On Thursday, JPMorgan adjusted its price target for Hon Hai Precision Industry Co Ltd (2317:TT) (OTC: HNHPF) shares, a key player in electronics manufacturing, lowering the target to NT$250 from NT$260. Despite this change, the firm sustains an Overweight rating on the company's stock.
The revised price target follows Hon Hai's second quarter results for 2024, which showcased gross margins that aligned with forecasts and earnings that slightly surpassed market expectations. Contributing factors to the positive earnings included more effective operational expense management.
Hon Hai's management team confirmed their revenue growth target for the fiscal year 2024, projecting an increase of around 10%. This growth is expected to be driven by a strong demand for AI servers, a general recovery in server sales, solid component growth, and steady revenues from the smartphone and PC sectors.
Hon Hai also provided updates on their Blackwell project, indicating that the GB200 rack shipments are set to begin in small volumes in the fourth quarter of 2024, marking a slight delay of two to three months compared to previous forecasts. The company anticipates a more significant ramp-up into 2025. This aligns with JPMorgan's expectations of a one-quarter delay in the project's ramp-up schedule.
In the short term, Hon Hai has indicated improved order visibility for Hopper AI servers, which analysts believe will include the HGX module and baseboard. This is projected to contribute to a significant increase in AI server revenue growth for 2024, with expectations of more than 150% year-over-year growth, accounting for 13% of total revenues.
While JPMorgan has slightly lowered its AI server projections for 2025 to account for the GB200 ramp delay, the firm remains optimistic about Hon Hai's long-term prospects. The company is expected to remain a key player in NVIDIA (NASDAQ:NVDA)'s rack-level AI server solutions for upcoming GPU generations.
InvestingPro Insights
As Hon Hai Precision Industry Co Ltd (HNHPF) continues to navigate the electronics manufacturing sector, recent data from InvestingPro provides additional context to their financial health and stock performance. With a market capitalization of $75.53 billion and a P/E ratio of 15.91, the company is trading at a low P/E ratio relative to near-term earnings growth, which could signal an attractive valuation for investors.
Despite a decrease in revenue by 9.85% over the last twelve months, Hon Hai holds more cash than debt on its balance sheet, a sign of financial stability. Furthermore, the company has demonstrated a commitment to shareholder returns, raising its dividend for 3 consecutive years and maintaining dividend payments for 25 consecutive years. This consistent dividend payment history, coupled with a dividend yield of 1.96%, may appeal to income-focused investors.
InvestingPro Tips highlight that Hon Hai is not just a prominent player in its industry but has also achieved a significant return over the last week, with a 12.81% price total return. This short-term performance, along with a strong return over the last year of 81.83%, suggests a positive momentum that could be of interest to growth-oriented investors. For those seeking more in-depth analysis, InvestingPro offers additional tips on Hon Hai Precision Industry Co Ltd, available at their dedicated page.
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