EQUITY RESEARCH

6 October 2011

ASIA EX-JAPAN IT HARDWARE Initiating coverage: Ultrabooks and tablets creating opportunities for some suppliers
We initiate on three IT hardware suppliers – Foxconn Tech (FTC), Shin Zu Shing (SZS) and Ju Teng – all No. 1 in their sub-segments of notebook casings and hinges: We expect FTC (2354 TT, 1-OW, PT NT$120) to benefit from a 3-year upcycle for metal casings and SZS (3376 TT, 2-EW, PT NT$58) to profit on the likely adoption of hollowtype hinges in ultra-thin NBs. However, we believe Ju Teng (3336 HK, 3-UW, PT HK$1.20) will suffer near term from the cannibalization of NBs with plastic casings until it can fully offer metal casings. We maintain our 2-Neutral view on the Asia ex-Japan IT Hardware sector with FTC, Simplo, Cheng Uei, Acer and Lenovo our top picks. Tablets/ultrabooks appear the way forward: Most importantly, we view FTC, SZS and Ju Teng as important winners and losers – along with polymer battery makers Simplo (1-OW, PT NT$290) and Dynapack (2-EW, NT$130) – in the current migration from conventional NBs with plastic casings to tablet/ultrabooks with metal casings. Sleek and stylish but with an acceptable ASP of US$699: The ultrabooks are poised for launch in 2H11 and 2012 – priced similarly to NBs, yet even more stylish and more affordable than Apple’s MacBook Air/Pro – will likely not create a new NB segment, but rather help to sustain and improve the market for conventional NBs by enhancing the product’s differentiation from tablets and smartphones. For our detailed proprietary analysis of the cost breakdown and margins for ultrabooks with various configurations see p9, Fig 5). Metal casings are becoming the norm for three reasons: 1) durability – thinner products require a stronger shell; 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness – metal casings are recyclable and their production low polluting. FTC should remain the leader in metal casings in 2012: In terms of capacity and appealing prices, FTC should remain the preferred metal casing provider for tablets/ultrabooks in the near term. Moreover, we believe FTC still has ample opportunity to expand its sales further given its first-mover advantage, position as the sole supplier for iPads/iPhones and the robust market for ultrabooks that we forecast. SZS’s thin and higher-end (hollow type) hinges for the MacBook Air/Pro and possibly for ultrabooks should ease any impact from tablet cannibalization of NBs. Ju Teng is working to catch up in the metal casings, but will likely not be competitive until 2013.
Price Company Foxconn Tech Shin Zu Shing Ju Teng Ticker 2354.TT 3376.TT 3336.HK Rating 1-OW 2-EW 3-UW PT Pot. up/ EPS CAGR P/E (x) 2011E 13.6 16.0 6.0 2012E 10.7 12.8 5.9

INITIATING COVERAGE Asia ex-Japan IT Hardware 2-NEUTRAL Unchanged For a full list of our ratings, price targets and earnings in this report, please see table on page 2 Asia ex-Japan IT Hardware Allen Chang +8862 663 84695 allen.chang@barcap.com BCSTW, Taiwan Kirk Yang +852 290 34635 kirk.yang@barcap.com Barclays Bank, Hong Kong

(NT/HK$) (NT/HK$) down to PT 2010-13E 96.8 60.4 1.40 120 58 1.2 24% -4% -14% 20% 1% -12%

Source: Company data, Barclays Capital estimates

Barclays Capital 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. This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 65.

Barclays Capital | Asia ex-Japan IT Hardware

Summary of our Ratings, Price Targets and Earnings Estimates in this Report
Company Rating Price Price Target Old EPS FY1 (E) EPS FY2 (E)

Old New 04-Oct-11
Asia ex-Japan IT Hardware Acer Inc. (2353 TT / 2353.TW) Asustek Computer Inc. (2357 TT / 2357.TW) Cheng Uei Precision Industry Co., Ltd. (2392 TT / 2392.TW) Chicony Electronics (2385 TT / 2385.TW) Compal Electronics Inc. (2324 TT / 2324.TW) Darfon Electronics (8163 TT / 8163.TW) Digital China Holdings Ltd. (861 HK / 0861.HK) Dynapack International Technology Corp. (3211 TT / 3211.TW) Foxconn Technology Co., Ltd. (2354 TT / 2354.TW) Hon Hai Precision Industry Co., Ltd. (2317 TT / 2317.TW) Inventec Inc. (2356 TT / 2356.TW) Ju Teng International Co., Ltd. (3336 HK / 3336.HK) Lenovo Group Ltd. (992 HK / 0992.HK) Pegatron Corp. (4938 TT / 4938.TW) Quanta Computer Inc. (2382 TT / 2382.TW) Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW) Simplo Technology Co., Ltd. (6121 TT / 6121.TW) Skyworth Digital Holdings Ltd. (751 HK / 0751.HK) Sunrex Technology (2387 TT / 2387.TW) Synnex Technology International Corp. (2347 TT / 2347.TW) TPV Technology Ltd. (903 HK / 0903.HK) Wistron Corporation (3231 TT / 3231.TW) 2-Neu 2-Neu 1-OW 1-OW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 3-UW 3-UW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW N/A 1-OW 1-OW 1-OW 3-UW 3-UW N/A 3-UW 1-OW 1-OW 2-EW 2-EW 3-UW 3-UW N/A 2-EW 34.00 203.00 65.50 50.00 26.60 18.75 8.14 102.00 104.00 68.90 11.50 1.40 4.66 28.35 58.80 61.00 184.00 2.36 20.30 67.20 2.20 34.50

New %Chg Old New %Chg Old New %Chg

45.00

45.00

-

-2.01 -2.01 20.93 20.93 5.91 7.40 3.13 0.46 1.14 9.84 N/A 7.64 1.46 N/A 0.04 0.03 5.71 N/A 5.91 7.40 3.13 0.46 1.14 9.84 7.26 7.64 1.46 0.20 0.04 0.03 5.71 3.87

-

4.47

4.47

-

290.00 290.00 100.00 100.00 52.00 26.00 28.00 18.30 52.00 26.00 28.00 18.30

24.16 24.16 9.07 5.84 3.72 1.31 1.41 9.07 5.84 3.72 1.31 1.41

130.00 130.00 N/A 120.00

11.84 11.84 N/A 9.23 9.98 1.43 9.98 1.43

100.00 100.00 10.00 N/A 6.50 27.00 49.00 N/A 10.00 1.20 6.50 27.00 49.00 58.00

N/A 0.20 0.05 3.39 6.16 0.05 3.39 6.16

N/A 4.85 20.71 20.71 0.71 2.06 5.26 0.08 5.01 0.71 2.06 5.26 0.08 5.01

1-OW 1-OW 1-OW 1-OW 3-UW 3-UW 2-EW 2-EW 2-EW 2-EW 2-EW 2-EW

290.00 290.00 6.10 19.00 83.00 3.60 40.00 6.10 19.00 83.00 3.60 40.00

14.12 14.12 0.61 1.64 4.53 0.06 5.04 0.61 1.64 4.53 0.06 5.04

Source: Barclays Capital Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency. FY1(E): Current fiscal year estimates by Barclays Capital. FY2(E): Next fiscal year estimates by Barclays Capital. Stock Rating: 1-OW: 1-Overweight 2-EW: 2-Equal Weight 3-UW: 3-Underweight RS: RS-Rating Suspended Sector View: 1-Pos: 1-Positive 2-Neu: 2-Neutral 3-Neg: 3-Negative

6 October 2011

2

Barclays Capital | Asia ex-Japan IT Hardware

INVESTMENT SUMMARY
Until this year, metal casings had been a niche segment within the supply chain, requiring both sufficient capacity and a high yield rates for suppliers to be profitable; however, we see 2011 as the beginning of a 3-year upcycle for metal casings as they become the mainstream packaging material

We initiate coverage of three IT hardware suppliers – Foxconn Tech (1-OW, PT NT$120), Shin Zu Shing (2-EW, PT NT$58) and Ju Teng (3-UW, PT HK$1.20). All three companies are important players in the notebook supply chain, each ranked No. 1 in their respective subsegments. However, we also see them as key players in the current migration from conventional NBs with plastic casings to tablet/ultrabooks with metal casings. Other key companies with exposure to the strong growth expected in tablets/ultrabooks are the polymer battery makers Simplo(1-OW, PT NT$290) and Dynapack (2-EW, NT$130). We maintain our 2-Neutral stance on the Asia ex-Japan IT Hardware sector. Our top 1-OW picks among the 22 stocks we cover are FTC (2354.TT), Simplo (6121.TT), Cheng Uei (2392.TT), Acer (2353.TT) and Lenovo (0992.HK) for EPS growth in 2012E.

