We expect HANA’s share price to continue outperforming the SET. 4Q13 core earnings will post a QoQ drop on seasonality, but we anticipate a YoY jump, led by an operational recovery at the Ayutthaya plant. Looking ahead, we believe that HANA’s IC revenue will enjoy substantially swifter expansion than the industry as a whole, due to the low base set by FY13 and strong sales growth of IC/mobile device packaging. Moreover, baht depreciation would mean upside to our current earnings model. HANA trades at an FY14 PER of 10.5x, above its long-term mean of 9.6x, but still lower than its peer average of 11x. Our BUY rating stands with a YE14 target of Bt28.50, pegged to a PER of12x (1SD above its long-term mean).
4Q13 core profit to report a YoY jump on Ayutthaya plant recovery
The 4Q13 core profit should post a 73% YoY jump to Bt446m, led by a big contribution from the Ayutthaya plant. However, on a QoQ basis, core earnings will fall 15% QoQ on seasonality. The run rate at Ayutthaya was about 80% during the quarter against 60% in 4Q12 and 90% in 3Q13. The utilization rate at the Lampoon plant was probably unchanged YoY at 85% but down from 90% in 3Q13. We estimate Bt4.9bn in operational revenue, up 20% YoY but down 2% QoQ. GM should be posted at 12.6%, up 400 bps YoY but down 200 bps QoQ. An insurance payout of around Bt190m is also to be booked to the quarter and we expect an FX gain of Bt60m. As such, net profit should be Bt693m, up by 162% YoY and 22% QoQ.
IC packaging demand continue to rise
During 2012-17, the worldwide IC industry will grow at a CAGR of 6.4%, according to IC insight, a technology research consultancy. IC sales growth should be strongest in systems for wireless networks (a 17.9% CAGR), followed by tablets (a 15.3% CAGR) and cellphones (a 12.9% CAGR)—see Figure 2. In contrast, the value of PC sales is forecast to decline at a 0.7% CAGR. We believe that HANA’s IC packaging revenue will post stronger growth than the overall industry on rising demand for IC packaging for mobile applications and due to the low base set by FY13.
FY14 will be a good year for HANA
Recoveries among the US, Japanese and EU economies will facilitate swifter demand expansion for electronics componentry. HANA has capacity on-stream and new plant will start operating at mid-year. Sales volume should rise 15% this year, led by IC packaging sales. We anticipate that IC packaging revenue will jump 21% YoY (in dollar terms) in FY14 on a full-year contribution by the Ayutthaya plant. With regard to the PCBA business, automotive applications should offset the effect of softer PC componentry sales. Furthermore, baht depreciation would mean upside to earnings growth.
Our sensitivity analysis indicates that HANA’s FY14 core profit would rise by 4% from our current model (of Bt1.9bn, up 35% YoY) for every Bt1 that the baht weakens against the US dollar.