Taiwan Specialist

Julia Chien

Equity Bottom-Up

<p>" We all know mirrors don't lie, I'm just grateful that they don't laugh..."</p>
<p>Let's talk about Taiwan stock market first.</p>
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<p><strong>Overview of the Taiwan Stock Market</strong></p>
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<div>Market sentiment continued to be ruled by uncertainty over global trade as the United States and China have yet to sign a phase one agreement to resolve their trade disputes. This week, 1) selling of the "Apple concept names" came among concerns over possible additional U.S. tariffs on Chinese goods, including iPhones and notebook computers assembled in China. 2) QFII simply bought into market heavyweights, which lifted the entire index. The Taiex index ended up 135.65 points, or 1.16%, to close at 11,836.42 points, the volume was NT$150.87 billion on Thursday.</div>
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<div>We think the Taiex will continue to move in a narrow range and it is possible to see volatility due to the trade issue. In my "<a href="https://www.smartkarma.com/insights/curtain-opens-be-selective-in-the-next-6-month-of-the-2020-taiwan-presidential-election" target="_blank" rel="noopener">Curtain Opens - Be Selective in the Next 6 Months to the 2020 Taiwan Presidential Election</a>" report, the 2020 Taiwan presidential election is on January 11th, it’s only one month before election, we expect to see more buying in financial and non-tech sectors from government-led funds as the sector has been one of their favorites, and we recommend investors to buy stocks with fundamental support and short stocks without fundamental support for downside protection.  </div>
<div></div>
<div class="content-highlight"><strong>Mirror, Mirror On The Wall ... How Many Companies Look Expensive on P/E</strong></div>
<p>After all companies have released earnings reports and November sales revenue, we can pretty much get a general picture about each company's performance in 2019. For those undervalued names, we suggest buying at current prices; on the other hand, we recommend shorting the overvalued names. For example, <a href="https://www.smartkarma.com/entities/global-unichip-corp" target="_blank" data-smartkarma-citation="entities:10305:1" rel="noopener">Global Unichip (3443 TT)</a> , we all know GUC has a rich daddy, TSMC, but it still can't guarantee success. This year definitely is a terrible year for GUC due to poor product mix and weak demand on bitcoin. The company reported 1-3Q19 EPS was NT$2.67 and Bloomberg consensus forecasts FY19 EPS of NT$3.97.  Based on today's closing price of NT$242, trading at PER of 65x, we think it's way overpriced. </p>
<p style="text-align: center;"><strong>GUC Operating Ratio</strong></p>
<table class="table table-striped">
<colgroup> <col width="110"> <col width="100"> <col width="100"> <col width="100"> <col width="100"> <col width="100"> <col width="100"> <col width="100"> </colgroup>
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<td></td>
<td></td>
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<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(%)"}'>(%)</td>
</tr>
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<td></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"3Q19"}'><strong>3Q19</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2Q19"}'><strong>2Q19</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1Q19"}'><strong>1Q19</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"4Q18"}'><strong>4Q18</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"3Q18"}'><strong>3Q18</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2Q18"}'><strong>2Q18</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1Q18"}'><strong>1Q18</strong></td>
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<td data-sheets-value='{"1":2,"2":"Gross Margin"}'>Gross Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":34.16}'>34.16</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33.47}'>33.47</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":31.55}'>31.55</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":27.73}'>27.73</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":28.08}'>28.08</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":30.98}'>30.98</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33.75}'>33.75</td>
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<td data-sheets-value='{"1":2,"2":"Operating Margin"}'>Operating Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.96}'>4.96</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.51}'>4.51</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.86}'>4.86</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.73}'>7.73</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.04}'>8.04</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.43}'>8.43</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.51}'>8.51</td>
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<td data-sheets-value='{"1":2,"2":"Pre -Tax Margin"}'>Pre -Tax Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.31}'>5.31</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.15}'>5.15</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.4}'>7.4</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.58}'>8.58</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.34}'>8.34</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.22}'>8.22</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.65}'>8.65</td>
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<td data-sheets-value='{"1":2,"2":"Net Margin"}'>Net Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.2}'>4.2</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.28}'>4.28</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.96}'>5.96</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.78}'>7.78</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.16}'>7.16</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6.95}'>6.95</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.49}'>7.49</td>
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<td data-sheets-value='{"1":2,"2":"EPS"}'>EPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.76}'>0.76</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.77}'>0.77</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.14}'>1.14</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.06}'>2.06</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.09}'>2.09</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.68}'>1.68</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.54}'>1.54</td>
