Foxconn Yuanta Report

ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES BEGIN ON PAGE 10. Yuanta does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Share price performance relative to Hang Seng Index

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Aug-10 Nov-10 Feb-11 May-11-47

-42

-37

-32

-27

-22

-17

-12

-7

-2Share Price (HK$) Performance relative to Hang Seng Index (%)

Market cap US$3,206.2 mn 6M avg. daily turnover US$5.2 mn Outstanding shares 7,203.3 mn Free float 29%

Major shareholders Hon Hai group, 70.5%%

Net debt/equity Net cash BVPS (2011F) US$0.48 P/B (2011F) 0.9x

Financial outlook (US$ mn)

Year to Dec

2009 2010A 2011F 2012F

Sales 7,214 6,626 6,580 8,022 Op. profit (32) (216) (126) 53

Net profit 39 (218) 12 192 EPS (US$) 0.01 (0.03) 0.00 0.03 EPS growth (%) (67.9) N.M. N.M. 1,436.1

DPS (US$) 0.00 0.00 0.00 0.00

P/E (X) 81.5 N.M. 263.1 17.1 Div. yield (%) 0.0 0.0 0.0 0.0

ROE (%) 1.1 (6.1) 0.4 5.4

Foxconn Int’l Holdings (2038 HK) Glimmer of light at the end of tunnel Upgrade to BUY with new TP of HK$4.50: We expect FIH to enter a turnaround phase in 2H11, following 1) gains from HTC’s (2498 TT; HOLD) outsourcing; 2) improved operating efficiency on the completion of its relocation to inland China; 3) the benefits from China handset customers’ market share gain in the global handset market and their ramp-up of entry-level smartphones. In addition, Nokia’s sell-in strength in 2H11 on its launches of new models should provide near-term momentum to FIH. Our new TP of HK$4.50 (down from HK$5.20) is based on the average of our P/B and price/sales valuation methodologies, and implies 30% upside. Thus, we upgrade to BUY.

► HTC adds fresh driving force: We anticipate HTC to contribute 10% of FIH’s revenue in 2012 based on the assumption that FIH will gain 8% of HTC’s volume, mostly in mid- and low-end smartphones.

► Benefits from China handset customers’ market share gains: As a key ODM/EMS service provider to China handset brands such as Huawei, we expect FIH to capitalize on its China customers’ fast volume growth in the global handset market and improving product offerings to smartphones and tablet PCs.

► Lightening Nokia influence: While it is hard to judge Nokia’s turnaround based its sell-in strength in 2H11, for the long term we expect FIH to gradually offload Nokia’s impact following FIH’s gain at HTC and increasing contribution from China handset brands.

► Operating efficiency set to improve: We expect FIH to run on a lighter cost base in 2H11 following the completion of its relocation to inland China and the sale of excessive manufacturing facilities to its parent company – Hon Hai (2317 TT; BUY).

Company Update

Hong Kong: Handsets 30 August, 2011

Action

BUY (Upgrade) TP upside (downside) 29.7%

Close 29 August, 2011 Price HK$3.47 12M Target HK$4.50 Previous Target HK$5.20 Hang Seng Index 19,865.1

What’s new?

► No further impairment loss was booked in 1H11, indicating the completion of inland relocation.

► We cut our 2011-12F EPS by 95%/47%, but expect a turnaround to arrive in 2H11.

Our view

► We turn positive on FIH as we expect its gains at HTC and China brands will help it offload Nokia’s impact in the long run.

► We view FIH as a key beneficiary of the takeoff of entry-level smartphones in 2012.

Company profile: Foxconn International Holdings, a part of the Hon Hai Group, is a vertically integrated handset EMS that services leading global handset brands.

Primary Analyst: Bonnie Chang +852 3969 9904 [email protected] With significant contribution from: Kelly Hsu +886 2 3518 7947 [email protected]

Yuanta Foxconn Int’l Holdings (2038 HK) Hong Kong: Handsets 30 Aug, 2011 Company Update Page 2 of 12

Turnaround to arrive in 2H11

1H11 earnings recap: largely reduced net loss suggests the end of relocation FIH reported a 1H11 net loss of US$18 mn, which was not a surprise to the market in light of its profit warning released on July 21. Notably, there were no more impairment losses booked in 1H11, leading to a largely reduced net loss from 2H10 and 1H10, which in our view indicated that FIH’s inland relocation has ended.

