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1、,Strategy,Taiwan,15 November,2012,Top picks TSMC(2330 TT;BUY);TP NT$99 Asus(2357 TT;BUY);TP NT$365 MTK(2454 TT;BUY);TP NT$375 TPK(3673 TT;BUY);TP NT$510 Mega(2886 TT;BUY);TP NT$26.5Primary Analyst:,Changes to portfolios Long-Only:We increase ourtech weighting from 32%to42%.Long-Short:We remove someb
2、ombed-out shorts.Please see page 9 for more.Taiwan Strategy,Our view Our 6-12 month index targetremains at 7,900.Selected large cap tech stockscan continue to outperform.We provide five investmentdirections for 2013.,Vincent Chen+886 2 3518 7903,Investment directions for 2013,With significant contri
3、bution from:Jeffery Cheng+886 2 3518 7902 Livia Wu+886 2 3518 7920,Market review earnings season ruled sentiment:Since our last TaiwanStrategy report on October 8,the market has been focusing on:1)3Q12earnings;2)new tech product launches;3)improving PMI in China;and 4)the US presidential election.Du
4、ring the period,FINI had a total net sell ofUS$1.2 bn,while nine of the top ten FINI buys have been tech names.The,market has focused on MTK,TSMC and TPK.TPK was the second mostbought by FINI,likely a result of its superior lamination technology,whichshould lead to solid margins on Win 8 NBs and tab
5、lets.Market outlook-five investment directions for 2013:There are no strongsigns of macroeconomic improvement yet,and investors in general areneither bullish on Taiwan nor very active in this market.Many areconcerned about thin market liquidity,and would therefore rather movemoney over to HK/China m
6、arkets.In addition,a capital-gains tax will beimposed from 1Q13,which is a drain on market liquidity.Nonetheless,we identify five investment directions for 2013:1)Touch Win 8 NBbeneficiaries;2)China market recovery;3)Apple outsourcing/priceincreases;4)banking M and 5)low-price smartphones.Model port
7、folios be more defensive,but add tech weighting:We areproviding five top picks from our Long-Only portfolio:TSMC,MTK,TPK,Asus and Mega FHC.We expect them to outperform on the back of theirsolid competitive strength in an uncertain environment.Our Long-Onlyportfolio decreased 2.8%since it was set up
8、on September 17 as non-tech stocks were not defensive enough during the market correction,butstill outperformed the TWSE index by 4.7%,MSCI Index by 4.0%,andTW50 index by 3.7%.Our Long-Short portfolio value has increased by5.2%during same period,outperforming the TWSE index by 12.7%,MSCIIndex by 12.
9、0%,and TW50 index by 11.7%.We have made major changesto our Long-Only model portfolio,raising tech weighting from 32%to42%,while lowering weightings on both non-tech and financials.We alsoremove some bombed-out shorts,replacing them with other stocks.ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES B
10、EGIN ON PAGE 17.Yuanta does and seeks to do business with companies covered in its research reports.As a result,investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors shouldconsider this report as only a single factor in maki
11、ng their investment decision.,Ja,n-,1,Ja2,n-,1,Ja2,n-,12,Fe,b-,1,Fe2,b-,12,M,ar,-1,M2,ar,-1,Ap2,r-,1,Ap2,r-,1,M2,ay,-,M12,ay,-1,Ju2,n-,1,Ju2,n-,12,Ju,l-1,Ju2,l-1,Ju2,l-,Au12,g-,1,Au2,g-,12,Se,p-,1,Se2,p-,12,O,ct,-1,O2,ct,-1,N2,ov,-1,2,Market ReviewSince our last Taiwan Strategy report around a month
12、 ago(October 8)the markethas been focused on 1)3Q12 earnings season;2)new product launches;3)theimproving PMI number in China;and 4)the US presidential election.TAIEX trading,Cautious sentiment remains,volume has hovered around US$2,500 mn over this period.The weak marketsentiment is likely a result
13、 of global economic uncertainty,as well as a specific localfactor,in the form of the capital-gains tax(CGT)to be implemented in 2013.Moreover,ongoing investigations of insider trading/front-running by local ITC fundmanagers of government funds has also had an impact on market sentiment forsmall cap