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<p><em>Source: TEJ</em></p>
<p style="text-align: center;"><strong>Share Price Performance</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/110/136/original/3443.TW_YahooFinanceChart.png?1576149320" class="editor-image img-responsive" data-smartkarma-image-id="110136"></figure>
<p><em>Source: Yahoo!Finance</em></p>
<p><a href="https://www.smartkarma.com/entities/allied-circuit-co-ltd" target="_blank" data-smartkarma-citation="entities:11163:1" rel="noopener">Allied Circuit (8155 TT)</a> is an another example, the company specializes in the manufacturing of high end IPC and Server printed circuit boards, the parent company is Compal Electronics. Due to inventory adjustment and slow demand on high end IPC, the company posted 1-3Q19 EPS of NT$2.63. According to Bloomberg data, the consensus forecasts FY19 EPS of NT$3.7, and we expected to see 25% more sales decline in 2019. Even the order visibility is back to 6 weeks now and the company will continuously improve product mix in 1Q20, the share price is trading at PER of 25x, we expect more downward revisions to the street’s forecasts.</p>
<p style="text-align: center;"><strong>Allied Circuit Operating Ratio</strong></p>
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<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(%)"}'>(%)</td>
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<td style="text-align: right;" data-sheets-value='{"1":2,"2":"3Q19"}'><strong>3Q19</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2Q19"}'><strong>2Q19</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1Q19"}'><strong>1Q19</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"4Q18"}'><strong>4Q18</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"3Q18"}'><strong>3Q18</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2Q18"}'><strong>2Q18</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1Q18"}'><strong>1Q18</strong></td>
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<td data-sheets-value='{"1":2,"2":"Gross Margin"}'>Gross Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":25.04}'>25.04</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":25.21}'>25.21</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12.76}'>12.76</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18.6}'>18.6</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":22.83}'>22.83</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":28.83}'>28.83</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":26.49}'>26.49</td>
</tr>
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<td data-sheets-value='{"1":2,"2":"Operating Margin"}'>Operating Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15.55}'>15.55</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":14.43}'>14.43</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.66}'>1.66</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.57}'>8.57</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15.3}'>15.3</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":22.06}'>22.06</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":19.73}'>19.73</td>
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<td data-sheets-value='{"1":2,"2":"Pre -Tax Margin"}'>Pre -Tax Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15.8}'>15.8</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":14.89}'>14.89</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.18}'>2.18</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10.05}'>10.05</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15.46}'>15.46</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23.04}'>23.04</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18.4}'>18.4</td>
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<td data-sheets-value='{"1":2,"2":"Net Margin"}'>Net Margin</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12.64}'>12.64</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11.91}'>11.91</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.74}'>1.74</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.35}'>8.35</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12.44}'>12.44</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18.51}'>18.51</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":14.72}'>14.72</td>
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<td data-sheets-value='{"1":2,"2":"EPS"}'>EPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.37}'>1.37</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.12}'>1.12</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.14}'>0.14</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.78}'>0.78</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.61}'>1.61</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.84}'>2.84</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.13}'>2.13</td>
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</tbody>
</table>
<p><em>Source: TEJ</em></p>
<p style="text-align: center;"><strong>Share Price Performance</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/110/138/original/8155.TWO_YahooFinanceChart%20%281%29.png?1576149445" class="editor-image img-responsive" data-smartkarma-image-id="110138"></figure>
<p style="text-align: left;"><em>Source: Yahoo!Finance</em></p>
<p style="text-align: left;"><a href="https://www.smartkarma.com/entities/tung-thih-electronic-co-ltd" target="_blank" data-smartkarma-citation="entities:6601:1" rel="noopener">Tung Thih Electronic (3552 TT)</a> , <a href="https://www.smartkarma.com/entities/land-mark-optoelectronics" target="_blank" data-smartkarma-citation="entities:2648:1" rel="noopener">Land Mark Optoelectronics (3081 TT)</a> , <a href="https://www.smartkarma.com/entities/global-lighting-technologies-inc" target="_blank" data-smartkarma-citation="entities:3818:1" rel="noopener">Global Lighting Technologies (4935 TT)</a> , and <a href="https://www.smartkarma.com/entities/chinese-gamer-international" target="_blank" data-smartkarma-citation="entities:8653:1" rel="noopener">Chinese Gamer International (3083 TT)</a> ...etc are all looking expensive on P/E, we expect to see significant share price pullback once Taiex index is in correction. How about Faraday? </p>