Figure 1: FIH’s 1H11 results comparison

(US$ mn) 1H11 2H10 HoH 1H10 YoY % 1H11

Yuanta forecast

Diff. 1H11 Consensus Diff.

Sales 2,994 3,397 -11.9% 3,229 -7.3% 3,778 -20.8% 4002 -25.2%

Gross profit 144 192 -24.9% 90 60.1% 179 -19.1% N.A. N.A.

Operating Profit -93 -71 N.M. -146 N.M. -3 N.M. -85 N.M.

Pretax profit 3 -45 N.M. -131 N.M. 80 N.M. -18 N.M.

Net Profit -18 -76 N.M. -143 N.M. 73 N.M. -50 N.M.

EPS (US$) -0.002 -0.011 N.M. -0.020 N.M. 0.01 N.M. -0.007 N.M.

Weighted avg. shares (mn) 7,386 7,136 7,136 7,391 7,386

Margin

Gross margin 4.8% 5.7% 2.8% 4.7% N.A.

Operating margin -3.1% -2.1% -4.5% -0.1% -2.1%

Pretax margin 0.1% -1.3% -4.0% 2.1% -0.4%

Net margin -0.6% -2.2% -4.4% 1.9% -1.2%

Source: Company data, Bloomberg, Yuanta Research

Lightening Nokia impact While it is hard to judge Nokia’s turnaround based on its sell-in strength in 2H11, for the long term we expect FIH to gradually offload Nokia’s impact following FIH’s gain at HTC and increasing contribution from China handset brands.

► HTC adds fresh driving force: Based on our channel checks, we believe FIH has been chosen by HTC as its first manufacturing outsourcing partner starting from 2H11, albeit at small volume, on top of its incumbent component supplies (e.g. casing) to HTC. The revenue contribution will be small in 2011, but we expect it to expand gradually after HTC raises low- and mid-end range product lineups in 2012. We anticipate HTC to contribute 10% of FIH’s revenue in 2012 based on the assumption that FIH will gain 8% HTC’s volume of 68 mn units, which are mostly mid- and low-end smartphones.

► Benefits from China handset customers’ market share gains: According to IDC, Huawei posted a handset shipment CAGR of 31% in 2008-2010 to 18.1 mn units, and continued gaining share in the global handset market with growth in 1H11 of 209% YoY to 19.1 mn units.

Following its success in the feature phone market, Huawei expanded its footprint into the smartphone market with an eye on entry-level products in late 2010. According to our channel checks, Huawei set a shipment target of 20 mn smartphone units in 2011, up from a mere 1.8 mn units in 2010. In 1H11, Huawei’s smartphone shipments reached 5.8 mn units.

As a key ODM/EMS service provider to China handset brands such as Huawei, we expect FIH to capitalize on its China-based customers’ fast volume growth in the global handset market and improving product offerings to smartphones and tablet PCs.


► Potential new China smartphone customer: Our latest checks with ZTE suggest it is considering outsourcing its high-end products (i.e. smartphones and tablet PCs) to FIH in order to catch up with the fast-growing smart device market. ZTE has been keeping most of its handset manufacturing in-house. In 2010, ZTE shipped 50 mn handsets, of which 1.8 mn were smartphones. In 1H11, ZTE remained the fifth-largest handset maker with 4.7% share globally, or 32 mn units of handset shipments, while its smartphone shipments accounted for 9% or 2.97 mn units of its total shipment. The company is targeting 12 mn units of smartphone shipments in 2011 from 1.8 mn units in 2010. We have not yet factored in any contribution from ZTE, thus any order wins at ZTE will represent upside potential to our current estimates.

