Hon Hai shares soar on capital reduction plan

2018/05/14 11:49:13 fontsize-small fontsize-default fontsize-big
Hon Hai shares soar on capital reduction plan

Taipei, May 14 (CNA) Shares of Taiwan-based manufacturing giant Hon Hai Precision Industry Co. moved sharply higher Monday morning, after the company last week announced plans to reduce its capital and increase shareholder returns, dealers said.

The buying also came after Hon Hai's subsidiary Foxconn Industrial Internet Co. Ltd. (FII) confirmed Saturday that it had received formal approval from the China Securities Regulatory Commission (CSRC) for an initial public offering in Shanghai, dealers said.

Hon Hai, one of the top large-cap stocks on the local market, helped drive the weighted index on the Taiwan Stock Exchange past the 10,900 point mark in Monday trade, dealers said.

As of 10:47 a.m., shares of Hon Hai, an iPhone assembler, had climbed 3.65 percent to NT$88.10 (US$2.96), with 74.81 million shares changing hands on the Taiwan Stock Exchange. The benchmark weighted index was up 0.80 percent at 10,945.75 points.

The stock attracted strong buying soon after the local equity market opened as investors took cues from Hon Hai's plan to cut its capital by 20 percent to NT$138.63 billion. It is the first time that the company is lowering its paid-in capital since it first listed on the local main board in June 1991.

"Amid slower sales growth in contract manufacturing operations, Hon Hai's move to reduce its capital is expected to boost its return on equity by about 20 percent," Hua Nan Securities analyst Kevin Su said.

"It's no surprise that investors rushed to pick up Hon Hai shares this morning to take advantage of the relatively low valuation of the stock, which had been hammered by worries over iPhone X sales," Su said.

The capital reduction plan, which will be voted on by Hon Hai's shareholders at its annual general meeting in June, will result in a cash return of NT$2 per share to shareholders.

Hon Hai is also planning to issue a cash dividend of NT$2 per share on its 2017 earnings per share of NT$8.01.

Su said FII's listing in Shanghai has paved the way for Hon Hai to raise funds in the China market, where stocks have higher valuation than in Taiwan.

According to a prospectus of the Internet-focused FII, it will issue up to 1.91 billion shares, offering a stake of up to 10 percent stake. The market is expecting the Shanghai listing by the end of May or in early June.

After the listing, Hon Hai will retain an 85 percent stake in FII, which will use the proceeds from the share sale for investments in a wide range of new technologies such as cloud-based computing, high performance computing, industrial 5G Internet communication solutions, data centers and smartphone-related applications.

"The Internet business is still booming," Su said. "The FII listing is simply seizing the chance for growth."

(By Chung Jung-feng and Frances Huang)

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