1、,40.75,4.0,Company report,Telecoms, Media & TechnologyElectrical EquipmentEquity Taiwan,abcGlobal Research,Neutral (V)Targetprice (TWD),45.00,Merry Electronics (2439 TT),Share price (TWD)Forecast dividend yield (%)Potential return (%) 14.4Note: Potential return equals the percentagedifference betwee
2、n the current share price andthe target price, plus the forecast dividend yieldDec 2011 a 2012 e 2013 e,Downgrade to N(V): Limited upside potential Solid 4Q12 results and 1Q13 outlook already known 2013 outlook remains intact but there is limited upside,HSBC EPSHSBC PEPerformanceAbsolute (%)Relative
3、 (%),2.0020.41M8.89.2,2.4516.73M-9.2-11.0,2.9913.612M24.718.5, Downgrade to N(V) from OW(V) with an unchanged targetprice of TWD45,Note: (V) = volatile (please see disclosure appendix)18 January 2013Joyce Chen*AnalystHSBC Securities (Taiwan) CorporationLimited+8862 6631 .twYolanda Wang*AnalystHSBC S
4、ecurities (Taiwan) CorporationLimited+8862 6631 .twView HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities (USA) Inc, and is notregistered/qualified pursuant to FINRAregulationsIssuer of report: HSBC Securities(Taiwan) CorporationLimitedDisclaimer &,Already raised expect
5、ations for 4Q12 results. Merry reported (through monthly releases)4Q12 sales of TWD2.1bn, up 24% QoQ but a 14% YoY decline. This is 6%/2% aboveour and consensus estimates owing to high power speakers orders delayed from 3Q12 to4Q12. As these products have a higher gross margin of 20-25% (vs corporat
6、e average of17-18%), we estimate 4Q12 gross margin will improve 1.1pts QoQ to 18.9%. In sum, weestimate Merry to report 4Q12 EPS of TWD0.81 from a net loss of TWD0.18 per share in3Q12. This is in line with already raised market expectations.Above-seasonality 1Q13 is well-known. Management indicated
7、1Q13 will be better thanseasonality on increasing contribution of high power speakers and battery power banks.However, this has been well known by the market, evidenced by share priceoutperformance in the past two months. We expect a sales decline of 3% (vs the normalpattern of 15-20% decline).2013
8、outlook remains intact but upside potential now limited. Looking into 2013, weexpect improving product mix and profitability to drive Merrys sales and EPS growth of13% and 22% YoY. However, the 60% to 100% earnings growth seen in 2003/2004 whenMerry gained share is unlikely.Downgrade to Neutral (V)
9、with an unchanged TP of TWD45. As the share price isapproaching our target price and the implied potential return is now within the Neutralband of our model, we downgrade the stock to N(V) from OW(V). To reflect potentialforex loss reversal from 3Q12 into 4Q12, we raise our 2012 EPS estimate by 19%
10、butkeep our 2013/2014 EPS estimates unchanged. Our 2012e/2013e EPS was 0%/2% higherthan consensus. Our target price of TWD45 is based on an unchanged multiple of 15x ofFY13e EPS. 15x is the companys historical average PE in the past three years as we arein the mid-end of current product cycle.,Discl
11、osuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,IndexIndex levelRICBloombergSource: HSBC,TAIWAN WEIGHTED IN7,6172439.TW2439 TT,Enterprise value (TWDm)Free float (%)Market cap (USDm)Market cap (T
12、WDm)Source: HSBC,6199902336,758,Merry Electronics (2439 TT)Electrical Equipment18 January 2013Financials & valuationFinancial statements,Key forecast drivers,abc,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Profit & loss summary (TWDm)Revenue,7,843,7,701,8,
13、693,9,522,Global handset shipment,162,51,51,51,EBITDADepreciation & amortisation,507-273,623-319,889-364,988-410,Valuation data,Operating profit/EBITNet interestPBTHSBC PBTTaxationNet profitHSBC net profitCash flow summary (TWDm),2349362362-63315315,3053492492-82406406,5255598598-102496496,578564864
