20131220-永丰金证券-Taiwan_Market_Weekly_Outlook_17页_432kb

Taiwan Market Weekly Outlook Summary (December 23 - 27, 2013)

Core Content Overview

This document provides a detailed analysis of the Taiwan stock market performance and outlook for the week of December 23–27, 2013. It highlights key sector performances, upcoming corporate events, macroeconomic factors, and investment recommendations for the following week.

Market Performance

• TAIEX closed the week at 8408.53, showing a +0.38% weekly gain and a +9.21% year-to-date (YTD) increase.
• Sector Performances:
  • Best performers: Auto (+2.47% WoW), Textile (+1.46% WoW), and Steel (+1.03% WoW).
  • Worst performers: Plastics (-1.52% WoW), Chemical (-0.26% WoW), and Rubber (+0.01% WoW).
• Currency Trends:
  • TWD remained stable, with a slight depreciation of 0.67% to close at 29.945 on December 19.
  • USD Index and TWD movements are closely monitored, but TWD is expected to stay stable due to strong foreign exchange reserves (US$415bn as of end of November 2013).

Next Week Outlook

• TAIEX Range: Expected to trade between 8,000 and 8,500 points, translating to a forward P/E range of 16.0X–16.9X.
• FED Tapering Impact: Muted reaction is anticipated as the Fed is unlikely to raise rates before 2015, given low unemployment and benign inflation risk.
• Tech Sector:
  • Focus on the China Mobile and Apple iPhone deal, which is expected to be finalized soon. Shipment is anticipated to begin in January 2014, with 1Q14 iPhone shipments projected at 43mn units.
  • Top iPhone Picks: Largan (3008 TT) and Kinsus (3189 TT) are long-term favorites. Flexium (6269 TT), Zhen Ding Technology (4958 TT), and Hon Hai (2317 TT) are short-term potential gainers due to high iPhone 5S exposure.
• Non-Tech Sectors:
  • Policy Shift: China’s decision to allow couples to have two children if either parent is a single child may boost sector sentiment, though a baby boom is unlikely due to economic and social factors.
  • Topbi IPO: Scheduled for December 30, 2013, will focus attention on companies tied to child-related products, particularly Les Enchants (2911 TT) and Tung Ling (2924 TT).

Corporate News Highlights

• Apple & China Mobile: Deal is expected to finalize soon, with iPhone pre-orders starting on some provincial websites. This aligns with improved 1Q14 shipment outlook.
• HTC: Plans to cooperate with China Mobile in 2014, potentially boosting its shipment. However, we remain neutral due to breakeven expectations.
• Innolux: Announced a plan to issue 2 billion new shares for factory expansion and debt repayment. This may dilute earnings, with 2014 EPS estimated at NT$0.20 (down from previous estimate of NT$0.24).
• ASE: Faces controversy over illegal wastewater discharge at K7 facility. Potential profit drag is estimated at 3.3%–8.5% depending on the duration of the shutdown. We remain neutral on re-entering ASE.
• Compal Electronics: Maintains a strong position as an ODM partner for Dell and Lenovo. We maintain a BUY rating with a TP of NT$25.3 (11X 2014F P/E).
• Chunghwa Telecom: Aggressive expansion in 4G, fiber, and property sectors. We maintain a BUY rating with a TP of NT$106.5.

Financial Sector Outlook

• CBC Board Meeting (DEC 26): Expected to be neutral, with no surprise rate hike anticipated due to the Fed's cautious stance on rate increases.
• Life Insurers: Neutral stance in 2014 due to gradual bond yield increases and limited impact on book values.
• Banks:
  • Mega FHC (2886 TT): Maintained BUY with TP of NT$28 (1.4X 2014F P/B) due to high profit potential and dividend yield.
  • E.Sun FHC (2884 TT): Maintained BUY with TP of NT$24 (1.4X 2014F P/B) as an early entrant into cross-strait payment services.
• RMB Reserves: Domestic Business Units (DBUs) have RMB reserves exceeding 100bn RMB, but current benefits to banks are limited due to low lending percentages.

Market Valuation

• TAIEX is expected to trade within a forward P/E range of 16.0X–16.9X, reflecting improved earnings outlook for 2014.
• The market is likely to focus on earnings growth and macroeconomic developments rather than the QE tapering announcement, which has already been priced in.

Key Figures and Forecasts

• US Macroeconomic Reports:
  • Personal Income: +0.4% MoM (forecast).
  • Personal Spending: +0.4% MoM (forecast).
  • Michigan Consumer Sentiment: 83.5 (forecast).
  • Durable Goods Orders: +1.5% MoM (forecast).
  • New Home Sales: 448k (forecast).
• iPhone Shipment Forecast: 43mn units for 1Q14, up from previous expectations of 40mn.
• 4G and Fiber Growth: Expected to offset declining ADSL revenue for Chunghwa Telecom.
• Construction/Property Sector: Neutral stance due to weak buyer sentiment and policy pressure, despite favorable supply and demand dynamics.

Investment Recommendations

• Tech Sector: BUY on Largan (3008 TT), Kinsus (3189 TT), Compal (2324 TT), and maintain NEUTRAL on HTC (2498 TT) and ASE (2311 TT).
• Non-Tech Sector: Neutral on construction/property and positive on companies with exposure to child-related products.
• Financial Sector: BUY on Mega FHC (2886 TT) and E.Sun FHC (2884 TT), NEUTRAL on Cathay FHC (2882 TT) and Fubon FHC (2881 TT).

Conclusion

The Taiwan market is expected to remain stable in the coming week, with a focus on improved earnings outlook and sector-specific developments. Tech and financial sectors are highlighted as key areas for investment, while non-tech sectors face mixed sentiment due to policy and economic factors. The iPhone supply chain and China Mobile's 4G expansion are significant catalysts for growth.