Figure 2: FIH’s client breakdown by revenue

0%10%20%30%40%50%60%70%80%90%

100%

2009 2010 2011F 2012F

Others

Huawei

HTC

Palm

LG

Samsung

Sony Ericsson

Moto

Nokia

Source: Yuanta Research estimates

Operating efficiency set to improve Upon the end of its inland move (from Shenzheng, Gundong to Langfang, Hebei) and disposal of redundant assets (i.e. the Taiyuan plant) by the end of 1H11, Langfang will be the major manufacturing site for FIH. Therefore, we expect FIH’s streamlining of its cost structure and asset consolidation to pay off gradually in 2H11, following the kick-in of new smartphone and tablet projects from HTC and its China based customers. A new cycle of handset outsourcing begins in 2012 As a cost-down measure, we expect several major handset makers will change their smartphone outsourcing strategies upon their attempts to enter the mass smartphone market. Nokia, HTC, Motorola and ZTE had kept smartphone manufacturing in-house in the past, but are now either beginning to or are about to leverage EMS/ODM partners for scale and cost synergies, represent a new stream of growth drivers to the handset outsourcing market. We expect the trend of rising smartphone outsourcing to take off in 2012 and thereafter revive capable handset EMS/ODM service providers’ business. FIH and BYD Electronic (285 HK; BUY) are our top picks on this theme; but for different reasons (for details on our recent BYDE upgrade, see our August 23 report Time to pull the trigger).

http://ipreo.yuanta.com/NSightWeb_v2.00/Handlers/Document.ashx?i=1d0ea0e72118463ca67798b0daf16567�


Only selective capable handset EMS/OMD will benefit Due to a higher extent of hardware and software integration requirements for smartphones vs. feature phones, we believe only handset EMS and ODM makers who have the capability and know-how can benefit from this rise in smartphone outsourcing. Earnings revisions In view of the 1H11 results and the turnaround coming later than we expected, we cut our 2011F EPS by 95% to US$0.002 and 2012F EPS by 47% to US$0.026. We continue to expect FIH to remain profitable in 2012, despite a lower net income vs. our previous expectation.

Figure 3: Our 2011-12F forecast revisions for FIH

US$ mn 2011F 2012F

New Old % Change New Old % Change

Revenue 6,580 8,967 -26.6% 8,022 11,809 -32.1%

Gross Profit 352 491 -28.4% 531 735 -27.8%

OPEX -478 -404 N.M. -478 -508 N.M.

Operating Profit -126 86 N.M. 53 228 -76.7%

Profit before tax 65 251 -74.3% 242 392 -38.4%

Net Profit 12 230 -94.6% 192 361 -46.8%

EPS (US$) 0.002 0.031 -94.6% 0.026 0.049 -47.1%

Diluted weighted avg. shares (mn) 7,384 7,391 7,389 7,394

Margin (%)

Gross Margin 5.3% 5.5% 6.6% 6.2%

OPEX ratio -7.3% -4.5% -6.0% -4.3%

Operating Margin -1.9% 1.0% 0.7% 1.9%

Net Margin 0.2% 2.6% 2.4% 3.1%



Valuation

Our target price of HK$4.50 (previously HK$5.20) implies 29.7% upside potential. We continue to derive our target price from the average of our P/B and price/sales (Figure 3) valuation methodologies, as P/B and price/sales provide valuation support in downcycles, in our view. Forward P/B valuation We apply a target multiple of 1.0x to our 2012F BVPS of HK$3.97 and derive a value of HK$3.97. We expect FIH’s fundamentals to bottom out in 2H11 and the stock’s valuation should begin to reflect its likely earnings turnaround in 2012, and we therefore switch to using our 2012F BVPS. Our target multiple is lowered from the previous 1.2x to 1.0x mainly to reflect our lower net profit estimate for 2012. Forward P/sales valuation We apply 0.6x price/sales valuation to our 2012F sales of US$8.0 bn (HK$8.45 sales per share) which yields a value of HK$5.07. The 0.6x price/sales is at discount to FIH’s three-year trading average of 0.71x and the one-year trading average of 0.67x, given our low sales forecasts for FIH in 2012 compared to US$10.7 bn in 2007 and US$9.3 bn in 2008. Our target multiple is unchanged.

Figure 4: Target price calculation - FIH P/B methodology 2012F BVPS HK$3.97

Target multiple 1.0x

Target price derived from P/B valuation HK$3.97

P/S methodology

2012F SPS HK$8.45

Target multiple 0.6x

Target price derived from P/S valuation HK$5.07

Final target price based on average of P/B and P/S valuation HK$4.50

Potential upside implied by target price 29.7%


Our target price of HK$4.50 implies 30% upside potential


Figure 5: Peer valuation comparison table

Company Ticker Rating Share price

Aug 29, 2011

Market cap (US$ mn)

EPS P/E (x) EPS growth %

2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F

FIH 2038 HK BUY HK$3.47 3,207 -0.03 0.00 0.03 N.M. 263.1 17.1 N.M. N.M. 1,436%

Regional EMS/ODM

Compal Comm. 8078 TT Not rated NT$29.3 613.1 N.A. N.A. 1.93 N.A. N.A 15.2 N.A. N.A. N.A.