14、8-110538538,Year toEV/salesEV/EBITDAEV/ICPE*P/Book valueFCF yield (%)Dividend yield (%),12/2011a0.711.21.920.41.5-0.53.7,12/2012e0.89.91.816.71.5-0.44.0,12/2013e0.77.01.713.61.42.24.4,12/2014e0.66.21.612.61.43.74.8,Cash flow from operationsCapexCash flow from investmentDividends,480-458-349-592,512-
15、458-458-250,703-458-458-267,815-458-458-298,Note: * = Based on HSBC EPS (fully diluted)Price relative,Change in net debtFCF equity,331-32,196-25,22148,-59252,71,71,Balance sheet summary (TWDm),61,61,Tangible fixed assetsCurrent assetsCash & othersTotal assetsOperating liabilitiesGross debt,1,8845,32
16、21,3537,7942,843599,2,0244,5231,1577,1352,030599,2,1185,8741,1358,5803,245599,2,1665,2361,1947,9902,415599,51413121,51413121,Net debt,-755,-558,-536,-595,2011,2012,2013,2014,Shareholders fundsInvested capital,4,3523,009,4,5073,361,4,7373,613,4,9763,793,Merry Electronics,Rel to TAIWAN WEIGHTED INDEX,
17、Source: HSBC,Ratio, growth and per share analysis,Note: price at close of 18 Jan 2013,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Y-o-y % change,RevenueEBITDAOperating profitPBTHSBC EPS,-3.7-52.4-70.1-51.0-47.6,-1.822.930.035.922.6,12.942.772.321.622.4,9.511.210.28.38.3,Ratios (%),Revenue/IC (x)ROIC
18、ROEROAEBITDA marginOperating profit margin,2.76.77.24.06.53.0,2.48.09.25.58.14.0,2.512.510.76.310.26.0,2.613.011.16.510.46.1,EBITDA/net interest (x),Net debt/equityNet debt/EBITDA (x),-17.3-1.5,-12.4-0.9,-11.3-0.6,-12.0-0.6,CF from operations/net debtPer share data (TWD),EPS reported (fully diluted)
19、HSBC EPS (fully diluted)DPSBook value,2.002.001.5127.55,2.452.451.6127.18,2.992.991.8028.56,3.243.241.9430.01,2,Merry Electronics (2439 TT)Electrical Equipment18 January 2013Limited upside potential Solid 4Q12 results and 1Q13 outlook largely priced in 2013 outlook remains intact but we now see limi
20、ted further upside Downgrade to N(V) from OW(V) with an unchanged target price ofTWD45,abc,Already raised market expectation on 4Q12results. Merry reported 4Q12 sales ofTWD2.1bn, up 24% QoQ but a 14% YoY decline.This is 6%/2% higher than our and consensusestimates due to postponed demand of high pow
21、erspeakers. The US clients mainstream13-inch NBmodels and desktop models have been delayed to4Q12 from 3Q12. Management indicates highpower speaker accounts for c. 20% of 4Q12 salesfrom 8% in 3Q12. As high power speakers yield ahigher gross margin of 20-25% (vs. companyaverage gross margin of 17-18%
22、), we estimate4Q12 gross margin will improve 1.1pts to 18.9%.Moreover, we expect Merry to reverse some forexloss record in 3Q12 in 4Q12. In sum, we estimateMerry to report 4Q12 EPS of TWD0.81 from anet loss of TWD0.18 per share in 3Q12. This isin-line with already raised market consensus.Above-seaso
23、nality 1Q13 is well-known.Management indicates 1Q13 will be above normalseasonality on increasing contribution of highpower speakers and battery power banks. Merryhas started shipping high power speaker to a USclients desktop models from December andmobile phone battery power banks to distributorsfr
24、om November. We expect 1Q13 sales willdecline 3% QoQ versus normal seasonality of 15-20% decline. However, this has been well knownby the market, evidenced by share price,outperformance in the past two months. Themarket expects 1Q13 sales to be flattish QoQ.Need more time to increase penetration rat
25、e ofthe major US client. The market previouslyexpected Merry to become a major US clientshands-free headset supplier in 2013. However, ourresearch indicates that Merrys US client alreadyhas 2-3 acoustic component suppliers. Thus, webelieve Merry will need more time to increase itsmarket share with t
