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Credit Suisse Presents the 17th Asian Technology Conference in Taipei
The TWSE will once again use the ATC to highlight the strength and depth of Taiwan's equity markets to global institutional investors. Chi-Hsien Lee, President of the TWSE, said: "Since June, the Taiwan stock market has been one of the best performers in Asia, due to its sound long-term fundamentals. As of end- August, the current P/E ratio of Taiwan-listed companies was around 17 times, similar to those in neighbouring markets. In contrast, with dividend yields of 4%—among the highest in the world—the Taiwan market is highly attractive to international and long-term investors. The TWSE will continue to actively promote corporate governance and push forward market reform, while also enhancing the quality, accessibility, efficiency and diversity of the Taiwan capital market to make it an even more attractive investment destination."
This year's ATC features a diverse range of leading and emerging Asian technology companies, enabling the event to offer a broad view of technology product cycles and macro demand. Technology companies include those involved in semiconductors, memory, components, PC hardware, display, handsets and equipment makers, as well as regional internet, equipment and software suppliers. US-listed tech corporates will also be present. Turning to Taiwan sectors outside technology, attending companies span the consumer, healthcare and pharmaceuticals, financial, infrastructure, telecoms, petrochemicals, materials and industrial sectors.
As in previous years, the ATC corresponds with Apple's fall product refresh, as investors and consumers eagerly await the launch of iPhone 7 later today. However, attention has already shifted to suppliers geared to benefit from next year's refresh, featuring more hardware and display upgrades. While investors have accepted a weak upcoming product cycle, the innovation expected in the iPhone 8 Super Cycle still seems to be of concern, as many of the new features expected are already in use in many Android phones.
Commenting on the themes of this year's ATC, Manish Nigam, Head of Asia Technology Research for Credit Suisse, said: "While the past decade has seen growth for Asian technology being driven largely by the proliferation of consumer tech devices, interest and optimism is returning around some of the emerging growth drivers for tech. We believe the next leg of growth for Asian tech companies is going to be driven by cloud and related services, as well as automotive and industrial applications, including Internet of Things (IoT). Within consumer tech, we are closely watching the ramp up of Virtual Reality (VR) and Augmented Reality (AR) devices and applications, as success here could potentially lead to a major replacement cycle in PCs and smartphones."
Ahead of this year's ATC, there was a period of stabilisation in the technology sector, brought on by improving emerging market smartphone demand, some stabilisation in traditional computing and TV demand, and supply-driven constraints in memory and panels. Smartphone growth in China and in the emerging markets, which accounts for 60% of the global demand, has seen strong growth of 20% year to date through July. However, competition remains intense as Chinese smartphone brands continue to gain market share from the global brands. Chinese smartphone shipments were up 19% in the first seven months, outgrowing the global smartphone market's 5% year-on-year increase. The semiconductor sector also has a stable outlook as the supply chain inventory is at normal levels for mid-year, ahead of the peak season. Fabless inventory depleted by one week to 65 days, supported by strong smartphone demand from emerging markets due to the 4G upgrade cycle. The better-than-feared inventory levels could limit the late-year adjustment risk and the leaner inventory levels for fabless could limit the magnitude of an inventory correction.
Randy Abrams, Credit Suisse's Head of Equities Research in Taiwan, said: "The pick-up in sentiment through 2016 has been the mirror opposite of 2015's steady deterioration through the year. Last year started with high optimism after the strong iPhone 6 refresh and deteriorated throughout the year due to excess inventory, slowing demand, a weaker Apple product cycle, macro uncertainty and resultant currency volatility. This is in contrast to 2016, which started with low confidence and a sharp market correction in January, but has since been supported by better China smartphone volumes on the 4G upgrade cycle, tighter supply on panels, memory and IC components, better controlled inventorylevels and some optimism for future product cycles including automotive electronics, VR, and IoT."
Thanks to the outperformance in the technology sector, Taiwan is one of the top three performing markets in Asia, driven by strong foreign net buying of US$13.9 bn year to date through August. Year to date, the MSCI Taiwan index has gained 15.1% compared to the MSCI non-Japan Asia, which has increased by 8.9%, and the Non-Japan Asia information technology sector is the best performing sector, having delivered 19.1% returns. Taiwan corporates' high-cash dividend yield, improving free cash flow, and a relatively strong currency backed by large current account surplus, provided support to the market amid a challenging global macro backdrop. On the back of sluggish exports, Credit Suisse analysts estimate that the Taiwan market will see a 2% profit decline this year due to a 4% decline in non-tech and modest growth of 0.6% in tech.
Commenting on the outlook for the Taiwan market, Chung Hsu, Director of Taiwan Market Strategy and the Financial Sector, Equity Research, Credit Suisse, said: "A potential stabilisation in consensus earnings revisions for the market after the 8% earnings downgrade year to date is likely to provide some support to TAIEX, though the market's better performance year to date likely already reflects the 2H16 potential earnings rebound, after posting a decline in 1H16. We forecast that the Taiwan market will see a 2% profit decline in 2016, which could cap the market's near-term upside before witnessing better earnings growth of 12% for the market in 2017. For end-2016, we have an index target of 8,800."
Credit Suisse is the leading foreign broker to institutional investors in Taiwan and is one of the leading equities houses in Asia. In the 2016 Institutional Investor Survey, Credit Suisse maintained a top three ranking for its overall research in the All-Asia Research Survey Rankings for a fourth consecutive year. Credit Suisse's technology research team was also ranked #1 in both the semiconductor and Internet sectors, #2 in technology hardware, and #3 in the IT services software sector.