14、names.Specifically for this week,the MSCI quarterly review has alsoweighed on the market.Figure 1:TAIEX trading volume hovered around US$2,500 mn over past month,US$mn,Taiex Trading Value,6,0005,0004,0003,0002,0001,000-Source:TEJ,Yuanta compiled.The numbers are 3-day moving average3Q12 earnings rele
15、ases,Foundry,IC design and FPCBcompanies outperformed in3Q12,Among the 3Q12 earnings results in our Taiwan coverage universe,foundry,ICdesign,and FPCB outperformed,with double-digit QoQ and YoY sales growth(Figure 2).We attribute this to high seasonality and lean inventory on the customerside.Given
16、overall cautious sentiment,stocks have tended to react more actively to,negative earnings surprises than to positive ones.The expected NTD appreciationin 3Q12 has not impacted much on 3Q12 earnings yet,but we caution there may bemore impact in 4Q12.Yuanta,Taiwan,15 Nov,2012,Strategy,Page 2 of 19,Fig
17、ure 2:3Q12 earnings review,NT$mn,Revenue,Net Income,OPM,Sector,3Q12,QoQ,YoY,3Q12,QoQ,YoY,3Q12,2Q12,3Q11,QoQ(+/-)YoY(+/-),ComponentsDistributorsFoundryIC designLEDHandsetsSemi equipmentOBM/ODMSATS/IC Substrates/PCBFPCBTelecomsSolarTech(ex.TFT,DRAM)Cement&SteelRaw MaterialsConsumerBio-techOthersNon-Te
18、chYuanta Coverage(Ex.DRAM,TFT),124,52191,320181,86947,06513,17183,5041,038798,954123,2512,726100,5759,6081,577,60359,216383,466107,4502,8186,237559,1872,136,790,4%10%10%19%6%-20%-4%7%3%51%1%-25%5%-10%0%7%-10%-10%0%4%,7%-2%28%23%16%-45%48%-4%-1%39%4%-45%-3%-16%13%12%17%-16%8%0%,8,7341,75651,3317,6786
19、147,04334715,3769,79546717,160-1,715118,5864,78130,8574,8845011,04042,063160,649,1%18%16%31%-20%-27%-14%11%1%97%-4%N.M8%-37%N.M20%-20%-17%N.M58%,1%-37%56%27%65%-71%54%15%-18%29%-3%N.M1%-50%34%7%-13%-40%6%2%,10%3%14%22%7%24%38%2%12%20%20%-18%13%5%8%11%23%21%14%13%,10%2%12%21%6%24%41%2%12%9%21%-15%12%
20、4%5%12%22%24%13%13%,7%4%11%20%5%31%26%2%12%21%22%-7%13%2%12%11%38%26%18%15%,0%0%2%1%1%0%-3%0%0%11%-2%-3%1%1%3%-1%1%-3%0%0%,3%-1%2%2%2%-7%12%0%1%-1%-2%-11%0%3%-3%0%-15%-5%-4%-2%,Source:Yuanta ResearchNew product launchesVarious new products have been unveiled since September,including 1)iPhone 5,the
21、fourth-gen iPad and iPad mini from the Apple camp;2)Window 8 line-ups of,Most new product launchesthis year concentrated inOctober and November,NBs,convertibles,and tablets from various PC brands and even MSFT itself(Surfacetablet);and 3)Google and Amazon,the two top Android tablet players,introduci
22、ngNexus 7 refresh and Kindle 7”Fire HD,respectively.We believe earnings affectshare price more than the sheer effect of product launches.One unique aspect ofthis year is that Apples new product launches are all concentrated in 4Q12,and alluse metal casing,which has led to supply bottlenecks and insu
23、fficient marketsupply,as we indicated in the last Taiwan Strategy piece on October 8.Figure 3:New product launch schedule,Launch Time2012/9/212012/10/262012/10/302012/11/22012/10/26Nov,New ProductiPhone 5Surface RTNexus 7 refreshiPad MiniWin 8 PC&tablet,BeneficiariesHon Hai/Foxconn TechPegatronAsust
24、ek/QuantaPegatron/Hon HaiAsustek/TPK/ODMs,Source:Yuanta compiledUS presidential electionThe US market rallied before the presidential election,and then fell sharply right,TAIEX not celebrating Obamasvictory,after Obamas victory on the fiscal cliff overhang.TAIEX seemed rather unaffectedby the US mar
25、ket this time,likely owing to underperformance beforehand.However,we believe the fiscal cliff and other global uncertainties will suppress TAIEXmomentum.Also,Obamas victory bodes well for continued QE3 efforts,which has,led to continued NTD appreciation,a negative factor for Taiwans export-orientede
