Asian Tech Files TCS Revenue In-Line but Margins Below Expectations
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Asia Pacific Technology - General Industry In-Depth 17 April 2007 | 18 pages Asian Tech Files TCS Revenue In-Line but Margins Below Expectations Top Asian Tech Calls Kirk Yang1 Flash: Tata Consultancy Services (TCS.BO): Buy: TCS Q4 - Revenues In-Line; +852-2501-2787 Margins Below Expectations — Revenue for the quarter was $1.18b (as against [email protected] our expectation of $1.19b). EBITDA margins were flat qoq at 28.3% as against Semiconductors our expectation of 40bp improvement. Higher depreciation resulted in EBIT 2 margins declining by ~50bp qoq. Net profit was helped by a one-off other Andrew Lu [email protected] income due to sale of stake in Sitel – net profit for the quarter was Rs. 11.73b. Surendra Goyal +91-22-6631-9870 Jay Choi3 [email protected] Hardware Dale Gai2 [email protected] Patty Liu2 [email protected] Horng Han Low4 [email protected] Michael Meng1 [email protected] TFT/LCD George Chang, CFA2 [email protected] Sean Kim3 [email protected] IT Services Surendra Goyal, CFA5 [email protected] See Appendix A-1 for Analyst Certification and important disclosures. Citigroup Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Non-US research analysts who have prepared this report are not registered/qualified as research analysts with the NYSE and/or NASD. 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Customers can access this independent research at http://www.smithbarney.com (for retail clients) or http://www.citigroupgeo.com (for institutional clients) or can call (866) 836-9542 to request a copy of this research. 1Citigroup Global Markets Asia; 2Citigroup Global Markets Inc - Taipei Branch; 3Citigroup Global Markets Korea Securities Ltd; 4Citigroup Global Markets Singapore PTE LIMITED; 5Citigroup Global Market India Private Limited Citigroup Global Markets | Equity Research Asian Tech Files 17 April 2007 U.S. Tech Overnight & Japan Tech / Implications IBM ($94.93, 1M) Q1 Preview (4/17): Q1 and Q2 EPS May Fall Just Below St GOOG ($466.29, 1H) Buying DoubleClick: Expensive But Significant Strategic Thrust Semiconductors: Q1 Preview: Expect Q1 In-Line; Q2 to Create Buy Opportunities EFII ($25.14, 1H) AIIM/On Demand Conference: Reit Buy on EFII Going into the Show Sony (6758.T - ¥6,620; 1H): Takeaways from meeting with SPE CEO Innotech (9880.Q - ¥900; 1H): Initiating coverage: Positioned for further earnings growth on expansion of the development and engineering field Asia/US Tech Headlines Asustek may use own brand for Classmate PC — Asustek, being the ODM for Classmate PC, may use own brand on the product. Besides