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Brokerage raises target price on Hon Hai on Q1 results, dividend
Publish Date: 2017/05/13
Update Date: 2017/05/13
Taipei, May 13 (CAN) A European brokerage has raised its target price for shares of Taiwan-based manufacturing giant Hon Hai Precision Industry Co. after the company reported a better than expected profit margin for the first quarter.

The foreign brokerage also was upbeat about Hon Hai's proposal to issue the highest-ever cash dividend per share in the company's history for 2016.

In a research note released Friday, the brokerage raised its target price for Hon Hai shares to NT$112.50 (US$3.73) from NT$110.00 while leaving its "buy" recommendation for the stock unchanged.

On Friday, Hon Hai, known better internationally as Foxconn, closed down 1.44 percent at NT$102.50 on the Taipei Stock Exchange, with 58.75 million shares changing hands.

The stock moved higher early in the trading session because of the cash dividend proposal but then retreated as investors decided to pocket previous gains.

CNA cannot identify the brokerage because media outlets in Taiwan are not allowed to report the name of a foreign brokerage when it gives price forecasts for specific stocks.

In a board meeting held on Thursday, Hon Hai proposed to distribute a cash dividend of NT$4.50 per share, more than half of its 2016 earnings per share of NT$8.60.

If approved, the cash dividend would be the highest in Hon Hai's history, compared with a NT$4 cash dividend in 2015 that was supplemented by a NT$1 stock dividend.

The European brokerage said it was happy to see Hon Hai adopt a friendlier dividend policy toward shareholders, as the proposed figure represented a cash dividend payout ratio (cash dividend/earnings per share) of 52.3 percent, up from 46.8 percent a year earlier.

According to Hon Hai, the company decided to issue an all-cash dividend for the first time because it is sitting on NT$600 billion in cash. The dividend proposal still has to be approved at the company's general shareholders meeting on June 22.

The brokerage said it was impressed by Hon Hai's first quarter gross margin of 7.36 percent, which beat expectations of 7.2 percent, resulting from successful efforts to boost yield rates and lower labor costs.

Hon Hai's first quarter gross margin was up 0.3 percentage points from a year earlier but fell 1.09 percentage points from a quarter earlier because the first quarter is typically a slow season for the electronics industry.

Slow season effects also meant that Hon Hai's earnings per share in the first quarter of NT$1.63 were far below the EPS of NT$3.98 a quarter earlier. But first quarter EPS was slightly higher than the EPS of NT$1.6 reported for the first quarter of 2016.

The brokerage said Hon Hai could have a slow second quarter before bouncing back in the third quarter, when Apple Inc. is expected to launch the next generation iPhones.

Apple is Hon Hai's biggest customer and said to account for about 40 percent of the company's revenue, and its introduction of new models is expected to boost Hon Hai's shipments and strengthen its product portfolio. 
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