亚洲科技硬件：信念在不确定的时代呼唤

  Consensus earnings revisions halfway completed for tech hardware sector with more contained risk profile  Global demand remains weak and we expect more bad news to challenge a recovery in holiday sales  Five stocks to own in this volatile market: Advantech, Catcher, Ennoconn, Largan and Lenovo Consensus expectations for Taiwan’s tech sector are now for 10.2% and 13.7% y-o-y earnings declines in 3Q15 and 4Q15, respectively. Among sub-sectors, hardware could be the only one with positive earnings growth in 3Q15e at 6.3% although its 4Q15e earnings could fall 1.4% y-o-y. Consensus expects earnings growth in 2016e of 6% for both the overall tech and hardware sectors. The key driver of these earnings consensus expectations is revenue growth of 6% y-o-y in 3Q15 but a 2% decline y-o-y in 4Q15. The two Apple assemblers, Hon Hai and Pegatron, could see their revenue fall 2-7% y-o-y in 4Q15e, but some component sub-sectors could grow revenue by 6-8% y-o-y. Global demand for PCs and smartphones remains weak: Only two of the 20 top-selling notebook PC models at Amazon are equipped with Windows 10, which is a clear indicator of excessive inventory on older models and/or lack of consumer interest in new models as older models can be upgraded to Windows 10 free of charge. Meanwhile, the smartphone market’s new challenge is the potential end of the ASP upgrade cycle in China, North America and developed Asia, which could hurt overall earnings momentum for the supply chain. The latest June data also suggested iPhone’s market share continued to trend downwards in nearly all major regional markets on a sequential basis. Earnings visibility, valuation and 2H15/2016 momentum, in our view, are key drivers of share price outperformance in this volatile market. We see Advantech (2395 TT), Ennoconn (6414 TT) and Largan (3008 TT), all rated Buy, as beneficiaries of structural growth trends including IoT (Internet of Things), automation and/or camera upgrade. Catcher’s (2474 TT, Buy) growth is driven by iPhone share gain and likely to set a new record in revenue/earnings in 2H15. Lenovo (992 HK, Buy) is facing growth challenges in near term but its restructuring should drive long-term share gain and the shares are trading below a 1x standard deviation. Technology Asia Tech Hardware Asia Tech HardwareConviction calls in uncertain times Summary of ratings and target prices Company AdvantechCatcherEnnoconnTicker 2395 TT2474 TT6414 TTRating BuyBuyBuyPrice (TWD) 211340281TP 274497431Upside (%) 29.946.253.4PE (x) 24.810.126.9PB (x) 62.59.2Company LarganLenovo Ticker 3008 TT992 HKRating BuyBuyPrice 28757.1TP 396011.3Upside (%) 37.759.2PE (x) 17nmPB (x) 8.62.3Source: Company data, HSBC estimates. Prices as of 19 August 2015 21 August 2015 Jenny Lai*, CFA Analyst, Tech Hardware/Automation HSBC Securities (Taiwan) Corporation Limited +8862 6631 2860 jennylai@hsbc.com.tw Jane Liu* Associate HSBC Securities (Taiwan) Corporation Limited +8862 6631 2869 jane.l.liu@hsbc.com.tw View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: HSBC Securities (Taiwan) Corporation LimitedDisclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it 2 Technology Asia Tech Hardware 21 August 2015 abc Earnings revisions – largely done After a disappointing 2Q15 results season, consensus earnings expectations for Taiwan’s tech sector are now much lower. The current tech earnings consensus is for 10.2% and 13.7% y-o-y declines in 3Q15 and 4Q15, respectively. Among the five major tech sub-sectors, the hardware and components sector is expected to be the only one with positive earnings growth in 3Q15e at 6.3%, although its earnings are expected to follow the overall tech sector with a 1.4% fall y-o-y in 4Q15e. Looking forward, consensus is expecting earnings growth in 2016e of 6% for both the overall tech and hardware sectors. Conviction calls in uncertain times  Consensus earnings revisions half completed for tech hardware sector with more contained risk profile  Global demand remains weak and we expect more bad news to challenge a recovery in holiday sales  Five stocks to own in this volatile market: Advantech, Catcher, Ennoconn, Largan and Lenovo Taiwan tech sector earnings expectation - Bloomberg consensus (TWDbn) 1Q14 2Q14