Hana Microelectronics

Hana Microelectronics Plc (HANA)

Analyst meeting takeaways: Signs of recovery in 2Q13A. Performance was hit
hard in 1Q13A by the weak PC market, which hurt its PC-related businesses such as
laptop touchpads and computer mouses. The steep decline of 14% YoY to 76mn in
worldwide PC shipments in 1Q13 was followed by a drop of another 11% YoY to 85mn
shipments in 2Q13, according to IDC Research. However, this was partly offset by
growth in the automotive segment and recovery in IC packaging business, bringing a
recovery in core earnings to Bt406mn in 2Q13A from only Bt42mn in 1Q13A.
3Q13F to recover further plus sizable insurance claim. We expect recovery to
continue in 3Q13F from: 1) a partial recovery of the PC market from industry inventory
re-stocking, 2) rising demand for IC packaging from its smart-phone sensor business,
which should pull its Ayutthaya plant into the black in 3Q13F after seven consecutive
quarters of losses after the floods in 4Q11 and 3) 10% baht depreciation in four
months. Management expects to book no less than Bt1.2bn in insurance in 2H13F.
Raise 2013F core earnings 24%. With recovery more rapid than we had anticipated,
we are raising 2013F core earnings by 24% to Bt1.36mn or Bt1.69/share and Bt3.3bn net
profit upon >Bt1bn insurance claims in 2H13F and FX loss. Our 2013F operating margin
is raised to 5% from 3.4% (compared to 6.1% in 2Q13A and 2.6% in 1H13A.)
New plants to support LT growth from 2H14. HANA is building a new plant in
Lamphun (branch II), expecting startup around mid-2014. This will add almost 85% to
current capacity at the Lamphun plant (Branch I). HANA is also building a new plant in
Koh Kong, Cambodia (which is actually closer to Bangkok than Lamphun), expected to
start in Oct 2013, with operational startup in 2Q14.
Attractive dividend yield of 7.6% for 2013F. HANA consistently maintains a very
strong financial status with ~Bt6bn cash on hand as of 2Q13. It is possible that it will
pay an interim DPS on 3Q13 after booking its payment on insurance claims estimated
at ~Bt1.2bn. Apart from this, we look for attractive dividend yield of 7.6% for 2013F
based on our forecast of Bt1.5 DPS.
Upgrade to Buy and mid-2014 TP of Bt24. Our earnings upgrade brings our mid-
2014 TP up to Bt24 from Bt23 based on 11x PE. Looking for 2H13F earnings recovery