Thin-and-light concept to drive product evolution
We expect FTC to benefit most from the expected upsurge in metal casings, as it should remain the leader in the segment for 2012 and have ample opportunity to expand because of the following: 1) its first-mover advantage; 2) its position as the sole supplier for the iPad and iPhone; and 3) its potential to gain from the expected boom in ultrabooks overall

We reiterate our view that the thin-and-light concept will drive product design trends – such as that for tablets (the iPad in particular), ultra-thin type NBs (MacBook Air/Pro), ultrabooks (for most of the other top-tier brand PC makers) and mid- to high-end smartphones (iPhone in particular). For these devices, the product must satisfy three requirements: 1) durability – thinner products require a stronger shell; 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness – metal casings are recyclable and their production low polluting.

Implications of tablet PCs and ultrabooks – the component winners reshuffle
With the maturing concepts of thin-and-light like products and cloud computing (lower dependency on hardware specifications and a higher reliance on applications/software), the winners among the component suppliers are being reshuffled. We believe there are three key tablet/ultrabook components that determine the winners: Metal casings: These make the device both more stylish and durable for thin-type NBs. FTC (2354.TT) has the most to benefit, in our view. Polymer batteries: This is the must-have component to avoid thickness issues; Simplo (6121.TT) and Dynapack (3211.TT) appear well positioned. Hollow-type hinges: These are the best-to-use component to significantly reduce thickness; SZS (3376.TT) should be the main beneficiary.

Figure 1: The likely winners and losers of the tablet PC and ultrabook boom
Company Winners Ticker Situation in 2011-12E Foxconn Tech 2354.TT First mover, sole metal casings supplier for iPad/iPhone and a major supplier for ultrabooks Simplo Dynapack Losers Juteng 6121.TT Major polymer battery supplier for iPad, MacbookAir/Pro and most other top-tier brand tablets and ultrabooks 3211.TT Major polymer battery supplier for iPad, MacbookAir/Pro 3336.HK Major plastic casings supplier for most brand NBs, but suffers from cannibalization of NBs (with plastic casings)

Source: Barclays Capital

6 October 2011

3

and 3) a new impactful competitor coming along and taking significant market share.000 40.361 Units in (000) 110.785 129. For SZS. we prefer stocks strongly associated with Apple products.000 20. Ben rates Apple as 1-OW with a 12-month PT of US$555 amid his 1-Positive view on the US IT Hardware sector.23 for a price target of NT$120.000 80. Ben estimates total shipment volumes for tables at 63mn for 2011E and 79mn for 2012E.487 80.000 10. For Ju Teng. 2) any unexpected change in the material cycle. Including non-Apple tablets.24 (normal trading cycle (2-10x) of 6x) for a price target of HK$1.789 59. However.5x for 2009-11E) applied to our 2012E EPS of NT$9. Apple products and ultrabooks.950 Figure 3: iPad and total tablet forecasts. All three scenarios would cause major concerns for us regarding our valuations and assumptions for growth momentum in 2012.000 30.000 80. 2010-13E 100.000 60. Ben’s y/y growth rate forecasts of 26% for 2012 and 20% for 2013E are far above the forecasts of single-digit growth rates for the PC industry overall near term. we use 5x applied to our 2012E EPS of HK$0.85 for a price target of NT$58. we use 12x (normal trading cycle (1024x) of 12x) applied to our 2012E EPS of NT$4. 6 October 2011 4 .904 18. PT US$555) Covered by Ben Reitzes Ben believes Apple will continue to extract more profit from competitors in key growth categories For 2011-12E. we use 13x (historical P/E for 2007-11E was 10-40x with an average of 13.000 70.000 14. as the main supplier of metal casings for Apple products (including iPhones/iPads/iMacs) is set to benefit from this expected growth.000 60.000 50. The P/E multiples we use are in line with historical average forward P/Es for each company (see the 12-month forward P/E charts in each company section of this report).669 48. For FTC. include: 1) lower-than-expected demand for tablets.000 40.000 100. in our view. Ben Reitzes. tablets and thin-andlight NBs.000 0 2010 2011E 2012E 2013E 47.000 20.000 120. We believe FTC.736 38. 2010-13E 140. Apple will ship 39mn iPad units in 2011 and 49mn in 2012.Barclays Capital | Asia ex-Japan IT Hardware Strong sales of iPhone and iPad driving demand for metal casings Apple (1-OW.765 94. Figure 2: iPhone forecasts. He believes Apple will continue to extract more profit from competitors in key growth categories. Risks The key risks on an industry and macro level that could prevent our price targets from being achieved. SZA and Ju Teng on P/E. According to our US IT hardware analyst.065 2010 2011E 2012E 2013E Apple iPhone Forecast Source: Barclays Capital estimates Apple iPad Forecast Source: Barclays Capital estimates Total Tablet Forecast Valuations We base our 12-month price targets for FTC.000 90. we believe that all three are highly unlikely to occur.000 0 Units in (000) 78.20.661 62.

2 1.2 6.339 9.1 3.7 35.7% 16.1% 11.1% 15.858 1.1% 14.0 39.7 8.barcap.8 86.0 0.6 1.709 313 204 5.0% 25.0 20.2 3.com.2 NA 14.7 10.7 21.9 8.5% 4.0 1.8% 18.4% 10.1% 9.6% 17.030 435 3.0 27.7 10.8 1.9% 7.0 652.653 979 2.7 2.1% 17.2 9.2% 0.5 1.5 63.0 NA 8. NR = not rated.610 6.6 NA NA 9.0% 13.0 120.7 0.0 NA NA NA 2.4 2.0 10.7% 25.5% 16.0 58.9% 15.7% 5.1 9.7% 24.013 3. Bloomberg consensus estimates for non-rated stocks.9 9.7 2.7 2.044 2.8 60.0 49.3 NA NA NA NA NA NA NA 13.9 NA 7.4 1.8 44.4 0.7 10.5% 28.3 3.5 7.Barclays Capital | Asia ex-Japan IT Hardware Figure 4: Asia ex-Japan IT Hardware and Wireless Equipment & Products sectors – valuation comparison Price Company Notebook makers Hon Hai Lenovo Asustek Acer Wistron Pegatron Compal Electronics Inventec Quanta Computer PC component suppliers Catcher Largan Simplo Cheng Uei Precision Lite-on Tech Dynapack Foxconn Tech Shin Zu Shing Ju Teng Delta Electronics Celxpert Jarllytec Senao Aurora Pan International Coxon 2474 TT 3008 TT 6121 TT 2392 TT 2301 TT 3211 TT 2354 TT 3376 TT 3336 HK 2308 TT 3323 TT 3548 TT 2450 TT 2373 TT 2328 TT 3607 TT 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 1-OW 2-EW 3-UW NR NR NR NR NR NR NR 300.5 6.9% 39.2% 6.5% 29.9 17.1% -4.2 4.2 27.5 47.4% 13.4 2.3 NA NA 2.6% -14.0% 8.9% 17.8% 17.1 2. please refer to: http://publicresearch.0% 24.5 12.8 1.4% 65.2 43.5 1.3% NA NA NA NA NA NA NA 2317 TT 0992 HK 2357 TT 2353 TT 3231 TT 4938 TT 2324 TT 2356 TT 2382 TT 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 3-UW 3-UW 3-UW 100.1 7.7% 45.6 4.2 16.3 11.3 2.7 208.9 2.0% -14.2 NA NA NA NA NA NA NA 171.973 2.8 1.8 8.5 1.7 10.3% NA NA NA 18.2 0.0 0.1 9.6% -1.5% 21.0% 25.0% 41.0 67.1% 14.8% 24.0 1.6% 60.080.0 33.0 130. 3-UW = 3-Underweight For full disclosures on each rated company.6 13.4 4.0 29.3 7.8 11.0% 7.0 1. 2-EW = 2-Equal Weight.0 1.179 5.9 6.0 8.9% 2.5 14.0 100.4 10.8 12.0 10.5% 39.2 1.1% 8.0% -4.413 70 29 713 474 485 143 25.0 290.5 12.4% 15.5 2.4 69.2 NA NA NA NA NA NA NA 3.8 1.7 2.7% 6.3 42.3 1.9 5.7 16.2 0.0 1. 1-OW = 1-Overweight.7% 13.5% 26.6 7.7 17.7 5.0 75.0 1.3 27.8 58.5 96.0% 11.3% 9. up /downside Mkt cap US$mn 10A P/E (x) 11E 12E 10A P/B (x) 11E 12E 10A ROE (%) 11E 12E Notes: Prices at close of trading on 5 October 2011.0 26.7 6.3 0.9 8.0% 26.2 10.9 102.2 0.9% 9.4 13.398 2.8 2.1 1.116 2.0 10.7 1.4% 11.2 0.6 5.0 6.1 0.4% 33.5 0.1% 21.2% 23.9 6.6 1.4 1.7% 14.8% 20.9% 15.9% -16.9 5.2% 11.1% 9.6% 8.947 1.9% 15.0 45.3 8.5% 36.0 26.1 1.1% -6.9 8.9% Ticker Rating target Price local Pot.0 5.8 10.137 7.8 4.4 0. Source: Bloomberg.5% NA NA 24.2 0.7 1.2 38. Barclays Capital estimates for rated stocks 6 October 2011 5 .7% 11.2 17.7% 13. including details of company-specific valuation methodology and risks.2% 23.8 2.2 12.8 1.6 1.8 14.5 12.0 180.0 0.3 15.0 40.5 290.7% 15.0 11.6 6.1 1.5 0.7 14.0 10.7% 58.6% 16.8 21.9% 16.2% 3.3% NA NA NA NA NA NA NA 4.2 1.3 8.5 3.8% 10.6 15.