26、his client. We believe Merrywill supply two more NB models for its major USclients. However, the incremental salescontribution will be only be single digit in 2013,in our view.2013 outlook remains intact but upside islimited. Looking into 2013, we expect improvingproduct mix and profitability will d
27、rive Merrysales/EPS to grow 13%/22% YoY. However wewill unlikely see 60-100% earnings growth seenin 2003/2004 when Merry gained share.Downgrade to Neutral (V) with an unchangedTP of TWD45. As the share price is approachingour target price and the implied potential return isnow within the Neutral ban
28、d of our model, wedowngrade the stock to N(V) from OW(V). Toreflect potential forex loss reversal from 3Q12into 4Q12, we raise our 2012 EPS estimate by19% but keep our 2013/2014 EPS estimates,3,Merry Electronics (2439 TT)Electrical Equipment18 January 2013unchanged. Our 2012e/2013e EPS was 0%/2%high
29、er than consensus. Our target price ofTWD45 is based on an unchanged multiple of 15xof FY13e EPS. 15x is the companys historicalaverage PE in the past three years as we are in themid-end of current product cycle.Under our research model, for stocks with avolatility indicator, the Neutral band is 10p
30、ercentage points above and below the hurdle ratefor Taiwan stocks of 9%. Our target price ofTWD45 implies a potential return of 14.4%(including a dividend yield of 4%), within theNeutral band of our model. Therefore, wedowngrade the stock to Neutral (V) fromOverweight (V). Potential return equals th
31、epercentage difference between the current shareprice and the target price, including the forecastdividend yield when indicated.4,abc,Jan-04,Jul-04,Jan-05,Jul-05,Jan-06,Jul-06,Jan-07,Jul-07,Jan-08,Jul-08,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Jan-13,Jan-04,Jul-04,Jan-05,Jul-05,Jan-0
32、6,Jul-06,Jan-07,Jul-07,Jan-08,Jul-08,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Jan-13,Merry Electronics (2439 TT)Electrical Equipment18 January 2013Merry: Financials and valuation,abc,Revenue,Consensus,EPS (TWD) Consensus EPS,PE,ROE (%),Div yield (%),(TWDm),revenue,(TWD),2011a2012e2013
33、e,7,8437,7018,693,NA7,6248,519,2.002.452.99,NA2.442.93,20.416.713.6,7.29.210.7,3.74.04.4,Source: Company data, HSBC estimatesMerry: forecast revisions,(TWDm),2012e,2013e,2014e,RevenueGross ProfitOperating IncomeNet IncomeEPS (TWD)Gross MarginOperating MarginNet Margin,Old7,5761,3593033412.0617.9%4.0
34、%4.5%,New7,7011,3863054062.4518.0%4.0%5.3%,% Change2%2%0%19%19%0 pts0 pts1 pts,Old8,3411,5595024962.9918.7%6.0%5.9%,New8,6931,6875254962.9919.4%6.0%5.7%,% Change4%8%5%0%0%1 pts0 pts0 pts,Old8,8891,6535515373.2418.6%6.2%6.0%,New9,5221,8515785383.2419.4%6.1%5.6%,% Change7%12%5%0%0%1 pts0 pts0 pts,Sour
35、ce: HSBC estimates,Merry: 12-month forward PE band,Merry: 12-month forward PB band,14012010080,Merry share price (TWD),14012010080,Merry share price (TWD),4x3x,6040200Source: Company data, HSBC estimates,20x15x10x5x,6040200Source: Company data, HSBC estimates,2x1x,5,6,MerryElectronics(2439TT),Electr
36、icalEquipment,18January2013,abc,Merry: Quarterly earnings forecast,(TWDm),Fiscal2010,_ Fiscal 2011 _Q1 Q2 Q3 Q4,Fiscal2011,_Fiscal 2012 _Q1 Q2 Q3 Q4E,Fiscal2012E,_ Fiscal 2013 _Q1E Q2E Q3E Q4E,Fiscal2013E,Sales,8,147,1,744,1,755,1,890,2,454,7,843,2,090,1,814,1,693,2,103,7,701,2,043,2,033,2,233,2,384
37、,8,693,Sequential,-21%,1%,8%,30%,-15%,-13%,-7%,24%,-3%,0%,10%,7%,Change,Change VsYear AgoGross profitGross marginOperating,21%1,74221%782,-1%27816%40,-13%26215%13,-13%25614%21,12%40717%160,-4%1,20315%234,20%36117%107,3%32418%68,-10%30218%36,-14%39819%93,-2%1,38618%305,-2%38919%116,12%38919%117,32%43