BYD Electronic 285 HK BUY HK$2.3 664.9 0.46 0.31 0.33 4.1 6.1 5.7 36.8% -32.6% 6.0%

Average 4.1 6.1 10.4 36.8% -32.6% 6.0%

Global EMS

Elcoteq * ELQAV FH Not rated €0.3 14.4 0.45 N.A. N.A. 0.7 N.A N.A -112.7% N.A. N.A.

Jabil Circuit* JBL US Not rated US$15.92 3480.1 0.79 1.76 2.10 20.2 9.0 7.6 -114.0% 122.8% 19.2%

Flextronics* FLEX US Not rated US$5.61 4103.7 0.77 N.A. 0.99 7.3 N.A 5.6 N.M. N.A. N.A.

Celestica* CLS CN Not rated CAD7.82 1732.3 0.35 0.80 0.96 22.3 9.8 8.1 N.M. 128.3% 20.4%

Average 12.6 9.4 7.1 -113.4% 125.5% 19.8%

Regional components

AAC 2018 HK BUY HK$15.28 2407.4 0.80 0.99 1.44 15.6 12.7 8.7 60.5% 22.8% 45.5%

Merry 2439 TT HOLD NT$29.85 163.6 3.78 3.58 4.78 7.9 8.3 6.2 13.7% -5.2% 33.4%

TXC 3042 TT HOLD NT$31.8 330.9 4.00 3.69 4.00 7.9 8.6 7.9 47.1% -7.8% 8.3%

Largan 3008 TT BUY NT$788 3639.7 30.15 43.72 64.94 26.1 18.0 12.1 61.7% 45.0% 48.5%

Silitech 3311 TT HOLD NT$77.5 488.2 8.11 7.08 8.34 9.6 10.9 9.3 15.2% -12.7% 17.8%

Cheng Uei* 2392 TT Not rated NT$77.4 1267.3 N.A. N.A. 6.93 N.A. N.A 11.2 N.A. N.A. N.A.

Ichia* 2402 TT Not rated NT$11.85 139.0 0.12 0.43 1.35 98.8 27.3 8.8 N.M. 261.7% 211.1%

Average 27.6 14.1 8.9 39.6% 53.6% 62.4%

Source: Company data, Bloomberg, Yuanta Research estimates

Notes: EPS of FIH is shown in US dollars; BYDE is shown in RMB. For other stocks, share prices and EPS figures are shown in their local currency.

Figure 6: Peer valuation comparison table (continued)

Company Ticker Cash dividend yield (%) ROE (%) BVPS P/B (x)

2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F

FIH 2038 HK 0.0% 0.0% 0.0% -6.1% 0.4% 5.4% 0.50 0.48 0.51 0.9 0.9 0.9

Regional EMS/ODM Compal Comm. 8078 TT N.A. 0.9% N.A. N.A. 1.7% 8.2% N.A. N.A. 19.8 N.A. N.A. 1.5

BYD Electronic 285 HK 0.0% 0.0% 0.0% 14.7% 8.9% 8.6% 3.3 3.6 4.0 0.6 0.5 0.5

Average 0.0% 0.5% 0.0% 14.7% 5.3% 8.4% 0.6 0.5 1.0

Global EMS

Elcoteq * ELQAV FH 0.0% N.A. N.A. -142.7% N.A. N.A. 0.2 N.A. N.A. 1.6 N.A. N.A.