.................................Barclays Capital | Asia ex-Japan IT Hardware CONTENTS INVESTMENT SUMMARY...............................................13 SHIN ZU SHING (2-EW...7 METAL CASINGS: THE LATEST 3-YEAR CYCYLE TREND FOR PACKAGING MATERIALS.. PT NT$120.......................20................ 24% POTENTIAL UPSIDE): ULTRA-THIN NBS TO SUSTAIN GROWTH ..... PT NT$58..3 ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS............51 APPENDIX II: INTEL MICROPROCESSOR ROADMAP ...........61 APPENDIX III: APPLE BUYER/SUPPLIER MATRIX ..............................................................................................................................................................................................................................................................................12 COMPANIES FOXCONN TECH (1-OW.....................................62 APPENDIX IV: BILLS OF MATERIALS ....................................40 APPENDIX APPENDIX I: WOA! (WINDOWS ON ARM) – AN OPPORTUNITY FOR NON-APPLE TABLETS/ULTRABOOKS WITH WIN8/ARM..................................................................................................... 4% POTENTIAL DOWNSIDE): EXPECTING ULTRA-THIN NBS TO TURN CANNIBALIZATION AROUND .......................................................................................................................... 14% POTENTIAL DOWNSIDE): SUFFERING FROM THE MATERIAL MIGRATION .......................................................63 6 October 2011 6 ............ DESKTOP AND TABLET PCS.... PT HK$1..............50 APPENDIX II: NOTEBOOK.................................................10 POLYMER BATTERIES: MUST-HAVE COMPONENT TO AVOID THICKNESS ISSUES ............................11 HOLLOW-TYPE HINGS: BEST-TO-USE COMPONENT TO REDUCE THE THINKNESS ISSUE FOR ULTRABOOKS........................................................27 JU TENG (3-UW..............

Barclays Capital | Asia ex-Japan IT Hardware ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS We reiterate our forecast for sales growth of 48% y/y for tablet PCs and 180% for thintype notebooks (from 14mn in 2011E to 40mn units in 2012E). Hardware specs are being simplified but still allow for normal usage. mainly because of the following: 1) durability – thinner products require a stronger shell. thus. low quality and low ASPs) or CULV (consumer ultra low voltage) laptops. Our proprietary analysis indicates an ASP of US$699 is achievable (Figure 5). These thin-and-light NBs are gaining popularity through innovation and development. Please refer to Figure 5 for details of our BOM analysis for ultrabooks. ultrabooks) for shipment starting from September 2011 and early 2012E (as Acer did in September). Our proprietary analysis indicates an ASP of US$699 is achievable. 3) eco-friendliness – metal casings are recyclable and their production low polluting. and 4) more affordable ASPs. (Please see Appendix II. Ultrabooks and thin-and-light NBs are not at all like netbooks (low-end. we mean: 1) ultrabooks – the term originally coined by Intel to describe NBs with a thickness of 18mm or less. Hollow-type hinges: These are the best-to-use component to significantly reduce thickness. which had disappointing hardware performances. Is this just another netbook-like story – a new segment that was created. 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices. Polymer batteries: This is the must-have component to avoid thickness issues.) Most top-tier brand PC makers appear to be developing thin-and-light NBs (eg. up from 6% for 2011E (please refer to our 19 July report “Initiate coverage of Simplo and Dynapack: leaders of the pack” [click here]). 2) portability – tablets enlighten consumers how thin and light a computing device can be. What impact/concept do tablet PCs (iPad in particular) bring us? 1) A lower dependency on hardware specs – as a result of maturing applications and various cloud-concept applications. the thin-and-light trend will likely be a key attribute to ensure sales. Just what is a thin-and-light NB? We see thin-and-light NBs as not a new segment to compete with standard NBs but an improved version of standard NBs given their similar pricing range When we refer to thin-and-light NBs. 6 October 2011 7 . We see thin-and-light NBs as not a new segment to compete with standard NBs but an improved version of standard NBs given their similar pricing range. yet failed to keep growing? We believe this isn’t the case. We believe ultrabooks and thin-type NBs – the MacBook Air/Pro and the up-andcoming thin-type NBs of 17-21mm – will be the key trend in the coming years in the fastgrowing NB product segment. 2) products such as Apple’s MacBook Air and MacBook Pro. 3) stylish design – the computing device is no longer just a PC. and 3) other extremely thin NBs that usually use polymer batteries for their thin-and-light form factor. we believe they represent not a low-end product but an improved segment. desktop and tablet PCs. we do not expect any additional increases in the bill of materials (BOM). p55 for our matrix on NB. Near term. In fact. which we expect to help sustain NB demand. Key components for tablet PCs and ultrabooks Metal casings: These make devices both more stylish and durable for thin-type NBs. which we expect to account for 10-20% of total NB shipments in 2012. but more like an accessory we use in our daily work and life.

distribution. Thermal.8 400 Modules: $16. Antenna.7 Modules: $16.7 Others: $28. and others Local tax. overhead. retailer. packings. with ASP of $899 10 Apple MacbookAir Configuration Conventional NBs Blended margin Source: Barclays Capital estimates 6 October 2011 8 . and others Local tax. distribution. T/P.Barclays Capital | Asia ex-Japan IT Hardware Figure 5: Ultrabooks – bill of materials (BOM) 1000 850 Modules (CMOS.8 250 LCD: 43 300 Others: $28. distribution. with ASP of $699 10 #3 Ultrabook (SSD) + Metal casings (diecasting) 6%.8 ## OS: $50 350 350 Hinge-up LCM: $82 350 Hinge-up LCM: $82 LCD: 43 300 300 LCD: 43 300 300 ## Others: $28. retailer.8 ## LCD: 43 300 Others: $28. overhead. Fan. packings. distribution.opex: $59 500 Metal casing (unibody): $50 Batteries 500 (Polymer): $35 500 ## plastic casing: $10 BOM Cost Batteries (Polymer): $35 450 450 OS: $50 450 Batteries (Polymer): $30 ## MVA. K/B. and others 800 Local tax.7 Modules: $16. distribution. RLC.8 Others: $28. and others Local tax. retailer. Mic) Others (Connectors. and others Local tax. retailer. and others 600 Metal casing (die-casting) $25 MVA. distribution. distribution. and others Local tax.7 Modules: $16. opex: $59 500 Adaptor: $5 BOM Cost Local tax. packings.7 Modules: $16. Audio chip. retailer. distribution. packings.7 Modules: $16. opex: $59 500 Adaptor: $5 BOM Cost Batteries (Polymer): $35 450 600 Metal casing (unibody): $50 BOM Cost 600 550 MVA. distribution. retailer. overhead. and others ASP US$ 699 Local tax. packings. packings. distribution. distribution. with ASP of $799 10 #4 Ultrabook (SSD) + Metal casings (Unibody) 9%. and others 600 ## Local tax. overhead. retailer. distribution. retailer. opex: $59 Adaptor: $5 Batteries (cylindrical): $18 450 MVA. and others ## 550 550 550 550 MVA. opex: $59 Adaptor: $5 Metal casing (unibody)+laser etch: $100 550 MVA.8 400 OS: $50 400 Others: $28. overhead. LAN chip) Local tax. B/T.8 250 LCD: 43 250 SSD: $134 250 SSD: $134 250 SSD: $134 250 SSD: $115 ## HDD: $35 200 HDD: $35 200 HDD: $35 200 200 200 200 Memory: $20 ## 150 Memory: $20 150 Memory: $20 150 Memory: $20 150 Memory: $20 150 Memory: $20 150 Memory: $20 ## CPU +C/S: $150 100 CPU +C/S: $150 100 CPU +C/S: $150 100 CPU +C/S: $150 100 CPU +C/S: $150 100 CPU +C/S: $150 100 CPU +C/S: $150 50 50 50 50 50 50 50 10 10 #1 Ultrabook (HDD) + Metal casings (diecasting) 11%. and others 750 Local tax. retailer. Hinge. retailer.7 Modules: $16. Speaker. and others 650 650 Metal casing (unibody): $50 600 650 BOM Cost Local tax. with ASP of $899 10 #5 Ultrabook (SSD) + Metal casings (Unibody)+Hing e-up LCM 6%. with ASP of $699 10 #2 Ultrabook (HDD) + Metal casings (Unibody) 5%. retailer. retailer.opex: $59 OS: $50 400 Adaptor: $5 Batteries (Polymer): $35 350 350 OS: $50 OS: $50 400 Adaptor: $5 Batteries (Polymer): $35 350 400 Others: $28. and others ## BOM Cost Local tax. W/L. retailer. PCB. retailer. overhead. cables. opex: $68 Adaptor: $5 500 Metal casing (die-casting): $25 450 MVA. packings. and others 600 Local tax. overhead. distribution. distribution.

