D/G - Deteriorating risk-reward profile on negative margin surprise

SPIL’s margin outlook is much weaker than we anticipated. 1Q16 EPS of NT$0.5 (-39% YoY) is also a big miss. SPIL’s GM outlook surprised us on the downside as mgmt cited ASP pressure. Its 2016F GM is likely to contract by 2-3 ppt YoY leading to an operating profit decline of over 10% YoY, which we think will not be well-received by investors. According to mgmt, 1Q16 GM was negatively impacted mainly by ASP pressure (-4% QoQ), followed by an unfavorable product mix and F/X.