" We all know mirrors don't lie, I'm just grateful that they don't laugh..."
Let's talk about Taiwan stock market first.





Overview of the Taiwan Stock Market





Market sentiment continued to be ruled by uncertainty over global trade as the United States and China have yet to sign a phase one agreement to resolve their trade disputes. This week, 1) selling of the "Apple concept names" came among concerns over possible additional U.S. tariffs on Chinese goods, including iPhones and notebook computers assembled in China. 2) QFII simply bought into market heavyweights, which lifted the entire index. The Taiex index ended up 135.65 points, or 1.16%, to close at 11,836.42 points, the volume was NT$150.87 billion on Thursday.

We think the Taiex will continue to move in a narrow range and it is possible to see volatility due to the trade issue. In my "Curtain Opens - Be Selective in the Next 6 Months to the 2020 Taiwan Presidential Election" report, the 2020 Taiwan presidential election is on January 11th, it’s only one month before election, we expect to see more buying in financial and non-tech sectors from government-led funds as the sector has been one of their favorites, and we recommend investors to buy stocks with fundamental support and short stocks without fundamental support for downside protection.  

Mirror, Mirror On The Wall ... How Many Companies Look Expensive on P/E
After all companies have released earnings reports and November sales revenue, we can pretty much get a general picture about each company's performance in 2019. For those undervalued names, we suggest buying at current prices; on the other hand, we recommend shorting the overvalued names. For example, Global Unichip (3443 TT) , we all know GUC has a rich daddy, TSMC, but it still can't guarantee success. This year definitely is a terrible year for GUC due to poor product mix and weak demand on bitcoin. The company reported 1-3Q19 EPS was NT$2.67 and Bloomberg consensus forecasts FY19 EPS of NT$3.97.  Based on today's closing price of NT$242, trading at PER of 65x, we think it's way overpriced. 
GUC Operating Ratio

         









(%)



3Q19
2Q19
1Q19
4Q18
3Q18
2Q18
1Q18


Gross Margin
34.16
33.47
31.55
27.73
28.08
30.98
33.75


Operating Margin
4.96
4.51
4.86
7.73
8.04
8.43
8.51


Pre -Tax Margin
5.31
5.15
7.4
8.58
8.34
8.22
8.65


Net Margin
4.2
4.28
5.96
7.78
7.16
6.95
7.49


EPS
0.76
0.77
1.14
2.06
2.09
1.68
1.54



Source: TEJ
Share Price Performance

Source: Yahoo!Finance
Allied Circuit (8155 TT) is an another example, the company specializes in the manufacturing of high end IPC and Server printed circuit boards, the parent company is Compal Electronics. Due to inventory adjustment and slow demand on high end IPC, the company posted 1-3Q19 EPS of NT$2.63. According to Bloomberg data, the consensus forecasts FY19 EPS of NT$3.7, and we expected to see 25% more sales decline in 2019. Even the order visibility is back to 6 weeks now and the company will continuously improve product mix in 1Q20, the share price is trading at PER of 25x, we expect more downward revisions to the street’s forecasts.
Allied Circuit Operating Ratio

         









(%)



3Q19
2Q19
1Q19
4Q18
3Q18
2Q18
1Q18


Gross Margin
25.04
25.21
12.76
18.6
22.83
28.83
26.49


Operating Margin
15.55
14.43
1.66
8.57
15.3
22.06
19.73


Pre -Tax Margin
15.8
14.89
2.18
10.05
15.46
23.04
18.4


Net Margin
12.64
11.91
1.74
8.35
12.44
18.51
14.72


EPS
1.37
1.12
0.14
0.78
1.61
2.84
2.13



Source: TEJ
Share Price Performance

Source: Yahoo!Finance
Tung Thih Electronic (3552 TT) , Land Mark Optoelectronics (3081 TT) , Global Lighting Technologies (4935 TT) , and Chinese Gamer International (3083 TT) ...etc are all looking expensive on P/E, we expect to see significant share price pullback once Taiex index is in correction. How about Faraday? 

Mirror, Mirror On The Wall .... Show Me The True Value Of Faraday (3035 TT)

Taiwan

Tung Thih Electronic Co Ltd. manufactures, processes, and sells automobile components. The Company offers reversing sensors, front sensors, reversing guards, alarm systems, Bluetooth systems, central door locking systems, actuators and other automobile electronic parts.

Mirror, Mirror On The Wall .... Show Me The True Value Of Faraday (3035 TT)

" We all know mirrors don't lie, I'm just grateful that they don't laugh..." Let's talk about Taiwan stock market first. Overview of the...

Julia Chien