More solid and lighter due to less structural materials needed More expensive than Die-casting.Barclays Capital | Asia ex-Japan IT Hardware Figure 6: Key product differentiation – hinge-up LCM vs die casting vs unibody Terms Hinge-up LCM Key concept: Key advantage: Key concern: Die-casting Key concept: Key advantage: Key concern: Traditional process of metal casing Most popular. due to the longer cycle production time and high cost of CNC machines Apple MacbookAir/Pro. TFT open-cell. weight reduction High price tag 6 October 2011 9 . with more affordable pricing Good enough but not as great as unibody in terms of appearance. backlight. ultrabooks (Asus UX series and some other upcoming top-tier brand makers this year end) Source: Barclays Capital Key messages Directly integrating all components (Antenna. in comparison Ultrabook (Acer S3 and some other upcoming top-tier brand makers this year end) Unibody Key concept: Key advantage: Key concern: Shape the metal materials (the whole bulk of metal) through computer numerical control (CNC) machines and laser application. due to its cycle time is faster than Unibody's. and B(LCD Bezel) cover) into A(LCD front cover) Thickness reduction. Mac mini. CMOS.

Until then. widely adopted Plastic vs metal 2010 Apple iPad introduces metal casings. it will likely continue to suffer from the cannibalization of plastic casings by metal casings. bamboo. In-mold rolling/forming (IMR/IMF). and. driven by the shift to tablets and ultrabooks. We see 2011 as the beginning of the three-year metal-casing wave. glass. while NBs stick with plastic Metal 2012E Tablets. smartphones expected to bring meaningful growth to metal casings Metal 2013E Metal still the mainstream. Each material has its own specific advantages and disadvantages. 2) stylish design. FTC – beneficiary of the metal casings trend and still the leader in 2012… We expect FTC to benefit most from shift to metal casings as it should remain the leader in the segment for 2012 and have ample opportunity to expand further because of the following: 1) its first-mover advantage. tables. Possibilities include carbon. … but Ju Teng is catching up Ju Teng is the leader in plastic casings. 2) its position as the sole supplier for the iPad and iPhone. ceramics or even a return to plastic with a special surface treatment.Barclays Capital | Asia ex-Japan IT Hardware METAL CASINGS: THE LATEST 3-YEAR CYCLE TREND FOR PACKAGING MATERIALS The advantages of metal casings Every 3-5 years. ultrabooks. carbon. but it is working to catch up with its comprehensive peers in terms of metal casing capacity. style and eco-friendliness. Figure 7: Notebook casings – trends is casing materials for notebooks. there has been a migration of notebook casing material. MacbookAir/Pro. or black Plastic +UV paint 2005 Some products use higher-end paint – ultraviolet. blue. customized. looks shiny Plastic + IMR/IMF 2008 New technology boom. Metal casings offer three key advantages: 1) durability for thinner products. while the industry looks for further enhanced surface-treatment technology for metal casings or other new materials ? Possibilities include: metal. and 3) eco-friendliness – metal casing are recyclable and their production lower polluting. and 3) the potential to gain from the expected boom in ultrabooks. a variety of designs & colours. especially for larger products such as NBs and tablets. 3) eco-friendliness Metal casings are becoming the norm for three reasons: 1) durability – thinner products require a strong material to house their hardware. ceramics Source: Barclays Capital estimates 6 October 2011 10 . However. We believe that FTC will continue to benefit the most from the metal casings boom in the next few years. glass. white. shorter production cycle time. plastic bamboo. What lies ahead for casings? The preferred material of the next 3-year material cycle is anyone’s guess. we expect metal casings to hold their own for awhile. ultrabooks and Apple NBs The golden age of metal casings Plastic + paint 2003 Most products are a single colour – grey. as Figure 6 demonstrates. However. We expect demand for metal casings to continue to grow until at least 2013 because of the advantages they provide – durability. The adoption rate of metal casings has risen significantly since 2010. we do not expect it to catch up until 2013 at the earliest. 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices.

in our opinion. Within this segment. however. and as such. We expect Simplo. can be made thinner than the cylindrical type (fixed shape/standardized size). as well as relationships with other tablet makers. The new hero when it comes to spurring PC demand – the tablet – will. Figure 8: Z-stack in NB – cylindrical vs polymer batter A cover (LCD cover) LCD B cover (LCD bezel) C cover (top case) D cover (bottom case) A cover (LCD cover) LCD B cover (LCD bezel) C cover (top case) D cover (bottom case) Polymer battery Cylindrical battery Cylindrical battery Source: Barclays Capital 6 October 2011 11 .Barclays Capital | Asia ex-Japan IT Hardware POLYMER BATTERIES: MUST-HAVE COMPONENT TO AVOID THICKNESS ISSUES Polymer batteries are the must-have component to avoid thickness issues. with the shift to the thin-and-light form factor for NBs.TT) appear well positioned. Polymer batteries – the trend for ultrabook (thin-and-light) products Most NBs use cylindrical battery packs. which holds the major share in the Apple battery supply chain. be the key driver of PC growth beginning in 2011.TT) and Dynapack (3211. the trend is to use Lipolymer batteries instead of Li-ion batteries. such as for ultrabooks and the MacBook Air and Pro. Simplo (6121. to benefit most from this trend. It will also be the key growth catalyst for both Simplo (with the largest share globally) and Dynapack. The size of the Li-polymer battery is customisable based on specific product requirements.

