TW tech hardware
Position for better PC
replacement cycle
Kc Kao, MBA
Research Analyst
(886) 2 2192 2831
kc.kao@db.com
Ivy Lee
Research Associate
(886) 2 2192 2834
ivy.lee@db.com
Recent corrections offer buying opportunities
We reiterate our Buy ratings on Hon Hai, Asustek and Acer as we think these
companies are well positioned to benefit from a potentially better PC replacement
cycle in 2010. Our analysis suggests that renewed corporate demand, pent-up
demand from emerging markets, and a favourable product cycle could catalyze a
stronger PC cycle in the next 6-12 months. While our base case assumes 7% YoY
PC growth for 2010, we estimate 21% YoY PC growth under a bull case.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
Forecast Change
This report changes price targets and
estimates for several companies under
coverage. For detailed discussion of these
changes, see pages 18-25.
Top picks
Hon Hai Precision (2317.TW),TWD104.00 Buy
Asustek (2357.TW),TWD44.20 Buy
Acer Inc (2353.TW),TWD57.10 Buy
Companies featured
Hon Hai Precision (2317.TW),TWD104.00 Buy
2008A 2009E 2010E
P/E (x) 16.6 15.7 12.6
EV/EBITDA (x) 8.1 7.1 5.7
Price/book (x) 1.3 2.3 2.1
Acer Inc (2353.TW),TWD57.10 Buy
2008A 2009E 2010E
P/E (x) 11.6 13.6 11.0
EV/EBITDA (x) 7.4 7.6 6.5
Price/book (x) 1.4 1.7 1.6
Asustek (2357.TW),TWD44.20 Buy
2008A 2009E 2010E
P/E (x) 19.4 27.9 10.7
EV/EBITDA (x) 17.7 31.0 2.9
Price/book (x) 0.9 1.1 1.0
Compal Electronics (2324.TW),TWD27.75 Hold
2008A 2009E 2010E
P/E (x) 8.4 9.2 8.6
EV/EBITDA (x) 8.2 5.8 5.5
Price/book (x) 0.9 1.3 1.2
Quanta (2382.TW),TWD56.70 Hold
2008A 2009E 2010E
P/E (x) 7.7 12.4 10.7
EV/EBITDA (x) 7.1 11.6 9.7
Price/book (x) 1.4 2.2 2.0
Global Markets Research Company
Improved macro environment could lead to better PC replacement in 2010
We estimate the PC replacement cycle has lengthened to 5-6 years for corporate
customers and 8-9 years for consumers in this downturn (historically, 3-5 years
and 6-9 years, respectively). Our base case estimates 7% YoY PC growth for 2010,
assuming a slight improvement in the replacement cycle. Under our bull case, we
see potential 21% YoY growth for PCs in 2010, assuming the replacement cycle
shortens to its recent low of 3-4 years for corporates and 6-8 years for consumers.
Catalysts driving PC replacement cycle
The stabilized economic outlook is the core driver for PC replacement. We also
see the following catalysts: 1) renewed corporate demand (corporate IT appears
under-invested in the recent downturn), 2) pent-up demand from emerging
markets (Russia and Eastern Europe), and 3) new product cycles (Windows 7,
CULV NB, all-in-one DT).
Risk/reward looks appealing on better replacement outlook
We believe select PC stocks offer appealing risk/reward on the back of a better
replacement cycle. On average, we estimate 36% upside vs. 18% downside for
the stocks we cover and expect 15% share price appreciation under our base
case. Asustek, Hon Hai and Acer should offer more appealing risk/reward as we
believe some company-specific factors make their EPS more leveraged to better
PC demand.
Conservative 3Q plans suggest upside risks to market expectations
Our channel checks suggest that the PC supply chain is bracing for a lower-thannormal
seasonal buildup in 3Q due to weak demand visibility. We, however, see
positive early indicators on demand. First, our checks indicate demand from China
will likely pick up strongly in July as retailers are aggressively targeting the 10m
Chinese students that recently finished the national college entrance exam.
Second, the US consumer confidence index rebounded in May. Historical patterns
suggest that PC demand usually improves six months after the index rebounds.
Maintain ratings; raise price targets for Acer, Quanta and Compal
We value PC companies based on PE valuation (Hon Hai), SOTP valuation (Acer,
Compal and Quanta), and P/B valuation (Asustek). We maintain Buy for Hon Hai,
Asustek and Acer, and keep Hold for Quanta and Compal. We raise Acer’s,
Compal’s and Quanta’s price targets to NT$66, NT$30 and NT$54 (from NT$65,
NT$26 and NT$45, respectively), to factor in a potential recovery in 2010. We
maintain our Hon Hai and Asustek price targets at NT$132 and NT$58 as we have
factored in a 2010E recovery. Key risks are weaker corporate replacement and
emerging market demand recovery. (See pp 22-25 for details.)