26、conomy.Unusually,property stocks have weakened despite NTD appreciation,likely as a result of the central bank tightening mortgage regulations.Yuanta,Taiwan,15 Nov,2012,Strategy,Page 3 of 19,1,2,3,4,5,6,7,8,9,Fund flows,Tech names favored over thepast month,Over the past month(10/8-11/13),FINI had a
27、 total net sell of US$1.2 bn while ITCnet sold US$13 mn.As for the top net buys,nine out of the ten top FINI buys aretech names.MTK and TSMC are still defensive names.Also,TPK was the second topFINI buy,which we believe is due to the launch of touch products that TPK can lead,on,given its superior l
28、amination technology and hence good margins.Figure 4:FINI and ITC net buy/sell(10/8-11/13),US$mn,FINI Top Net Buy/Sell,ITC Top Net Buy/Sell,Rank,Net Buy,Net Sell,Net Buy,Net Sell,2454 MediaTek3673 TPK3034 Novatek2330 TSMC1101 Taiwan Cement3008 Largan6269 Flexium3697 MStar Cayman9914 Merida,391168150
29、1499580535048,2498 HTC1301 Formosa Plastics2317 Hon Hai Precision3045 Taiwan Mobile1326 Formosa Chem&Fibre2891 Chinatrust FHC4904 Far EasTone Telecom2382 Quanta Computer2912 Pre.Chain Store,-353-195-193-153-132-108-93-91-84,3008 Largan2317 Hon Hai Precision2330 TSMC1101 Taiwan Cement9904 Pou Chen291
30、5 Ruentex2409 AU Optronics3481 Chimei Innolux5871 Chailease Holding,514944332821211816,2354 Foxconn Technology6121 Simplo2454 MediaTek2474 Catcher3406 Genius3211 Dynapack1314 China Petrochem2382 Quanta Computer2201 Yulon Motor,-58-47-32-25-25-24-19-17-16,10,3042 Txc Corp.,47,2412 Chunghwa Telecom,-8
31、4,4904 Far EasTone Telecom,14,2498 HTC,-16,Source:TEJ,Yuanta Research compiledMTK and TSMC remian the top borrow and cover stocks.TPK has seen major shortcovers,highlighting the Streets positive view.Figure 5:Top stock borrows and covers(10/8-11/13),Stock Borrow2454 MediaTek2317 Hon Hai Precision233
32、0 TSMC2498 HTC2357 AsustekStock Cover2454 MediaTek2330 TSMC3673 TPK2498 HTC2474 Catcher,000 Shares43,93470,04767,05323,97015,696000 Shares37,16663,32412,89916,76727,177,%of outstanding bal.94%55%31%30%58%of outstanding bal.93%30%70%23%70%,Value US$mn482209202193165Value US$mn408190170135121,Source:T
33、EJ,Yuanta Research compiledYuanta,Taiwan,15 Nov,2012,Strategy,Page 4 of 19,Rank,1,2,3,4,5,6,7,8,9,10,15,17,20,23,25,28,29,30,18 of the top 30 best performers and worst performers were tech stocks,whichsuggests tech sector holdings were being actively adjusted.Figure 6 Best and worst performing stock
34、s(10/8-11/14)(Mkt capUS$500 mn),Best performing stock,Worst performing Stock,3176 Medigen1476 Eclat Textile2409 AU Optronics3008 Largan3658 HMI3673 TPK6147 Chipbond1565 St.Shine3189 Kinsus3481 Chimei Innolux,26.9%8069 E Ink Holdings15.0%6121 Simplo12.0%2448 Epistar11.6%6239 Powertech11.5%5907 Grand
35、Ocean11.3%5371 Coretronic10.2%2324 Compal Electronics9.7%1704 LCYCIC9.1%3044 Tripod8.7%1326 Formosa Chem&Fibre,-38.2%-25.2%-24.5%-24.0%-23.2%-22.4%-21.8%-21.7%-20.7%-20.7%,111213141618192122242627,2608 Kerry TJ8406 Ginko5347 Vanguard3034 Novatek5871 Chailease Holding6269 Flexium8422 Cleanaway9910 Fe
36、ng Tay2489 Amtran2449 King Yuan Elec6176 ROEC1477 Makalot5534 Chong Hong2357 Asustek1507 Yungtay Eng.6271 THEIL2330 TSMC1101 Taiwan Cement2317 Hon Hai Precision3042 Txc Corp.,7.6%2337 Macronix6.7%8046 N.P.C.5.9%1605 Walsin5.2%2362 Clevo5.1%2384 Wintek4.0%2498 HTC3.5%2458 Elan3.2%1234 Hey-Song3.2%210
37、3 Taiwan Synthetic Rub3.0%2101 Nan Kang Tire2.4%3211 Dynapack2.4%2227 Yulon Nissan Motor2.3%5483 Sino-American Silico2.3%9933 CTCI2.2%3037 Unimicron2.1%2353 Acer Inc.1.6%2347 Synnex1.4%1314 China Petrochem1.2%4105 TTY Biopharm1.0%2723 Gourmet,-19.7%-19.7%-19.4%-18.9%-18.8%-18.5%-17.4%-17.1%-17.1%-16
38、.8%-16.5%-16.3%-15.8%-15.7%-15.6%-15.5%-15.4%-15.3%-15.1%-15.0%,Source:TEJ,Yuanta Research compiledYuanta,Taiwan,15 Nov,2012,Strategy,Page 5 of 19,Oct-09,Oct-10,Oct-11,Apr-09,Apr-10,Apr-11,Apr-12,Oct-12,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,1),2),3),5),1),Market OutlookThere are no
