20080828-Yuanta KimEng-Lite-On Technology (2301 TT)

A new Lite-On without display
Raising earnings forecasts; reiterate HOLD: We raise our 2008
earnings forecast by 8.2% and our 2009 forecast by 15.1%, reflecting
our expectation that margins will improve. Lite-On Tech will
complete the disposal of its display business to Wistron on Sep 1,
and focus more on the components business. We maintain our
neutral view on the stock owing to concerns of a lack of clear synergy
across its various product lines. Our TP of NT$33.4 is based on a
target P/E of 11x 2009F EPS and implies 2.4% upside. Reiterate HOLD.
Despite better-than-expected 2Q08 results, we maintain our neutral
view
► 2Q08 earnings of NT$1,354 mn came in 25.4% better than our
forecast owing to better-than-expected margin performance and
a low base (following the fire at its display plant in 1Q08).
► Guidance is for 10-15% QoQ revenue growth in 3Q08, excluding
the soon to be sold display business (which will lead to a gross
margin improvement in 4Q08, although little profit improvement).
► We are disappointed with the progress at Perlos, which will
struggle to post significant improvements in 2H08, although it
did return to breakeven in 2Q08.
► Market share gains in printer, power supply and LED applications
are the targeted growth drivers for 2009. In addition, the
company has a very conservative macro outlook.
Small-scale share buybacks: Lite-On’s board announced a 30 mn
(1.4%) share buyback within a price range of NT$20.7-41.1. The
company will use the shares to issue employee options. This could
be a catalyst for a very short-term rally.