Samsung. Its hollow-type hinges can help NB products to be even thinner because the antenna can be put through the hinge. Fujitsu. ODMs/OEMs and PC brands SZS. other hinges that require the antenna to run outside along with the hinge. Sony. Dell.Barclays Capital | Asia ex-Japan IT Hardware HOLLOW-TYPE HINGS: BEST-TO-USE COMPONENT TO REDUCE THE THINKNESS ISSUE FOR ULTRABOOKS Hollow-type hinges are the best-to-use component to significantly reduce the thickness issue. Barclays Capital 6 October 2011 12 . We view SZS (3376. saving the space vs. Figure 9: Hollow-type hinges Figure 10: Other key parts of hollow-type hinge modules Source: SZS. Flextronics ODM/EMS Acer. which is proven by its position as the only supplier for Apple’s MacBook Air/Pro. Jarlly. Sin Her. Inventec. Wistron. ASUS. Barclays Capital Figure 11: Working/business models of hinge suppliers. We discuss SZS’s competitive advantages more fully in the company specific section of this report. Barclays Capital Source: SZS. … PC brands Source: Company data. Apple. Compal. … Hinge providers The ODM/EMS directly assign (in most cases) the hinge components The hinges are assigned by the PC brands and then shipped to the ODM/EMS for finished goods assembly Quanta. Toshiba. Pegatron. SZS has the highest yield rate and best quality for hollow-type hinges. Hon Hai. Lian Hong.TT) as the most likely winner in this space.

iPad and other Apple products and the potential from ultrabooks (including MacBook Air/Pro and other brands’ ultra-thin NBs) as well as the higher gross margin (resulting from the complicated process) and the higher entry barriers in terms of capacity scale (key manufacturing equipment: die-casting.7 19. in 2012.1 1. The metal is the key material in building a durable package to house the product structure as well as creating a keen sense of style and design.8 15.263 7.15 Source: TEJ. “Initiate coverage of Simplo and Dynapack: leaders of the pack”).806 13. tablets and ultrabooks (or any thin-and-light NBs).8 P/B (x) 2. we forecast EPS growth of 27% y/y and expect the sales contribution from light metal casings to help the company maintain its overall gross margin and offset the downward trend for ASPs and gross margins we forecast for game consoles and thermal modules for 2012.80 Potential Upside/Downside iPhones/iPads and ultra-thin NBs drive growth of metal casings We reiterate our forecast for 48% y/y sales growth for tablet PCs and triple-digit growth for ultrabooks (180%). Thus. 24% POTENTIAL UPSIDE): ULTRA-THIN NBS TO SUSTAIN GROWTH 2354 TT / 2354. no matter whether the brand maker decides to use unibody or simpler stamping or die-casting.9% 11. For FTC.2% 27. Barclays Capital estimates 6 October 2011 13 . not only because it is a major metal-casing provider but also because we believe it still has significant ability to grow and expand. we believe metal casings are the product segment to sustain sales and earnings growth in 2012. Company data.5 ROE (%) 14.498 10.TW Stock Rating 1-OVERWEIGHT Sector View 2-NEUTRAL Price Target TWD 120. TWD 96.26 9.5 16. which we expect to reach 10-20% of total NB shipments in 2012. yield (%) 2. PT NT$120.03 3.7 8.27 EPS growth (%) -0. stamping and CNC (computer numerical controls – a type of highend drilling machine for producing unibodies). We believe ultrabooks and thin-type NBs (thin-and-light NBs.00 Price (05-Oct-2011) We initiate coverage of metal-casing maker FTC with a 1-Overweight rating and 12-month price target of NT$120.2 Div.40 6. +24% Light metal casings: a trend and key factor for ultra-thin products The light metal casing has become a must-have in terms of product design.2% 22. We expect the sales contribution of metal casings to grow to 30% in 2012E from 22% in 2011E.0 2.Barclays Capital | Asia ex-Japan IT Hardware FOXCONN TECH (1-OW.610 8. yield rates and technology.5 18.8 1.1% P/E (x) 18. Potential to grow – just the beginning of profit improvement We like FTC.53 3. FTC’s overall gross margin has the potential to either improve or maintain steady vs the usual trend of contracting margins in the hardware segment (refer to Figures 16-19).4% 20. We expect sales of light metal casings to continue to trend upward as metal casings become a must-have packaging for any ultra-thin product. and its profit contribution to rise to 46% in 2012E from 30% in 2011E. Figure 12: FTC – statistical abstract Year to 31-Dec 2009A 2010A 2011E 2012E 2013E Net profit (NT$mn) 6.55 5. we prefer stocks strongly associated with Apple products.03 4.53 7. Given the boom of the iPhone.6 10.23 11.2 13.3 15. For 2011-12E.190 EPS (NT$) 5. up from 6% in 2011E (please refer to our 19 July 2011 report. such as MacBook Air/Pro) of 17-21mm thickness will definitely be the trend to watch in the NB product segment in the coming years.2 2.

0 9.4% 14.711 Short.1 15.914 Capital expenditure (2.468 9.160 3.5 7.5 9.6 7.2 8.1% Average 8.2 3.0 17.5 8.53 1.0 9.3%) (36.193 49.2 11.713) (1.2 11. on betterthan-expected ultrabook and tablet demand in 2012.4 1.030) 1.8 4.2% (33.0% 0.6 12.307 (23.3 6.385 CAGR 11.190 11.041 62.973 10.915 20.1 3.1) 13.058 1.10 CAGR 5.3 7.614 7. Upside case NT$135 If sales are 10% higher than we model.8 9.9 10.7) 10.999) NA 1.7 13.748) Free cash flow 9.5 9.892 7.288 Valuation and leverage metrics P/E (x) EV/EBITDA (x) FCF yield (%) P/B (x) Dividend yield (%) Total debt/capital (%) Net debt/equity (%) Selected operating metrics Inventory days Accounts receivable days Accounts payable days Cash-conversion cycle 15. 6 October 2011 14 .9 18.2% 130.080 9.4 6.770 18.0%) (-6.27 1.23 9.500 -19.2 12.2 Why 1-OW? FTC's position as Apple's major supplier of metal casings should drive sales and earnings growth momentum in 2012E.6 10. Revenue and EPS.170 4.8 2.8 9.912 115.26 7.26 1.295 16.Barclays Capital | Asia ex-Japan IT Hardware COMPANY SNAPSHOT 2354 TT Foxconn Tech Income statement (NT$mn) Revenue EBITDA EBIT Pre-tax income Net income EPS (NT$) Diluted EPS (NT$) Diluted shares (mn) Dividend per share (NT$) Margin and return data (%) Gross margin EBITDA margin EBIT margin Pre-tax margin Net margin ROIC ROA ROE 2010A 136.861 Net debt/(funds) (11.854 10.7 9.673 13.0 12.588 (907) 10.2 3. Barclays Capital est.5 1.8 NT$120 2354 TT/2354.8 (25.9 16.754 38.3% 15.414 15.5 11.178 36.8 8.8 6.00 2012E 149.7% 19.9% 18.2% NA 50.632 (823) 14.50 2013E 159. This would also offset the downward trend of game consoles and the low margins of thermal modules in 2012.74%) (6.399 13.2%) 15.3% 19.452) Cash from operations 10.266 25.324 -13.9 17.610 6.0 5.831 7.3% Average 12.749 Change in working capital (800) (5.901 14.284 13.4 (22.724 13.1%) NT$90 (24.9% (907) NA 11.003 Total assets 92.0 12.23 1.121) (13.9% 74.981 12.552 102.3 8.1 (36. Upside/downside scenarios 174 124 74 24 29-Sep-10 9-Sep-11 NT$120 NT$105 (21.324 Total liabilities 42.9 5.8 8.359 52.53 6.1 4.3 11.5 13.5 18. Balance sheet and cash flow statement (NT$mn) Tangible fixed assets 21.498 7.962 Shareholders' equity 50. on a P/E of 13x 2012E higher EPS of NT$10.7 6.3 10.451 9.1%) Downside Case Price Target NT$135 (39.1% (609) NA 17.806 9.0% 20.875 13.4 8.38. on P/E of 13x 2012E lower EPS of NT$6.747 Intangible fixed assets Cash and equivalents 18.170 5.831 10.324 53.060 10.8 12.2 8.9 11.1% 20.6 9.5 Asia ex-Japan IT Hardware Stock Rating Sector View Price (05-Oct-2011) Price Target Ticker Investment case 1-OVERWEIGHT 2-NEUTRAL NT$96.TW 10.2 8.00 2011E 129.854 8.27 11.4) (32. 2010-13E 200 NT$bn Revenue EPS (NT$) 15 75 54 37 41 79 73 47 58 69 78 50 56 67 75 48 150 100 50 0 2010A 2011E 2012E NT$ 12 10 8 6 4 2 0 2013E Source: Company data.7 5.9 7.8 8.and long-term debt 5.8) Upside Case Source: Thomson Reuters Datastream.8 9.4 1.088 14.5) Downside case NT$90 Downside could come from a 20% decline in sales on lower-than-expected ultrabook and tablet demand in 2012 driving the price to NT$90.7 19.681 9.201 17.165 3. this could drive the price to NT$135.92 .6 11. Barclays Capital estimates Note: FY end Dec.3 17.6 (45.7 16.567) Other long-term liabilities 2.4 2.7% 56.328 40.2% 20.830 16.

