment, which
has longer product life cycles and can provide a more stable earnings stream.
- Solid management with strong balance sheet. Despite having net cash
equivalent to about 30% of total market capitalization, HANA’s management still
shows a solid track record of delivering strong profitability relative to peers. We
believe this is mainly driven by an ongoing focus on production cost reduction as
HANA essentially positions itself as an outsource production unit of the global OEMs.
- Multiple sweet spots in 2014E. HANA is embarking on a series of capacity
expansions with a m ore than 40% floor space addition over the next 12 months.
Coupled with the weakening of the THB over the past few months, HANA is
positioned to be a prime beneficiary during an upturn cycle in global electronics
demand. Moreover, HANA expects to receive an additional Bt1bn (Bt1.2/sh)
insurance claim for business interruption from the floods, in 1H14. It is likely HANA
will pay the insurance payment as a special dividend, which would bump up the yield
to over 7% in 2014E.
Earnings and target price revision
- We increase our EPS estimate by 31% in 2014 and 16% in 2015, on better IC and
PCBA outlook. TP is raised to Bt33.5 from Bt25.0. Our TP is now rolled over to end-
2014.
Price catalyst
- 12-month price target: Bt33.50 based on a Sum of Parts methodology.
- Catalyst: Increasing yield, tech sector sentiment, tech product life cycle, forex
Action and recommendation
- Maintain Outperform with a new TP of Bt33.5. HANA remains our sector top pick,
trading at 11.2x forward PER in 2014E with over a 7% yield.