making NBs, Asustek will also be cooperating with Intel to make DTs. DigiTimes Dell may cooperate with Quanta to make PDA phone — Dell may work with Quanta to produce PDA phone, using Microsoft platform that supports 3.5G network. DigiTimes 2 Citigroup Global Markets | Equity Research Asian Tech Files 17 April 2007 Global Indices Overnight Price Chart for DRAM Close DoD % YTD % 06 P/E 07 P/E SOXX 474 0.33 -3.88 25.9 24.9 $12 512Mb DDR2 512Mb DDR 256Mb DDR NASDAQ 2518.33 1.06 12.24 36.6 30.6 $10 TWSE Electronics 337.8 -0.78 17.59 22.6 16.8 MSCI Asia Tech 249.44 -0.16 10.22 20.1 NM $8 Citi Asian Tech 106.7 1.0 10.3 19.7 96.4 $6 Citi Asian Semi 105.4 0.3 5.1 19.1 95.6 (US$) Citi Asian Hardware 108.3 1.7 17.5 19.9 97.5 $4 Citi Asian IT Service 110.6 5.5 28.3 22.0 102.3 $2 Source: Datastream, Bloomberg, Citigroup Investment Research $0 Citi subsector valuations are USGAAP-adjusted Jul-05 Jan-05 Apr-05 Feb-05 Feb-06 Mar-06 Jun-06 Feb-07 Mar-07 Sep-05 Dec-05 Sep-06 Dec-06 Nov-05 Nov-06 May-05 Aug-05 May-06 Aug-06 Asian Technology Top Gainers/Decliners US$ Last 1Wk 1M 3M DRAM 256 MB 1.96 2.16 2.09 2.24 Winners Losers DRAM 512 MB 3.62 3.75 3.71 3.92 Name Last % Name Last % DRAM 512 MB (DDR2) 2.69 3.07 3.19 6.17 Sasken Comm 561 6.4 Via Tech 33.9 -6.1 Price Chart for NAND Semiconductor 7.63 5.2 Elec & Eltek 2.75 -3.8 60.00 BYD 42.1 5.0 Realtek 68.30 -3.8 NAND 8G NAND 4G I-Flex 2346.1 4.7 Springsoft 58.60 -3.6 50.00 NAND 2G Comba Telecom 3 4.0 Silitech 147.00 -3.3 40.00 Source: Citigroup Investment Research 30.00 MSCI Asia Tech vs. SOXX and 14-day RSI 20.00 600 270 10.00 550 250 - Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 500 230 US$ Last 1Wk 1M 3M 450 210 NAND 8G 8.25 9.02 7.91 8.27 NAND 4G 4.83 5.09 4.67 4.94 400 190 NAND 2G * 4.34 4.62 4.84 5.03 * Data not available since beginning of December, 2006 350 170 Price Chart for TFT SOXX [LHS] MSCI AP TECH [RHS] 300 150 1400 180 5 6 06 06 06 6 7 07 1200 00 200 0 2006 0 200 00 160 /2 3/ 1/2006 0/2 / 8/2 6/2 1/20 2/8 /2 3/8/20 2 6/6/2006 9/4 1 2/1/ /1 3/ 1000 1 1 4/ 7/2 10/ 1 1 800 140 90 600 120 80 400 100 70 200 60 0 80 50 Sep-05 Dec-05 Mar-06 Jul-06 Oct-06 Jan-07 Apr-07 40 32" TFT TV (LHS) 42" TFT TV High (LHS) 30 15" TFT NB (RHS) 17" TFT Monitor (RHS) 20 US$ Last 1Wk 1M 3M 10 42” TFT TV High 675 689 696 703 0 32” TFT TV 312 320 324 329 5 6 6 6 7 17” TFT Monitor 98 104 107 111 006 006 006 007 200 2 200 2006 2 2 15” TFT NB 88 90 92 93 1/ / 0/200 8/200 6/200 /8/ 3/8/ 6/6 9/4/ /1 2/1/2 3/1/ 12 1/23/2006 4/2 7/2 10 1 1/1 Source: Bloomberg Source: Citigroup Investment Research, DRAM Exchange, Witsview 3 Citigroup Global Markets | Equity Research Asian Tech Files 17 April 2007 Model Portfolio Price Target