is set to benefit from this expected growth. servers. we assign a 1-Overweight rating. therefore.5x for 2009-11E. Risks The key risks that could prevent our price target from being achieved. which are Apple’s high-growth product lines. with an average of 13. proving to be lower than we expect. which we estimate is at the upper end of its peer group. iPhone and ultrabooks. however. as the main supplier of metal casings for Apple products (including iPhones/iPads/iMacs). 6 October 2011 15 . in particular. projectors. we believe FTC may deserve a premium because of its promising metal casing business for iPad. 39mn iPad units will be shipped in 2011 and 49mn in 2012E.Barclays Capital | Asia ex-Japan IT Hardware Valuation and risks Valuation Our 12-month price target for FTC is NT$120. work stations Assembly for major game console providers Source: Company data. and so view a P/E multiple of 13x as justified. We use P/E to value FTC. Earnings outlook for 2011-12E Apple expected to drive FTC sales Growth from metal casings for Apple products According to our US IT hardware analyst. are the following: 1) demand for Apple products. Ben estimates total shipment volumes at 63mn for 2011E and 79mn for 2012E. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue. Our price target represents potential upside of 24%. digital cameras NBs. These two product segments also bring meaningful revenue to the supply chain. The y/y growth rates of 26% forecast for 2012E and 20% for 2013E are far above the PC industry’s average growth forecast of single digits for the near term. 2) demand for ultrabooks also lower than expected. Figure 13: FTC – product applications Products Metal casings Thermal modules Game consoles Major applications NBs. With this growth trend expected to continue and FTC’s position as a major source. DTs. e-readers.23. We believe FTC. We prefer to value the stock conservatively at this moment due to the volatile sales contribution from game consoles as well as the downward trend of thermal sales and their gross margin. and 3) FTC’s capacity proves insufficient to meet demand for metal casings (for unibody types. such as the iPad and iPhone. Barclays Capital Metal casings sales to be driven by iPhones and iPads We like FTC as it is the major metal casings source for iPads and iPhones. mobile phones. Ben Reitzes. in our view. which require FTC to operate numerous CNC machines). we believe its earnings growth momentum over the coming years will continue to be high. FTC’s historical P/E for 2007-11E was 10-40x. setting our target multiple at 13x and applying it to our 2012 EPS forecast of NT$9. Including non-Apple tablets. Going forward.

2011E Metal casings 22% Figure 17: FTC – sales contributions. Barclays Capital estimates Source: Company data.487 80.000 30.000 80.736 38.950 Figure 15: iPad and total tablet forecasts. and the profit contribution will increase to 46% for 2012E (from 30% for 2011E).000 10.904 18. 2012E Metal casings 30% Game consoles 63% Thermal 15% Game consoles 56% Thermal 14% Source: Company data.785 129. Ben Reitzes Apple iPad Forecast Total Tablet Forecast Source: Estimates of Barclays Capital’s US IT hardware analyst. 2011E Metal casings 30% Figure 19: FTC – gross profit contributions. Barclays Capital estimates Metal casings 46% Thermal 11% Source: Company data.000 60.000 20.000 20. Thus.000 100.000 14.000 40. 2010-13E 100.000 40.000 90. 2012E Game consoles 43% Game consoles 57% Thermal 13% Source: Company data.789 59. but because we believe it still has ample ability to grow and expand We expect the sales contribution of metal casings will grow to 30% for 2012E (from 22% for 2011E). Barclays Capital estimates 6 October 2011 16 . the company’s overall gross margin has the potential to either improve or be maintained amid the usual trend of margin contractions.000 60. Figure 16: FTC – sales contributions.000 120.361 Units in (000) 110. not only because it is a major metal casing provider.Barclays Capital | Asia ex-Japan IT Hardware Figure 14: iPhone forecasts.000 0 Units in (000) 78.065 2010 2011E 2012E 2013E Apple iPhone Forecast Source: Estimates of Barclays Capital’s US IT hardware analyst.661 62. Barclays Capital estimates Figure 18: FTC – gross profit contributions.000 70.765 94. 2010-13E 140. Ben Reitzes Potential to grow – metal casing momentum appears just the beginning in 2011E We like FTC.669 48.000 0 2010 2011E 2012E 2013E 47.000 50.000 80.

51 15 10 5 0 2010 2011E 2012E 2013E 18. Barclays Capital estimates 6 October 2011 17 . 2010-13E 25 20 15.27 ROE 2010-13E.724 129.0 2.915 149.Barclays Capital | Asia ex-Japan IT Hardware Figure 20: FTC – sales revenue.18 Figure 22: FTC – EPS.000 20.088 159. 2006-13E 180.0 0. Barclays Capital estimates Rolling 1y PE Mean +1 SD -1 SD Source: Company data.903 155. % Source: Company data.102 159. Barclays Capital estimates Figure 23: FTC – 12M forward P/E (x) 45 40 35 30 25 20 15 10 5 0 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Figure 24: FTC – 12M forward P/B (x) 6.26 NT$ 9.000 40.201 sales revenue Source: Company data. Barclays Capital estimates Figure 21: FTC – ROE.48 19.73 16.0 3. 2010-13E 12 10 8 6 4 2 0 2010 2011E 2012E 2013E 6.0 4.0 1.000 100.964 NT$ mn 135. Barclays Capital estimates EPS 2010-13E.000 0 2006 2007 2008 2009 2010 2011E 2012E 2013E 78.000 80.0 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Rolling 1y PB Mean +1 SD -1 SD Source: Company data.000 160.000 60.000 140.059 136.000 120.53 7. NT$ Source: Company data.23 11.0 5.

08 10. We could see further upside to earnings revisions after that.06 7.94 6. Barclays Capital Share price (NT$) (LHS) Sensitivity analysis for sales and the operating margin We analyze the sensitivity of our 2012 EPS forecast to examine and support our view that FTC’s risk-reward profile is positive under various scenarios. 3MMA (RHS) Source: TEJ.99 9.37 -5% 10. % ch YoY.45 6.66 8. We conclude the following: Worst-case scenario: Quarterly volumes were to remain flat and its operating margin lower than our forecast.87 9. Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency.28 Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates 6 October 2011 18 . Our base-case scenario calls for sales of NT$149bn for 2012E (15.24 8.52 10. representing EPS of NT$9.23 10% 12.05 12. Figure 26: FTC – sensitivity analysis for Barclays Capital’s EPS forecast for 2012 based on sales and operating margin Revenue of NT$149bn.23.84 0% 11.09 7.0%-pts +0.66 8.48 9. Base-case scenario: On our earnings forecasts.82 13.52 6.48 11.15 10.60 7.23 8. 2012E -10% +1.27 8.Barclays Capital | Asia ex-Japan IT Hardware Figure 25: FTC – share price performance 300 250 200 150 100 50 0 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 NT$ y/y % 300 250 200 150 100 50 0 -50 -100 Sales.5%-pts 9.96 7.6% y/y) and an operating margin of 9% (up from 7.38 9.68 8. We conclude that two major factors affect EPS: 1) sales and 2) the operating margin.0%-pts -1. tablet and ultrabook boom going forward.51 9.5%-pts Operating margin +1.76 9.98 8.78 11.5%-pts Base case -0.8% for 2011E).5%-pts -1.87 9. FTC would still follow the pattern of the Apple products.81 9.29 11.32 5% 13.

0%-pts +0. on the back of the ultrabook boom (we forecast 180% y/y shipment unit growth. The competitive situation Light metal casings (30% of total sales in 2012E. the long-term product/material trend).5%-pts 128 120 113 105 98 90 83 -5% 136 128 120 113 105 97 89 0% 145 137 128 120 112 103 95 5% 180 170 160 150 140 130 120 10% 162 153 144 135 126 117 108 Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates Catalysts Near-term catalysts High exposure to Apple for 2011-12E: We expect the gross profit contribution from metal casings to expand to 46% in 2012 (from 30% in 2011). both in terms of revenue/profits and share price performance despite the recent weakness in the PC industry. The other supplier is catcher (2474. and we believe it will continue to hold its lead through at least 2012. 2012E -10% +1. which depends on how many CNC the metal casing suppliers have. along with the dual Apple-related catalysts – the launch of iPhone 5 and iPad3. better heatreduction. We expect FTC to continue to deliver strong absolute growth. we believe FTC will be able to maintain its position as the largest metal casing supplier for iPads. In terms of volumes for metal casings for Apple iPhones. Dale Gai.0%-pts -1. from 14mn units in 2011 to 40mn units in 2012. recyclability and stylish appearance. The entry barriers to this segment are capacity scale.5%-pts -1. especially for tablets and ultra-thin NBs. owing to the advantage of lightness. The competition – one of two major suppliers FTC is one of two major metal casing suppliers in the supply chain. iPhones and ultrabooks. around 20% GM) Metal casings have been a trend in product design of NBs.TT) which covered by our analyst. mobile phones. iPads and ultrabooks. better hardness. Although other component suppliers have placed aggressive orders for CNC machines to catch up with FTC’s production capacity for unibody designs (some ultrabooks implement this higher-end metal casing instead of mainstream designs that use die-casting and stamping).Barclays Capital | Asia ex-Japan IT Hardware Figure 27: FTC – sensitivity analysis for Barclays Capital’s price target for 2012 on sales and operating margin Revenue of NT$149bn.5%-pts Operating margin +1. Long-term catalysts Metal casings – the 3-year material cycle trend: We expect earnings growth of 27% y/y. the larger 6 October 2011 19 .5%-pts Base case -0. consumer electronics and tablets for some time now.

