Hon Hai: Focus On AI Server Growth Rather Than Earnings Miss (Rating Upgrade)

seekingalpha05-20

Hon Hai's Q1 2024 earnings were below expectations due to non-operating factors, but its first quarter operating profit was slightly above the consensus forecast.HNHAF's actual April 2024 sales ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2436966451?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1396031076/image_1396031076.jpg","is_english":true,"pubTime":"2024-05-20 02:00","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2436966451","market":"fut","top_or_hot":-1,"title":"Hon Hai: Focus On AI Server Growth Rather Than Earnings Miss (Rating Upgrade)","media":"seekingalpha","content":"<div>\n<p>Hon Hai's Q1 2024 earnings were below expectations due to non-operating factors, but its first quarter operating profit was slightly above the consensus forecast.HNHAF's actual April 2024 sales ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694375-hon-hai-focus-on-ai-server-growth-rather-than-earnings-miss-rating-upgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Hon Hai: Focus On AI Server Growth Rather Than Earnings Miss (Rating Upgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nHon Hai: Focus On AI Server Growth Rather Than Earnings Miss (Rating Upgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-20 02:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4694375-hon-hai-focus-on-ai-server-growth-rather-than-earnings-miss-rating-upgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Hon Hai's Q1 2024 earnings were below expectations due to non-operating factors, but its first quarter operating profit was slightly above the consensus forecast.HNHAF's actual April 2024 sales ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694375-hon-hai-focus-on-ai-server-growth-rather-than-earnings-miss-rating-upgrade\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"HNHPF","symbol_name":"Hon Hai Precision Industry Co. Ltd.","start_time":0,"source_url":"https://seekingalpha.com/article/4694375-hon-hai-focus-on-ai-server-growth-rather-than-earnings-miss-rating-upgrade","article_id":"2436966451","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1396031076/image_1396031076.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2436966451","pubTimestamp":1716141600,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Hon Hai's Q1 2024 earnings were below expectations due to non-operating factors, but its first quarter operating profit was slightly above the consensus forecast.HNHAF's actual April 2024 sales perfor","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"HNHPF":"Hon Hai Precision Industry Co. Ltd.","HNHAF":"Hon Hai Precision Industry Co. Ltd.","BK4145":"电子制造服务","SHCAF":"Sharp Corp.","BK4078":"消费电子产品","SHCAY":"夏普"},"translate_title":"鸿海：关注人工智能服务器增长而非盈利失误（评级升级）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"HNHAF":1,"HNHPF":1,"SHCAF":1,"SHCAY":1},"content_text":"Hon Hai's Q1 2024 earnings were below expectations due to non-operating factors, but its first quarter operating profit was slightly above the consensus forecast.HNHAF's actual April 2024 sales performance and the sell-side analysts' consensus full-year FY 2024 financial forecasts are favorable.I revise my rating for Hon Hai to a Buy, in view of the positive outlook for its AI server business.   Images_By_KennyElevator Pitch Hon Hai Precision Industry Co., Ltd. (OTCPK:HNHAF) (OTCPK:HNHPF) [2317:TW] shares are awarded a Buy rating.  My earlier October 30, 2023 write-up touched on Hon Hai's full-year FY 2023 prospects and risks pertaining to the company's Mainland Chinese manufacturing operations. This latest update focuses on HNHAF's recent quarterly results, its latest monthly sales numbers, and the company's FY 2024 outlook. Hon Hai's Q1 2024 bottom line was below the consensus estimate as a result of non-operating factors; its first quarter operating profit was slightly above the consensus forecast. Looking ahead, HNHAF's actual April sales and full-year financial outlook suggest that the company's AI server business boasts robust revenue growth momentum. Therefore, I have made the decision to upgrade my rating for Hon Hai to a Buy. First Quarter Earnings Missed Expectations Due To Non-Operating Items Hon Hai reported its Q1 2024 financial results on May 14. In my opinion, investors should look past the company's first quarter bottom line miss. Net income attributable to shareholders for Hon Hai dropped by -59% QoQ from NT$53.2 billion for Q4 2023 to NT$22.0 billion in Q1 2024 as disclosed in its earnings presentation slides. HNHAF's actual first quarter net profit was also -23% or -NT$6.5 billion lower than the sell side analysts' consensus bottom line projection of NT$28.5 billion (source: S&P Capital IQ). HNHAF highlighted at its Q1 2024 earnings call that its recent quarterly \"non-operating and net income\" were hit by a NT$10.5 billion asset write-down relating to its 34% stake in Japanese electronics business Sharp Corporation (OTCPK:SHCAY) (OTCPK:SHCAF) [6753:JP]. At its most recent quarterly results briefing, Hon Hai explained that Sharp \"booked asset impairments\" because of its \"move toward being asset light\" as part of its \"long-term development strategy.