Jabil Circuit* JBL US 1.8% 1.8% N.A. -56.1% 25.1% 21.5% 6.9 9.1 11.2 2.3 1.8 1.4

Flextronics* FLEX US 0.0% 0.0% N.A. N.A. 26.4% 25.3% 3.0 N.A. 4.7 1.9 N.A. 1.2

Celestica* CLS CN 0.0% 0.0% N.A. 3.9% 13.7% 12.3% 6.8 6.6 7.5 1.2 1.2 1.0

Average 0.4% 0.6% N.A. -65.0% 21.7% 19.7% 1.7 1.5 1.2

Regional components

AAC 2018 HK 2.6% 5.1% 5.4% 25.6% 26.6% 31.9% 3.4 4.0 5.0 3.7 3.1 2.5

Merry 2439 TT 12.5% 10.8% 14.4% 13.5% 12.9% 16.8% 27.8 27.6 29.2 1.1 1.1 1.0

TXC 3042 TT 7.8% 7.0% 7.5% 19.1% 16.9% 17.3% 22.0 22.2 24.0 1.4 1.4 1.3

Largan 3008 TT 1.7% 3.0% 4.5% 26.9% 31.9% 37.5% 122.2 152.4 193.7 6.5 5.2 4.1

Silitech 3311 TT 7.8% 5.9% 7.0% 26.2% 21.7% 23.8% 32.4 33.2 36.9 2.4 2.3 2.1

Cheng Uei* 2392 TT N.A. 4.0% N.A. 6.5% 12.8% 13.5% N.A. N.A. N.A. N.A. N.A. N.A.

Ichia* 2402 TT 6.5% 8.7% N.A. 5.2% N.A. N.A. 18.8 17.0 17.5 0.6 0.7 0.7

Average 6.5% 6.4% 7.8% 17.6% 20.5% 23.5% 2.6 2.3 2.0

Source: Company data, Bloomberg, Yuanta Research estimates

Notes: BVPS of FIH is shown in US dollars; BYDE is shown in RMB. For other stocks, BVPS figures are shown in local currency.


Figure 7: Foxconn Int’l Holdings’s semi-annual & annual earnings highlights (consolidated basis) (US$ mn) 1H2010A 2H2010A FY2010A 1H2011A 2H2011F FY2011F 1H2012F 2H2012F FY2012F

Sales 3,229 3,397 6,626 2,994 3,586 6,580 3,634 4,389 8,022 COGS (3,139) (3,204) (6,344) (2,849) (3,379) (6,228) (3,402) (4,090) (7,492) Gross profit 90 192 282 144 207 352 232 299 531 Operating expenses (236) (263) (499) (237) (240) (478) (236) (241) (478) Operating profit (146) (71) (216) (93) (33) (126) (4) 58 53 Non-op profit 15 25 40 96 94 191 94 94 189 Pre-tax profit (131) (45) (176) 3 61 65 90 152 242 Minority 2 0 1 (1) (1) (1) (1) (1) (1) Income tax (14) (30) (44) (20) (31) (51) (18) (30) (49) Net income (143) (76) (218) (18) 30 12 71 121 192 FD WA EPS (US$) (0.02) (0.01) (0.03) 0.00 0.00 0.00 0.01 0.02 0.03 Wtd. avg. no. of shares 7,136 7,136 7,136 7,384 7,384 7,384 7,384 7,384 7,389 Margin analysis Gross margin 2.8% 5.7% 4.3% 4.8% 5.8% 5.3% 6.4% 6.8% 6.6% Operating margin (4.5%) (2.1%) (3.3%) (3.1%) (0.9%) (1.9%) (0.1%) 1.3% 0.7% Pre-tax margin (4.0%) (1.3%) (2.7%) 0.1% 1.7% 1.0% 2.5% 3.5% 3.0% Effective tax rate N.A. N.A. N.A. 629.3% 50.0% 79.0% 20.0% 20.0% 20.1% Growth (% HoH) Sales (20.3%) 5.2% (8.1%) (11.9%) 19.8% (0.7%) 1.3% 20.8% 21.9% Operating profit 539.8% N.M. N.M. N.M. N.M. N.M. N.M. N.M. N.M Net income (349.0%) N.M. N.M. N.M. N.M. N.M. 136.6% 69.7% 1,437.2% FD WA EPS (346.5%) N.M. N.M. N.M. N.M. N.M. 136.6% 69.7% 1,436.1% Sales breakdown (US$ mn)* Feature phone 2,412 2,230 4,642 1,845 2,161 4,006 1,881 1,998 3,879 Smartphone 777 1,166 1,943 1,148 1,425 2,573 1,753 2,391 4,144 Total 3,189 3,396 6,585 2,994 3,586 6,580 3,634 4,389 8,022 Sales breakdown (%)* Feature phone 75.6% 65.7% 70.5% 61.6% 60.3% 60.9% 51.8% 45.5% 48.4% Smartphone 24.4% 34.3% 29.5% 38.4% 39.7% 39.1% 48.2% 54.5% 51.6% Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

