Q1 results send Hon Hai shares lower

2019/05/15 15:51:51 fontsize-small fontsize-default fontsize-big
Q1 results send Hon Hai shares lower

Taipei, May 15 (CNA) Shares in Taiwan-based manufacturing giant Hon Hai Precision Industry Co. came under pressure Wednesday after the company reported a decline in net profit and profit margins for the first quarter of this year, dealers said.

The losses reduced Hon Hai's market capitalization, the second largest on the local stock market, by more than NT$26 billion (US$836 million) after the equity market closed.

Hon Hai shares fell 2.38 percent to close at NT$77.80 with 68.60 million shares changing hands on the Taiwan Stock Exchange, where the weighted index ended up 0.39 percent at 10,560.71 on a technical rebound in the wake of gains posted by the U.S. market overnight, dealers said.

The stock faced heavy selling soon after the local equity market opened as investors were disappointed with Hon Hai's first quarter results and that weakness continued to the end of the session despite a rebound on the broader market, dealers said.

In a statement released Tuesday, Hon Hai said it posted NT$19.83 billion in net profit for the January-March period, down 68.34 percent from the previous quarter and down 17.67 percent from a year earlier.

Following a 20 percent cut in its paid-in capital in the second half of last year, Hon Hai's earnings per share for the first quarter rose to NT$1.43 from NT$1.39 over the same period of last year. However, the company's first quarter EPS was lower than the NT$4.06 recorded in the previous quarter.

In the first quarter, Hon Hai's gross margin, which reflects the difference between revenue and cost of goods sold, fell by 1.47 percentage points from a quarter earlier to 5.53 percent.

The company's operating margin -- the difference between sales, cost of goods sold and operating expenses -- was down by 2.02 percentage points from a quarter earlier to 1.53 percent, while its net margin -- the difference between gross profit and total expenses, including interest payments and taxes -- fell 1.58 percentage points to 1.88 percent.

According to analysts, Hon Hai recorded about NT$4.22 billion in operating costs, sending its profit margins lower in the first quarter.

"The deteriorating bottom line as well as its profit margins largely reflected slow season effects," Mega International Investment Services Corp. analyst Alex Huang said. "It was no surprise that its share price failed to react positively to the rebound in the U.S. markets overnight and underperformed the local main board throughout the session."

Due to the selling of its shares, Hon Hai's market cap fell to about NT$1.078 trillion from NT$1.105 trillion a session earlier.

"In addition to the ugly first quarter results, investors have cut their holdings in Hon Hai in recent sessions amid worries over the company's future without its chairman Terry Gou (郭台銘)," Huang said.

Gou said last week that he will not seek the chairmanship at a board meeting scheduled for June, after he declared his intention in mid-April to take part in the opposition Kuomintang's presidential primary.

He said that even if he loses the primary, he will not seek to serve as Hon Hai's chairman.

"Gou is a dominant figure in Hon Hai, completely dictating the company's business direction. So, his decision not to continue as chairman has raised concerns over the company," Huang said.

How Hon Hai performs in the second quarter will depend on the global economy at a time of trade friction between the United States and China, analysts said.

(By Chung Jung-feng and Frances Huang)

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