Mkt Over- / Under- 2007E 2007E 2007E 2007E 2007E 16-Apr Price Cap Citi MSCI Portfolio Weight Rel. P/E Earnings P/BV ROE Div. Stock (Local$) (Local$) (US$m) RIC Rating Weight (%) Wght (%) to MSCI (bps) (x) Growth (%) (x) (%) Yld (%) IT Service 10.6 13.4 275 TCS 1280.10 1560.00 29,984 TCS.IN 1L 13.4 25.0 42.5 10.3 49.1 0.7 TFT 9.4 8.2 -115 AUO 51.80 62.00 11,830 2409.TW 1L 8.2 24.8 119.2 1.7 7.0 1.9 Handset & Cmpnt 10.3 0.0 -1,030 PC 14.3 12.4 -185 Asus 79.80 111.00 8,211 2357.TW 1L 3.3 17.5 28.2 1.9 11.9 1.9 Acer 64.80 83.00 4,567 2353.TW 1L 3.9 19.6 0.3 2.0 11.1 4.6 Quanta 50.70 65.00 5,141 2382.TW 1M 5.2 12.7 24.8 2.2 17.5 6.4 Semiconductors 19.2 55.3 3,605 Chartered Semi 9.69 11.20 2,457 CSMF.SG 1M 14.4 34.5 17.8 1.8 5.5 0.0 Novatek 153.00 190.00 2,404 3034.TW 1M 3.7 11.4 11.3 4.8 45.7 5.4 Powertech 121.50 150.00 1,726 6239.TW 1M 6.0 10.3 15.1 3.5 38.0 3.7 SPIL 70.00 70.00 6,211 2325.TW 1L 14.8 18.2 1.9 3.2 18.3 5.2 TSMC 67.50 82.00 52,579 2330.TW 1L 14.2 20.6 -14.1 3.6 16.9 4.5 UTAC 0.96 1.05 946 UTAC.SG 1M 2.2 11.0 15.4 1.3 13.0 0.0 Memory 36.2 9.1 -2,713 Hynix 33650.00 41000.00 16,581 000660.KR 1M 9.1 9.0 -16.8 1.5 18.2 0.0 Cash/ Others 0.0 1.6 162.6 Total 123,651 100.0 100.0 0.0 16.7 -0.5 2.4 14.4 2.65 Source: IBES, Citigroup Investment Research estimates Calendar of Events Apr / May SUN MON TUE WED THU FRI SAT 8 9 10 11 12 13 14 Results: LWSN Results: LPL Results: RIMM, Results: LRCX Results: INFY SAI, FIH 15 16 17 18 19 20 21 Results: PHG Results: ADTN, Results: ASML, Results: FDC, Results: SAP, EMC, IBM, INTC, AVCI, EBAY, ISIL, FCS, NOK, TLAB, SonyEriccson, IWOV, LLTC, YHOO LG Electonics, UTEK, AMD, CREE, XRX MGI, MOT, NVLS HYSL, INFA, INTU, MOLX, PKTR, TSS 22 23 24 25 26 27 28 Results: ALTR, Results: AUO, Results: ATMI, AVX, Results: AVT, CY, Results: CHRT, JNPR, NFLX BHE, Canon (CAJ), BOBJ, UIS, AAPL, ELNK, ERIC, IKN, CLS, DASTY, IFX CDWC, CPS, DST, AEIS, AKAM, ARRS, MKSI, MNST, NCR, T, Advantest, CDNS, FFIV, FIS, PLXS, SPWR, SY, CKFR, CSGS, FISV, HLIT, ISLN, LSI, Trend Micro, BRCM, ENTU, HTCH, RFMD, STM, MANH, MXIM, NEWP, CALD, DOX, EQIX, SUNW, VECO, Nidec, PLXS, PMCS, FLEX, IDTI, IM, INSP, WBSN, WU RNOW, SWKS, TQNT KLAC, LAVA, MFE, MSFT, NATI, NETL, NTAP, NTGR, ONNN, RACK, SCUR, SNDK, SPRT, SWIR, ULTI, VSEA 29 30 1 2 3 4 5 Source: Citigroup Investment Research 4 Citigroup Global Markets | Equity Research Asian Tech Files 17 April 2007 Tata Consultancy Services (TCS.BO) Surendra Goyal, CFA Buy: TCS Q4 - Revenues In-Line; Margins Below Expectations +91-22-6631-9870 [email protected] Buy/Low Risk 1L Revenues in-line; margins flat qoq — Revenue for the quarter was $1.18b (as Price (16 Apr 07) Rs1,285.70 against our expectation of $1.19b).