Source: Company data, Yuanta Research estimates

Figure 8: 12-month forward looking P/S band chart

2.4x P/Sales

1.9x P/Sales

1.4x P/Sales

0.9x P/Sales

0.4x P/Sales0

5

10

15

20

25

30

Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11

(HK$)

Source: Company data, Yuanta


Figure 9: 12-month forward looking P/B band chart

7.8x P/B

6.0x P/B

4.1x P/B

2.3x P/B

0.4x P/B0

5

10

15

20

25

30

35

Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11

(HK$)



Balance Sheet Year as of Dec

(US$ mn) 2008 2009 2010A 2011F 2012F

Cash & ST investment 705 1,201 1,356 1,731 1,858

Inventories 843 716 748 685 824

Accounts receivable 1,439 1,413 1,648 1,448 1,765

Others 134 161 268 30 31

Current assets 3,120 3,491 4,020 3,893 4,478 LT investments 4 2 0 0 0

Net fixed assets 2,073 1,823 1,723 1,768 1,819

Others 331 320 274 213 50

Other assets 2,408 2,145 1,997 1,981 1,869 Total assets 5,528 5,635 6,017 5,875 6,347 Accounts payable 1,435 1,523 1,401 1,376 1,655

ST borrowings 478 363 862 862 862

Others 109 81 104 160 160

Current liabilities 2,022 1,967 2,367 2,398 2,677 Long-term debts 0 0 0 0 0

Others 50 61 57 0 0

Long-term liabilities 50 61 57 0 0 Total liabilities 2,072 2,028 2,424 2,398 2,677 Paid-in capital 282 284 287 288 288

Capital surplus 687 721 776 776 776

Retained earnings 2,039 2,075 1,853 1,865 2,057

Capital adjustment 447 528 677 547 548

Shareholders' equity 3,456 3,607 3,593 3,477 3,670


Cash Flow

Year to Dec (US$ mn) 2008 2009 2010A 2011F 2012F

Net profit 121 39 (218) 12 192

Depr & amortization 235 254 287 358 352

Change in working cap. 106 240 (389) 238 (177)

Others (27) 132 213 62 58

Operating cash flow 435 665 (107) 670 425 Capex (648) (122) (254) (350) (350)

Change in LT inv. 0 (3) (2) 0 0

Change in other assets 119 55 (62) 53 53

Investment cash flow (529) (69) (317) (297) (297) Change in share capital 7 10 26 2 0

Net change in debt (530) (116) 506 0 0

Other adjustments 17 0 9 0 0

Financing cash flow (506) (106) 542 2 0

Net cash flow (599) 489 118 375 127 Free cash flow (227) 341 (571) 120 (122)


Profit and Loss Year to Dec

(US$ mn) 2008 2009 2010A 2011F 2012F

Sales 9,271 7,214 6,626 6,580 8,022 Cost of goods sold (8,629) (6,785) (6,344) (6,228) (7,492)

Gross profit 642 428 282 352 531 Operating expenses (563) (460) (499) (478) (478)

Operating profit 80 (32) (216) (126) 53 Interest income 0 0 0 0 0

Interest expense (32) (5) (7) (9) (9)

Net interest (32) (5) (7) (9) (9)

Net Invst.Inc/(loss) 1 1 1 2 0

Net oth non-op.Inc/(loss) 149 106 45 197 197

Net extraordinaries 0 0 0 0 0

Pretax income 197 71 (176) 65 242

Income taxes (75) (32) (44) (51) (49)

Net profit 121 39 (218) 12 192

EBITDA 315 223 71 232 405 EPS (US$) 0.02 0.01 (0.03) 0.00 0.03

EPS (US$) Bonus Adj. 0.02 0.01 (0.03) 0.00 0.03


Key Ratios

Year to Dec 2008 2009 2010A 2011F 2012F Growth (% YoY) Sales (13.6) (22.2) (8.1) (0.7) 21.9

Op profit (87.4) (139.7) 581.9 (41.7) (142.2)