\" In other words, Hon Hai's Q1 2024 bottom line was negatively impacted by a non-operating and a non-cash item. In fact, the company's actual first quarter operating profit of NT$36.7 billion came in slightly better or +1.4% higher than the market's consensus forecast of NT$36.2 billion as per S&P Capital IQ data. This is aligned with Hon Hai's Q1 2024 earnings briefing commentary that \"the performance of our four major product segments were largely in line with what we expected.\" The company's product segments are Smart Consumer Electronics, Cloud & Networking, Computing, and Components & Others, which accounted for 48%, 28%, 18%, and 6% of its Q1 revenue, respectively. As such, it will be the right thing to look beyond Hon Hai's Q1 2024 earnings miss. Instead, the spotlight should be on HNHAF's latest monthly performance and full-year outlook as detailed in the next two sections.  Revenue Growth Accelerated In April  Moving away from the company's Q1 results, Hon Hai witnessed a faster pace of top line expansion last month. In specific terms, HNHAF's revenue rose by +19.0% YoY to NT$429.2 billion in April 2024 as revealed in its latest monthly sales report. In contrast, Hon Hai's YoY top line increase for March 2024 was a relatively lower +11.8%. Hon Hai doesn't disclose its sales for its different business segments on a monthly basis. However, HNHAF indicated in its April 2024 sales report that the company's Cloud & Networking segment experienced \"strong (top line) growth YoY\" in 2024 year-to-date due to \"strong AI server demand.\"  Cloud & Networking is HNHAF's second largest business in terms of revenue contribution after Smart Consumer Electronics as mentioned in the preceding section. Therefore, it is encouraging that Hon Hai has provided favorable commentary on this particular business segment.  AI Servers Are Key Growth Driver For Full-Year 2024 The sell side analysts are of the view that Hon Hai will deliver a better set of results for FY 2024 vis-a-vis 2023. Specifically, Hon Hai is forecasted to turn around from a -7.0% top line contraction last year to register a +7.8% revenue growth this year as per S&P Capital IQ data. The market also sees HNHAF's normalized EPS growth accelerating from +0.1% in FY 2023 to +10.4% for FY 2024. Hon Hai anticipates that its 2024 revenue for both the Smart Consumer Electronics and Computing segments will be roughly on par with what it achieved in the prior year. In comparison, HNHAF is expecting to register positive top line expansion for its Cloud & Networking segment in the current year. This is the qualitative guidance that the company has provided, which implies that its Cloud & Networking segment will be the main growth driver in 2024. In the prior section, I have already highlighted that \"strong AI server demand\" was a key reason for Hon Hai's revenue growth acceleration in April this year. For the first quarter of this year, HNHAF's AI server revenue jumped by in excess of +200% YoY and accounted for roughly 40% of the company's total server revenue for the Cloud & Networking segment.  The positive revenue growth momentum for Hon Hai's AI server business, which falls under the Cloud & Networking segment, is very likely to be sustained for full-year 2024. At its Q1 2024 analyst briefing, HNHAF guided for \"its AI server revenue to continue to grow each quarter.\" The company also shared its observations at the recent quarterly analyst call that \"demand is very strong\" for the new AI server product \"launched in March.\" Variant View Hon Hai's stock could possibly perform poorly under two bear case scenarios. One scenario is that the company's actual AI server revenue growth slows in the coming quarters due to stiffer competition or production issues. Another scenario is an escalation of geopolitical tensions between Taiwan and Mainland China, considering Hon Hai's status as a Taiwanese company. In my end-October 2023 article, I had cautioned that HNHAF \"is too reliant on Mainland China as its key production center, and it might be negatively affected by tensions between China and Taiwan.\" Final Thoughts The market is now valuing Hon Hai at 14 times consensus next twelve months' normalized P/E as per S&P Capital IQ valuation data. For a company exposed to AI-related tailwinds, a mid-teens P/E multiple appears to be undemanding. Assuming that its AI server revenue growth momentum continues in the quarters ahead, I think that Hon Hai has the potential to trade at a P/E metric at the high-teens level which justifies a Buy rating.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2436966451"}