38、519%137,13%47320%155,13%1,68719%525,Income,Percentage,10%,2%,1%,1%,7%,3%,5%,4%,2%,4%,4%,6%,6%,6%,6%,6%,of Revenues,Pre-tax,740,57,56,68,181,362,185,175,-40,173,492,134,136,155,173,598,Income PostEE,Percentage,9%,3%,3%,4%,7%,5%,9%,10%,-2%,8%,6%,7%,7%,7%,7%,7%,of Revenues,Tax expenseTax rateNet Profit
39、Percentage,-138-19%6017%,-13-23%432%,-6-11%563%,-11-16%623%,-32-18%1546%,-63-17%3154%,-28-15%1618%,-34-19%1408%,17-43%(31)-2%,-38-22%1356%,-82-17%4065%,-23-17%1115%,-23-17%1136%,-26-17%1296%,-29-17%1446%,-102-17%4966%,of Revenues,EPS (TWD),3.81,0.27,0.36,0.39,0.97,2.00,1.02,0.84,-0.18,0.81,2.45,0.67
40、,0.68,0.78,0.87,2.99,Source: Company data, HSBC estimates,Merry Electronics (2439 TT)Electrical Equipment,abc,18 January 2013Disclosure appendixAnalyst CertificationThe following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that theop
41、inion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect theirpersonal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specificrecommendation(s) or views contained in this resear
42、ch report: Joyce Chen and Yolanda WangImportant disclosuresStock ratings and basis for financial analysisHSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, whichdepend largely on individual circumstances such as the investors existing h
43、oldings, risk tolerance and other considerations.Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunitiesbased on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon
44、;and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.HSBC has assigned ratings for its long-term investment
45、opportunities as described below.This report addresses only the long-term investment opportunities of the companies referred to in the report. As and whenHSBC publishes a short-term trading idea the stocks to which these relate are identified on the website Details of these short-term investment op
46、portunities can be found under the Reports section of thiswebsite.HSBC believes an investors decision to buy or sell a stock should depend on individual circumstances such as the investorsexisting holdings and other considerations. Different securities firms use a variety of ratings terms as well as
47、 different ratingsystems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each researchreport. In addition, because research reports contain more complete information concerning the analysts views, investorsshould carefully read the entire res
48、earch report and should not infer its contents from the rating. In any case, ratings should notbe used or relied on in isolation as investment advice.Rating definitions for long-term investment opportunitiesStock ratingsHSBC assigns ratings to its stocks in this sector on the following basis:For eac
49、h stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate,regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stockto reach over our performance horizon. The performa
50、nce horizon is 12 months. For a stock to be classified as Overweight, thepotential return, which equals the percentage difference between the current share price and the target price, including theforecast dividend yield when indicated, must exceed the required return by at least 5 percentage points
51、 over the next 12 months(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must beexpected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage pointsfor a stock classified as
52、Volatile*). Stocks between these bands are classified as Neutral.Our ratings are re-calibrated against these bands at the time of any material change (initiation of coverage, change of volatilitystatus or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarilytriggering a rating change.7,
