Shares of Hon Hai lower on disappointing Q1 results

Taipei, May 15 (CNA) Shares of Hon Hai Precision Industry Co. came under pressure Wednesday morning after the world's largest contract electronics maker reported disappointing results for the first quarter, dealers said. The stock's fall was limited, however, after having already been pulled down by heavy foreign institutional selling in recent sessions to its nearest technical support level at around NT$76-77 (US$2.54-US$2.56), they said. As of 11:29 a.m., shares of Hon Hai had lost 1.52 percent to NT$78.00, off an early low of NT$77.00, with 55.62 million shares changing hands. The weighted index on the Taiwan Stock Exchange was up 0.35 percent at 8,280.52. "The selling reflected investors' disappointment with Hon Hai's earnings per share and operating margin for the first quarter," Ta Ching Securities analyst Andy Hsu said. "Market sentiment toward the company has turned sour amid uncertainty over its earnings outlook." In a statement released by Hon Hai late Tuesday evening, the company, which assembles iPad and iPhones for Apple Inc., announced a first quarter net profit of NT$16.35 billion, or NT$1.38 in earnings per share, up from about NT$15.08 billion in net profit recorded in the same period in 2012. During the January-March period, Hon Hai's operating margin stood at 1.72 percent, up from 1.54 percent registered in the same period of last year. Though the company's EPS and operating margin were both up on an annual basis, they fell short of the NT$1.56 in EPS and 2.6 percent in operating margin expected by the market, leaving investors disappointed. Hon Hai's consolidated first quarter sales also fell almost 20 percent from a year earlier to about NT$809 billion. "The lower-than-expected results largely reflected Apple's weaker bottom line during the same period because the U.S. consumer electronics giant accounts for about 50 percent of Hon Hai's total sales," Hsu said. Apple posted its first quarterly profit decline in 10 years in the first quarter, with net profit down 18 percent year-on-year. The company also gave lower than expected sales projections for the second quarter. "Based on Apple's cautious guidance, Hon Hai is likely to have a slow second quarter, which worried many investors this morning," Hsu said. "Before Apple unveils its new iPad and iPhone in the second half of this year, I think Hon Hai shares could remain in the doldrums," Hsu said. In addition to Apple's sluggish sales, Hsu said Hon Hai's bottom line was also affected by lower shipments by its Hong Kong-listed subsidiary Foxconn International Holdings Ltd. (FIH). Hon Hai holds about a 70 percent stake in the subsidiary. The downside of Hon Hai shares seemed to be limited, however, because the stock has encountered heavy selling by foreign institutional investors since the beginning of April, Hsu said. Hon Hai shares are down 5 percent since then. "I expect the stock will have some technical support at around NT$75-76 in the near term," he said. (By Jalen Chung and Frances Huang)