39、 strong signs of macroeconomic improvement yet,and investors in,We identify five directions forinvestment in 2013,general are neither bullish on Taiwan nor very active in this market.Many areconcerned about thin market liquidity,and would therefore rather move money intoHK/China markets.In addition,
40、a capital-gains tax will be imposed from 1Q13,which is a drain on liquidity.Nonetheless,we identify five investment directions in2013,to outperform the market:Touch Win 8 NB beneficiaries.China market recovery.Apple outsourcing/price increases.,4),Banking M&A.,Low-price smartphones.Touch Win 8 NB be
41、neficiariesWe forecast a modest 6%YoY NB shipment growth in 2013,but we anticipate touchNB demand will surprise on the upside.The use of keyboards and touch panels,Touch Win 8 NB winners Asustek and TPKBest timing yet?,simultaneously in notebooks is a new user experience that makes notebooks morefun
42、 and more efficient,and as such we expect the penetration of touch NBs to risefrom below 5%in 4Q12 to 20%+in 2013.Meanwhile the air-bonding touch solutionis cost effective and could further boost touch NB demand.We are positive on twomajor beneficiaries Asus and TPK.Asus is the frontrunner in touch
43、NBs whileTPKs large-size touch panel lamination is of the best quality,and therefore enjoyspricing power and good margins.2)China market recoveryChina PMI indexes for both manufacturing and non-manufacturing both improved inSeptember,which signals demand recovery,despite the fact that further sustai
44、nabilityneeds to be seen(Figure 7).Local investors are more inclined to be positioned inChina plays than foreign investors right now.There is an ongoing debate about whenis the best time to take positions.In any case,we provide a list of frequently-,mentioned China plays(Figure 8).The valuations of
45、these names are usually notcheap so we recommend investors put them on their radar screens first,thenaccumulate when the time is right or during corrections.Figure 7:China PMI improved in September60504030Source:Bloomberg,Yuanta CompiledYuanta,Taiwan,15 Nov,2012,Strategy,Page 6 of 19,Figure 8:China
46、plays,Ticker(TT)84062347272358712454272799452915590712161507210522019939990711011102122759034144,GinkoSynnexGourmet MasterChaileaseMediatekWowprimeRuentex DevelopmentRuentex IndustriesGrand OceanUni-PresidentYung TayCheng Shin RubberYulon MotorHon ChuanTon Yi IndustrialTaiwan CementAsian CementStand
47、ard FoodsFamily MartColand,Company,RatingBUYHOLD-UPFHOLD-OPFHOLD-OPFBUYUnder reviewBUYBUYUnder reviewUnder reviewUnder reviewUnder reviewUnder reviewUnder reviewNot RatedNot RatedNot RatedNot RatedHOLD-UPFNot Rated,Source:Yuanta Research3)Apple outsourcing/price increasesThe appeal of Apple and Appl
48、e plays has seemingly abated.Despite this,there arestill a few Apple supply chain winners that should do well.We expect TSMC benefitfrom Apples 20nm geometry foundry outsourcing,at the expense of Samsung.,We like TSMC,Hon Hai,Larganand PegatronOur proprietary Banking M&ABasket Index has risen 7.7%YT
49、D,outperforming theTaiwan Financial Indexs 3.1%increase,Meanwhile,we also expect Apple to give reasonable prices to a few vendors,whohave increasingly higher bargaining power,namely Hon Hai,Largan,and Pegatron.Hon Hai and Largan reported strong 3Q12 results and we believe Pegatron willreport a major
50、 4Q12 OPM improvement when Apple starts to allow new pricing.4)Banking M&AThe Taiwan banking sector has not attracted much attention in 2012 so far.However,our banking analyst,Peggy Shih,believes banks which offer M&A valuecould actually outperform the market.Her proprietary Banking M&A Basket Index
