Inventory adjustments continue in 2H16F, competiveness intact
​We attribute weak operations to continued inventory adjustments by a North American client, but believe Senao Networks’ product competitiveness and client stickiness remains intact. We lower 2016F sales/earnings forecasts again, by 2%/10%, and anticipate declines YoY. Seasonal demand in 2H16F may fail to materialize, but the company expects strong WiFi infrastructure construction in the North American market in 2017F, and anticipates a return to sales/earnings growth in 2017F. Senao has seen a share price rebound of 15% recently alongside a stronger TAIEX. However, given a potential 3Q16F sales/earnings decline QoQ, a sign of weaker than anticipated business momentum, we expect near-term share price pressure. We suggest investors consider revisiting after >10% share price pullback. We lower our TP slightly to NT$192, based on 13x 2017F EPS. We roll over our valuation basis to 2017F. The share price will likely start to reflect a bright 2017F outlook as we now enter 2H16F.
Senao Networks, Inc. is a Taiwan-based company principally engaged in the development, manufacture and trading of network communication products. The Company's products include four categories, including wireless network system products, wired network system products, enterprise wireless communication system products and network security monitoring system products. Its products include intelligent cloud integrated gateways, wireless network routers, managed network switches and multi-functional home intelligent cameras. The Company distributes its products within domestic market and to overseas markets, including the Americas, the rest of Asia and Europe.
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