20151022-Maybank_KERPL-Headwinds_persist__D_G_to_SELL_12页_482kb

MediaTek (2454 TT) Summary

Core Content

MediaTek (MTK) is a key player in the semiconductor industry, primarily focused on smartphone and tablet chips. The company has faced challenges in maintaining its market position and profitability due to intense competition and a shrinking merchant market. Despite some positive short-term performance, the long-term outlook remains uncertain due to the lack of new product drivers post-smartphone era.

Main Points

• Current Stock Performance:

  • Share Price: TWD264.50
  • Target Price: TWD210.00 (-21%)
  • Market Capitalization: TWD415.4B
  • Free Float: 83.1%
  • Major Shareholders: OppenheimerFunds (3.5%), LEE CHUI HSING (3.0%), The Vanguard Group (2.8%)

• Financial Metrics:

  • Market Cap (USD): USD12.8B
  • ADTV (USD): USD89M
  • EPS (2015/16/17F): TWD17.0, TWD14.0, TWD16.0 (7%/29%/26% below consensus)
  • Core P/E (2016F): 15.4x
  • Net Dividend Yield (2015/16/17F): 5.1%, 4.2%, 4.9%
  • ROAE (2015/16/17F): 11.1%, 9.2%, 10.5%
  • ROAA (2015/16/17F): 7.7%, 6.2%, 6.9%

• Recent Performance:

  • 3Q15 Sales: TWD57.0b (+21% QoQ, -1% YoY), beat guidance due to favorable FX
  • 3Q15 EPS: TWD4.96 (+23% QoQ, -41% YoY), in line with consensus
  • 4Q15 Outlook: Expected to be below consensus, with sales at TWD47.5b (-17% QoQ, -14% YoY), GM at 42.3%, EPS at TWD3.42 (-31% QoQ, -48% YoY)

• Downgrade and Outlook:

  • Rating: Downgraded from HOLD to SELL
  • Reason: Continued weak demand in emerging markets, no easing of competition, and limited impact from recent acquisitions
  • QFII Holdings: Remain high at 60%+, potentially leading to selling pressure if performance continues to be weak

Key Information

• Competition: QCOM is aggressively pricing mid-end chips, SPRD is focusing on market share, and Intel may enter the market with new LTE SoCs in 2016.
• High-End Market: Estimated TAM is about 450m units, but MTK's actual addressable market is smaller due to competition from captive APs and QCOM.
• Recent Acquisitions:
  • Ilitek (3598 TT): Small panel driver IC supplier, limited impact due to panel/module supply chain not being MTK's strength
  • Richtek (6286 TT): Potential product synergy, but MTK already has in-house PWM ICs, so synergy is marginal
• Earnings Model:
  • EPS Forecast: TWD17.0, TWD14.0, TWD16.0 for FY15, FY16, FY17
  • Margin Trends: Gross margin is expected to trend lower, with OPM and Net margin also under pressure
• Share Price Performance:
  • 1Mth: +0.4%
  • 3Mth: -25.9%
  • 12Mth: -37.0%
  • Relative to Index: -3.1%, -22.5%, -36.7%
• Stock Price and QFII Holdings:
  • The stock price has bounced 15% due to strong 3Q15 sales
  • QFII holdings remain high at 60%+, which may decline if earnings continue to be weak

Key Tables and Figures

• Revenue and EBITDA (FYE Dec):

  • FY13A: TWD136,056M, TWD26,971M
  • FY14A: TWD213,063M, TWD50,007M
  • FY15E: TWD199,085M, TWD32,360M
  • FY16E: TWD204,075M, TWD26,786M
  • FY17E: TWD218,920M, TWD31,322M

• EPS and Margins:

  • Core EPS (2015/16/17F): TWD20.48, TWD30.22, TWD17.21
  • Core EPS Growth (%): 75.4%, 47.6%, -43.0%, -18.6%, +14.2%
  • Gross Margins (2015/16/17F): 44.8%, 41.5%, 42.7%
  • OP Margins (2015/16/17F): 13.9%, 10.8%, 11.9%
  • Net Margins (2015/16/17F): 13.4%, 10.8%, 11.5%

• P&L Model (3Q15 and 4Q15):

  • Sales: TWD57.0b (vs TWD54.2b Street)
  • Gross Profit: TWD25.0b (vs TWD23.1b Street)
  • Operating Profit: TWD7.9b (vs TWD6.3b Street)
  • Net Profit: TWD7.8b (vs TWD5.8b Street)
  • EPS: TWD4.96 (vs TWD3.67 Street)

• Balance Sheet (FYE Dec):

  • Cash & Short Term Investments: TWD139,219M (FY13A) to TWD209,629M (FY17E)
  • Total Assets: TWD258,637M (FY13A) to TWD368,196M (FY17E)
  • Total Liabilities: TWD63,283M (FY13A) to TWD124,270M (FY17E)
  • Shareholders Equity: TWD195,315M (FY13A) to TWD243,071M (FY17E)

• Cash Flow:

  • Pretax Profit: TWD29,694M (FY13A) to TWD28,874M (FY17E)
  • Depreciation & Amortisation: TWD1,727M (FY13A) to TWD5,198M (FY17E)
  • Change in Working Capital: TWD5,374M (3Q15) to TWD808M (4Q15)

Conclusion

MediaTek faces a challenging environment with continued weak demand and fierce competition in the smartphone market. The downgrade to SELL and target price reduction to TWD210 reflect concerns about its ability to sustain performance in the face of these headwinds. Despite recent positive results, the outlook for 4Q15 is expected to be weak, with significant downside from consensus. The company's recent acquisitions are unlikely to provide substantial benefits, and QFII holdings may come under pressure due to the softening earnings outlook.