EBITDA (61.2) (29.3) (68.2) 227.0 74.6

Net profit (83.2) (68.1) (665.8) (105.7) 1,437.2

EPS (82.8) (67.9) (660.0) (105.5) 1,436.1

Profitability (%)

Gross margin 6.9 5.9 4.3 5.3 6.6

Operating margin 0.9 (0.4) (3.3) (1.9) 0.7

EBITDA margin 3.4 3.1 1.1 3.5 5.0

Net profit margin 1.3 0.5 (3.3) 0.2 2.4

ROA 2.0 0.7 (3.8) 0.2 3.2

ROE 3.6 1.1 (6.1) 0.4 5.4

Stability

Gross debt/equity (%) 13.8 10.1 24.0 24.8 23.5

Net cash (debt)/equity (%) 6.6 23.2 13.7 25.0 27.1 Int. coverage (X) 7.2 16.9 N.A. 8.3 28.2

Int. & ST debt cover (X) 0.4 0.2 N.A. 0.1 0.3

Cash flow int. cover (X) 13.7 147.6 N.A. 75.4 47.8 Cash flow/int. & ST debt (X) 0.9 1.8 N.A. 0.8 0.5

Current ratio (X) 1.5 1.8 1.7 1.6 1.7

Quick ratio (X) 1.1 1.4 1.4 1.3 1.4

Net debt (US$ mn) (227.1) (838.1) (494.0) (868.5) (996.0)

BVPS (US$) 0.49 0.51 0.50 0.48 0.51

Valuation Metrics (x) P/E 26.2 81.5 (14.5) 263.1 17.1 P/FCF (13.9) 9.2 (5.6) 27.5 (26.9) P/B 0.9 0.9 0.9 0.9 0.9 P/EBITDA 10.1 14.1 44.8 14.2 8.1 P/S 0.3 0.4 0.5 0.5 0.4 Source: Company data, Yuanta


Appendix A: Important Disclosures Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Foxconn Int’l Holdings (2038 HK) – Three-year recommendation and target price history

No. Date Closing Price (A) Target Price (B) Adjusted Target Price (C) Rating Analyst

1: 05 Oct 09 5.10 6.33 6.33 BUY Bonnie Chang

2: 25 Nov 09 6.72 7.90 7.90 BUY Bonnie Chang3: 02 Feb 10 8.23 9.40 9.40 BUY Bonnie Chang4: 16 Apr 10 7.79 9.30 9.30 BUY Bonnie Chang5: 21 Jun 10 5.94 6.40 6.40 HOLD Bonnie Chang6: 31 Aug 10 5.17 4.80 4.80 HOLD Bonnie Chang7: 21 Dec 10 5.49 5.20 5.20 HOLD Bonnie Chang

1

2

34

56

7

1.5

3.5

5.5

7.5

9.5

11.5

Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-111.5

3.5

5.5

7.5

9.5

11.5

Share Price HK$

Source: Bloomberg, Yuanta Research Notes: A = price adjusted for stock & cash dividends; B = unadjusted target price; C = target price adjusted for stock & cash dividends. Employee bonus dilution is not reflected in A, B or C. Current distribution of Yuanta ratings

Rating # of stocks %Buy 129 53%Hold 78 32%Sell 29 12%Under Review 5 2%Restricted 2 1%Total: 243 100% Source: Yuanta Research Ratings Definitions BUY: We have a positive outlook on the stock based on our expected absolute or relative return over the investment period. Our thesis is based on our analysis of the company’s outlook, financial performance, catalysts, valuation and risk profile. We recommend investors add to their position. HOLD: We have a neutral outlook on the stock based on our expected absolute or relative return over the investment period. Our thesis is based on our analysis of the company’s outlook, financial performance, catalysts, valuation and risk profile. SELL: We have a negative outlook on the stock based on our expected absolute or relative return over the investment period. Our thesis is based on our analysis of the company’s outlook, financial performance, catalysts, valuation and risk profile. We recommend investors reduce their position. Under Review: We actively follow the company, although our estimates, rating and target price are under review. Restricted: The rating and target price have been suspended temporarily to comply with applicable regulations and/or Yuanta policies. Note: Yuanta research coverage with a Target Price is based on an investment period of 12 months. Greater China Discovery Series coverage does not have a formal 12 month Target Price and the recommendation is based on an investment period specified by the analyst in the report.