or even OS crashes. Barclays Capital estimates Light metal casings – life cycle Thermal – ASP & GM declining (14% of total sales in 2012E.000 120. without thermal modules.000 50.950 Figure 29: iPad and total tablet forecasts. 10% GM) Since 2010.785 129. we are quite conservative for thermal’s future growth owing to the following: 1) low barriers to entry – there are countless suppliers. which is thinner and easier to implement and can also reduce heat but are currently more expensive.000 10.000 40. due to lack of new eye-catching applications. Usage of thermal modules Thermal modules are normally used to reduce the heat from the CPU and graphic chips. Several key factors form a total solution: 1) a thermal module – made from metal that absorbs and disperses the heat from CPUs or graphics chips.5 months to 6 months depending on the bargaining power of the supplier pacing the order. fierce competition exists in pricing and it operates more like a traditional manufacturing business. and 3) heat pipe – this links the heat between the heat pad on the CPU or graphics chip and the thermal module and then is used to channel the heat out via a fan.765 94. we expect FTC.000 80.000 20. such as GTS (thermal flexible graphite sheets). The lead time for CNC machines currently ranges from 1. 2) a fan – this blows the heat out of the product casing. the faster the supplier gets the end product. around 10% GM) Although thermal modules are vital for heat reduction for PC/handset products.669 48. 2010-13E 140.Barclays Capital | Asia ex-Japan IT Hardware the order a supplier places.000 30.789 59. Ben Reitzes. Ben Reitzes.000 0 2010 2011E 2012E 2013E 47.065 2010 2011E 2012E 2013E Apple iPhone Forecast Source: US IT hardware analyst. we are conservative on the future growth of its sales and earnings contribution.661 62. 2010-13E 100. and 2) alternatives – there are various substitutes for heat reduction.000 14. Barclays Capital estimates Apple iPad Forecast Total Tablet Forecast Source: US IT hardware analyst.736 38.361 Units in (000) 110.000 100.000 40.000 70. Game consoles – the sales contribution is declining (56% of total sales in 2012E.000 60. Given the lower gross margin of the assembly business and concern about the downward demand.904 18.487 80.000 90. 6 October 2011 20 .000 20.000 0 Units in (000) 78.000 80. game console sales have been in a downtrend.000 60. the heat might cause poor user experiences of overheating. Thus. Figure 28: iPhone forecasts. which already has the machines – to continue to benefit from Apple’s iPad 2 and iPad 3 as well as its iPhone 4 and 5 in 2012.

. Ltd Pao-Hsin Int'l.2% 1. and assembly for NBs. communication and consumer electronics products. manufacturing and sales sites worldwide Chairman and president: Lee Hang Ming Since 1990..Barclays Capital | Asia ex-Japan IT Hardware Company profile COMPANY FACTS 2010 revenue: US$4. Investment Hung Yang Venture Investment Co.9% 2. phones.7bn Employees: 80.3% Foreign Invest..448 worldwide (June 2011) Headquarters: Taipei. servers and other 3C products. has more than 15 design. servers. digital cameras.4% 1. Taiwan Business field: Designs and manufactures thermal modules. Co. projectors.4% 2.7% 2. research. development and distribution of computer. NB computers and other 3C products and consumer electronics. e-readers. Foxconn Technology Co. Ltd. Barclays Capital Source: TEJ. servers.5% 1.7% 6. Barclays Capital 6 October 2011 21 .%-TSE Source: TEJ. Ltd Hsin-Sheng Investment Samoya Shih-Sung Hung-Yuan International Investment Hung-Ch'i Int'l Hsien-Chin International Investment Samoya Shang-Chia Investment BVISheng-Feng Development Holding % 10. The company mainly provides magnesium and aluminium alloy casings and structures as well as heat sinks for desktops. mechanic parts. has been engaged in the manufacture.1% 5. Figure 30: FTC – foreign investment (%) 32 32 31 31 30 30 29 29 28 Aug-10 Oct-10 Jan-11 Mar-11 Jun-11 Aug-11 Figure 31: FTC – shareholding structure Shareholder 1 2 3 4 5 6 7 8 9 10 Hon Hai Precision Ind. Its products are used in the manufacture of NBs. workstation heat sinks and household game consoles. Mag/Al casing. among others.1% 8.

Increased capital increase to NT$5. Source: Company data. 1) Established R&D department to carry out the R&D of desktop computers and video products.Barclays Capital | Asia ex-Japan IT Hardware Figure 32: FTC – key historical events Year 1990 1992 1993 1994 1995 1996 1998 1999 2000 2004 2005 2006 Event Established Q-RUN Technology Co. Barclays Capital 6 October 2011 22 . Increased capital to NT$6. To Foxconn Technology Co.. Obtained ISO-14001 Environmental Management System certification from TUV Rheinland Taiwan.621. modem.065. US and the company (then Q-Run) was commissioned to develop a 15” high-resolution B/W terminal (SRT-1501). Ltd. Rd. ChungShan. 2) WIN. Burrard Investment Pte Ltd. Taipei county. renamed Q-RUN Technology Co. telephone answering.350. which integrated rotation mount. the first multimedia computer of its kind. Merged Foxconn Precision Components Co.000 through retained earnings.000 through retained earnings. Increased capital to NT$5. 3. Ministry of Finance. FTC began to supply desktop computers for Compaq. Listed on the Taiwan Stock Exchange. sound card and TV function into one.000. 1) Bought the factory buildings and established Tucheng mill in No. Ltd. Tucheng city. Signed a contract with NCD. 2) signed a supply agreement with Compaq Computer Corp.000 through retained earnings. Ltd. down converter board and video board and Foxconn Tech started manufacturing PCBA for iMAC computers.. video decompression (MPEG) card. one of the top three magazines in Germany.. RD department succeeded in developing analog board.. Singapore and Mr Lin Chung-Dian joined the company as shareholders. Ltd. fax machine. 2) became a public company with the approval of the Securities and Futures Commission. chose SRC-1502 as the winner for its excellent quality in 15” models after a careful evaluation.870. 1) Finished developing MONIPUTER(PM1550).537.

Barclays Capital | Asia ex-Japan IT Hardware

Figure 33: FTC – quarterly income statement, 1Q10-4Q13E
(NT$mn) Sales COGS Gross profit Operating expenses Operating income Non-op income Pre-tax income Tax or credits Net income EPS (NT$) Margin analysis (%) Gross profit Operating profit Net profit y/y (%) Sales Gross profit Operating income Net income EPS (NT$) q/q (%) Sales Gross profit Operating income Net income EPS (NT$) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2009 2010 2011E 2012E 2013E

32,964 30,113 33,251 40,396 35,643 24,034 31,936 37,475 35,499 36,797 38,110 38,795 39,420 40,864 39,815 39,815 155,059 136,724 129,088 149,201 159,915 -29,951 -27,140 -29,559 -35,245 -32,412 -21,215 -27,950 -32,908 -30,971 -32,067 -33,118 -33,666 -34,166 -35,321 -34,377 -34,377 3,013 -1,167 1,846 -109 1,737 -299 1,438 1.23 9.1% 5.6% 4.4% -16.8% 60.2% 2,973 2,042 -62 1,980 -657 1,323 1.14 3,692 2,348 170 2,518 -401 2,117 1.82 5,150 3,232 147 3,379 -648 2,732 2.34 3,231 2,015 527 2,541 -264 2,277 1.95 2,819 1,946 114 2,060 -717 1,343 1.15 3,986 2,859 4 2,863 -630 2,233 1.91 4,567 3,240 150 3,390 -746 2,644 2.26 4,528 3,101 114 3,214 -707 2,507 2.14 4,730 3,243 114 3,356 -738 2,618 2.24 4,992 3,459 114 3,573 -786 2,787 2.38 5,130 3,596 114 3,710 -816 2,894 2.47 5,255 3,793 114 3,907 -742 3,165 2.70 5,543 4,082 114 4,196 -797 3,399 2.90 5,438 3,977 114 4,091 -777 3,314 2.83 142,239 121,896 114,484 129,821 138,240

