EUR 64.64 For Business Accounts Only

Likely 4Q16 miss on rising expenses in Taiwan; but China’s outlook remains intact

​Stock trading: Its recent share price weakness may be attributed to the 4Q16 results miss on higher than expected operating expenses in Taiwan. Having talked to mgmt, we still expect steady 2016F sales/operating profit growth of 8.9%/10.8% YoY despite headwinds on higher expenses. Due to China’s stronger than expected growth recovery, we are more positive on Sakura China being the driving force since room exists for channel expansion and product-mix optimization as the contribution of high-end products has risen from 40% previously to 70% in 2016 YTD. We believe the market overreacted to the higher than expected operating expenses as its share price dropped 26.4% after the announcement of 3Q results, vs our 2016/17F earnings cut of 7.4%/8.7%. We forecast 2016F /17F EPS to rise 34%/21% YoY to NT$ 3.01/3.65 and thus trim our TP from NT$49 to NT$47 based on the same target P/E multiple of 13x, given China’s rising visibility. We suggest investors accumulate on share price weakness.