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Yuanta Greater China Equities Research

Ming Tan, CFA Head of Greater China Research Head of Financials +852 3969 9525 [email protected]

John Brebeck, CFA Head of Taiwan Research, Taiwan Strategist +886 2 3518 7906 [email protected]

Kelvin Ho Deputy Head of China Research, Head of Telecom and Media +852 3969 9518 [email protected]

Vincent Chen Head of Technology Research, Tech Strategist +852 3969 9903 [email protected]

George Chang, CFA Head of Upstream Tech +886 2 3518 7907 [email protected]

Kevin Gin, CFA Head of Real Estate +852 3969 9515 [email protected]

Danny Ho Head of Basic Materials +886 2 3518 7923 [email protected]

Min Li Head of Alternative Energy +852 3969 9521 [email protected]

Kim-Chong Tan Head of Oil & Gas Research +852 3969 9526 [email protected]

Johnny Wong Head of Metals & Mining +852 3969 9524 [email protected]

Charles Z. Yan, CFA Head of Consumer +852 3969 9530 [email protected]

Aidan Wang Head of Macroeconomic Research +886 2 3518 7992 [email protected]

Bonnie Chang Handsets +852 3969 9904 [email protected]

Tess Wang Taiwan Financials +886 2 3518 7901 [email protected]

Dennis Chan Notebook Supply Chain +886 2 3518 7913 [email protected]

Andrew C Chen IC Backend +886 2 3518 7940 [email protected]

Alison Chen Downstream Tech Small & Mid Cap +886 2 3518 7975 [email protected]

Charlene Gu Industrials & Autos +852 3969 9531 [email protected]

Samuel Kwok, CFA China/Hong Kong Strategy and Quant +852 3969 9527 [email protected]

Ming Hsun Lee, CFA Taiwan Consumer/Small & Mid Cap +886 2 3518 7938 [email protected]

May Lin PC Distribution/ODM & Taiwan Telecom +886 2 3518 7942 [email protected]

Stone Lin Taiwan Non-Tech +886 2 3518 7927 [email protected]

Baron Nie, AIAA, CFA China/Hong Kong Insurance +852 3969 9514 [email protected]

Hsinyi Tsai China Retail +852 3969 9532 [email protected]

Rita Wu China Energy +852 3969 9513 [email protected]

Sales and Trading John Chang Head of Taiwan Equities +886 2 2175 8898 [email protected]

Chris Dunham Head of HK Equities Head of HK Sales Trading & Execution +852 3969 9768 [email protected]

Jimmy Huang Head of Greater China Sales +852 3969 9866 [email protected]

Augustine Chen Head of Taiwan Sales +886 2 2175 8962 [email protected]

Duncan Wun Head of Hong Kong Sales +852 3969 9869 [email protected]

Tom Hsu Head of Taiwan Sales Trading +886 2 2175 8800 [email protected]

Fanny Lin Head of Dealing +886 2 2175 8818 [email protected]

Kerry Chen - Sales +886 2 2175 8922 [email protected]

Leo Hu - Sales +886 2 2175 8880 [email protected]

Vickie Hu - Sales +852 3969 9878 [email protected]

Chan Hui – Sales Trading +852 3969 9728 [email protected]

Michael Lin - Sales +886 2 2175 8977 [email protected]

Jenny Lo – Sales Trading +852 3969 9769 [email protected]

Sammy Mui – Sales +852 3969 9875 [email protected]

Charles Nissen - Sales +852 3969 9832 [email protected]

Fiona Tan – Sales +886 2 2175 8921 [email protected]

Ming Yi Tan - Sales +852 3969 9879 [email protected]

Joyce Wan – Sales +852 3969 9876 [email protected]

Jason Wang – Sales Trading +886 2 2175 8888 [email protected]

Sharon Zhao - Sales +852 3969 9870 [email protected]

Sales of Non-Taiwan Equities

Franker Lin Head of Foreign Equity Department +886 2 2175 8720 [email protected]

Lunghui Chen Co-Head of Sales, Foreign Equity Department +886 2 2175 8730 [email protected]

Oscar Yang Co-Head of Sales, Foreign Equity Department +886 2 2175 8733 [email protected]

Documents

Foxconn Yuanta Report