Wed, Jan 16, 2002 page18

• Brokerage upbeat on Quanta

  MARKET CALL Despite the run-up in shares of OEM PC-maker Quanta, a pair of analysts at Morgan Stanley Dean Witter say the stock still has plenty of room to rise

  • BLOOMBERG
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  Quanta Computer Inc's (廣達電腦) shares have soared 136 percent since their record low on Sept. 24. Yet they're still a "buy," say Evelyn Ou and Ellen Tseng, analysts at Morgan Stanley Dean Witter.

  While investors know the nation's biggest notebook computer maker has been gaining orders from Apple Computer Inc, Dell Computer Corp and others, Ou and Tseng are the first to lay out comprehensive order volumes in a note to clients, issued yesterday.

  They reckon higher sales and profit could lift the stock to NT$150, their 12-month target, within three months. It's currently trading at NT$139.

  "Buy if there's any fall in the stock," Ou said, extending the rating she's had for 18 months.

  Not everyone agrees. Some investors are selling the shares out of concern that Taiwan's computer makers won't get as big a boost from recovering technology demand as some expect.

  "I've been selling Quanta," said Steven Barton, who helps manage about US$600 million in Asian stocks at Abbey National Asset Managers in Glasgow. "Taiwan depends on technology and I would argue the global economic rebound will not be as strong there as in other sectors."

  Ou and Tseng, though, forecast that Quanta will boost its net income this year to NT$14.06 billion (US$402 million), up 21 percent from their NT$11.6 billion estimate of last year's earnings.

  In 2001 Quanta boosted sales by 39 percent to NT$116 billion even though worldwide personal-computer shipments were forecast to shrink for the first time since 1985.

  Helping Quanta this year are orders from Apple to make its remodeled iMac computer, which has a flat-panel display mounted on a pivoting arm. Quanta will make about 40 percent of all new iMacs that Apple orders from its suppliers this year and half of the remodeled iMacs in 2003, Ou said.

  Apple is likely to order more than 300,000 iMacs per quarter through 2002, she and Tseng say in the report.

  Dell Computer, the world's biggest computer company, will increase its contracts with Quanta to 2.5 million notebooks this year, up from 2.1 million last year, they estimate. Likewise, Hewlett-Packard Co will raise its orders to more than 100,000 units a month by the second half of 2002 from about 50,000 units a month now.

  And Sony Corp, the world's second-largest consumer- electronics maker, will boost its notebook order for the year to 600,000, more than double the estimated 260,000 it bought last year, the two analysts say.

  "Quanta will win more orders because of its production scale and design capability," Ou said. "Not too many companies can make an iMac and not too many have the ability to put thousands of components into a small box without it overheating."

  Some investors agree and expect Quanta and Taiwan to benefit as US companies seek a cheap production line.

  The Market Intelligence Center (市場情報中心), a Taiwanese government think- tank, said in December the island's notebook makers may produce 58 percent of world output this year, about 20 percent more than last year.

  "Taiwan continues to benefit from outsourcing and original-equipment manufacturing trends," said Johnny Summers, who helps manage about US$300 million in Asian stocks at Groupama Asset Management in London. "If you like Taiwan as a global base for manufacturing, then you have to like a stock like Quanta."

  Summers was thinking of selling some of his Quanta shares this month. Now, he says, he's holding onto them on expectations of further gains.

  Quanta's rise is part of a broad rally in Taiwan stock prices as investors anticipate a recovery in the global economy.
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