5,438 12,820 14,828 14,604 19,380 21,675 3,977 114 4,091 3,314 2.83 7,959 35 7,993 6,263 5.40 9,468 10,060 13,399 15,830 146 794 455 455 9,614 10,854 13,854 16,284 7,610 6.53 8,498 10,806 13,190 7.26 9.23 11.27

-930 -1,344 -1,918 -1,217

-873 -1,127 -1,327 -1,427 -1,487 -1,533 -1,533 -1,461 -1,461 -1,461 -1,461 -4,861 -5,360 -4,544 -5,981 -5,845

-777 -1,731 -2,004 -2,356 -3,048 -3,094

9.9% 11.1% 12.7% 6.8% 4.4% -7.2% -5.7% 7.1% 6.4% 8.0% 6.8%

9.1% 11.7% 12.5% 12.2% 12.8% 12.9% 13.1% 13.2% 13.3% 13.6% 13.7% 13.7% 5.7% 6.4% 8.1% 5.6% 9.0% 7.0% -4.0% 8.6% 7.1% -7.2% 8.7% 7.1% 8.8% 7.1% 9.1% 7.3% 9.3% 7.5% 9.6% 10.0% 10.0% 10.0% 8.0% 8.3% 8.3% 4.5% 8.9% 8.3% 2.6% 6.0%

8.3% 10.8% 11.3% 13.0% 13.6% 5.1% 4.0% 6.9% 5.6% 7.8% 6.6% 9.0% 7.2% 9.9% 8.2% 7.2%

-3.9% -16.6% 8.7% 17.3% -5.9% 14.8% 6.9% 6.4%

8.1% -20.2% 7.3% 9.1% -5.2% 1.5% 1.1%

-0.4% 53.1% 19.3%

3.5% 11.0% 11.1%

-3.0% -11.8% -3.8% 15.7% -3.8% 19.0%

-5.6% 15.6%

8.0% -11.3% 40.1% 67.8% 25.2% 12.3% 16.0% 17.2% 5.5% 5.0% -3.2% 10.1% 94.9% 24.8% -3.6% 10.1% 94.9% 24.8% -5.3% -0.9% -4.3% -5.2% -5.2% 3.7% 4.5% 4.6% 4.4% 4.4% 3.6% 5.6% 6.7% 6.5% 6.5%

-1.5% 32.7% 11.8% 6.3% 33.2% 18.1%

98.1% 19.1% 58.0% 49.7% 57.3% 49.0% -31.9% -31.4% -42.2% -42.5%

-4.7% 21.8%

0.3% 53.9% 66.6% 21.0% 11.0% 22.3% 25.9% 15.0% 10.6% 9.4% 26.2% 29.8% 18.9% 14.5% 9.4% 26.2% 29.8% 18.9% 14.5% 1.8% 2.7% 4.0% 3.8% 3.8% 1.6% 2.4% 5.5% 9.4% 9.4% 3.7% 5.5% 7.6% 7.4% 7.4% -2.6% -1.9% -2.6% -2.5% -2.5% 0.0% 0.0% 0.0% 0.0% 0.0%

9.8% 58.4% 9.3% 57.7%

1.0% 21.5% 11.7% 27.2% 22.1% -0.4% 20.9% 11.2% 27.2% 22.1%

-8.6% 10.4% 21.5% -11.8% -32.6% 32.9% 17.3% -1.3% 24.2% 39.5% -37.3% -12.8% 41.4% 14.6% -3.4% 46.9% 13.3% -8.0% 60.0% 29.0% -16.6% -41.0% 66.3% 18.4% -8.0% 60.0% 29.0% -17.0% -41.0% 66.3% 18.4%

-34.5% 10.6% 14.9% 37.7% -37.7%

Source: Company data, Barclays Capital estimates

6 October 2011

23

Barclays Capital | Asia ex-Japan IT Hardware

Figure 34: FTC – income statement, 2009-13E
Year-end 31 Dec (NT$mn) Total revenue COGS Gross profit Operating expenses EBITDA Depreciation Amortisation EBIT Interest income Interest expense Net Interest income/expense Gains on disposals Net associated profits Profit before tax Tax Profit after tax Minority interest Net profit Average weighted ordinary shares EPS (NT$) Fully diluted EPS (NT$)
Source: Company data, Barclays Capital estimates

2009

2010

2011E

2012E

2013E

155,059 136,724 129,088 149,201 159,915 (142,239) (121,896) (114,484) (129,821) (138,240) 12,820 14,828 14,604 19,380 21,675 (4,861) (5,360) (4,544) (5,981) (5,845) 11,979 13,451 14,831 17,875 20,414 (4,021) (3,983) (4,771) (4,476) (4,584) 7,959 9,468 10,060 13,399 15,830 138 189 260 341 341 (533) (326) (193) (176) (176) (395) (137) 67 164 164 746 447 (43) (185) (185) 75 (38) (97) (130) (130) 7,993 9,614 10,854 13,854 16,284 (1,731) (2,004) (2,356) (3,048) (3,094) 6,263 7,610 8,498 10,806 13,190 6,263 7,610 8,498 10,806 13,190 972 1,113 1,113 1,113 1,113 5.40 6.53 7.26 9.23 11.27 5.40 6.53 7.26 9.23 11.27

Figure 35: FTC – balance sheet, 2009-13E
Year-end 31 Dec (NT$mn) Cash and equivalent Short-term investments Receivables Inventory Other current assets Total current assets Net fixed assets Intangible assets Other assets Associates & other LT investments Total other assets Total assets Short term debt Payables Current portion of LT liabilities Other current liabilities Total current liabilities Long-term debt Other liabilities Total other liabilities Total liabilities Share capital Share premium and other reserves Minority Interest Others Total equity Total liabilities and equity
Source: Company data, Barclays Capital estimates

2009 22,508 53 28,593 4,882 5,196 61,232 23,039 778 11,205 35,022 96,254 4,168 17,418 12,351 12,961 46,898 1,280 337 1,617 48,515 9,720 36,672 1,347 47,740 96,254

2010

2011E

2012E

2013E 50,328 0 29,640 21,390 3,425 104,784 11,500 8,556 6,140 26,196 130,981 13,365 28,647 575 9,779 52,366 2,389 1,324 3,714 56,080 11,130 65,077 (1,307) 74,901 130,981

18,266 25,003 36,912 26 0 0 27,861 27,898 28,881 5,447 20,476 20,948 8,803 3,425 3,425 60,402 76,802 90,166 21,770 18,747 15,178 756 1,756 4,556 9,625 5,406 5,773 32,151 25,909 25,507 92,552 102,711 115,673 3,911 8,710 11,037 18,436 27,423 28,055 1,171 575 575 14,555 9,779 9,779 38,074 46,487 49,446 2,062 2,151 2,270 2,058 1,324 1,324 4,120 3,475 3,594 42,193 49,962 53,041 11,130 11,130 11,130 40,839 43,281 52,987 (1,610) (1,662) (1,485) 50,359 52,749 62,632 92,552 102,711 115,673

6 October 2011

24

Barclays Capital | Asia ex-Japan IT Hardware

Figure 36: FTC – cash flow statement, 2009-13E
Year-end 31 Dec (NT$mn) Net profit Depreciation Amortisation Associate share of (profits)/loss Total gross cash flow Change in total working capital Total operating cash flow Capex less disposals Change in other assets Change in associates Total investment cash flow Change in gross debt Change in other long-term liabilities Change in equity Total financing cash flow Total cash flow Cash balance at beginning of the year Cash balance at end of the year
Source: Company data, Barclays Capital estimates

2009 6,263 4,021 (75) 10,208 7,024 17,232 (631) 154 (5,691) (6,169) (7,573) 37 4,365 (3,171) 7,892 14,615 22,508

2010 7,610 3,983 38 11,630 (800) 10,831 (2,713) 22 1,542 (1,149) (10,654) 1,721 (4,990) (13,923) (4,242) 22,508 18,266

2011E 8,498 4,771 97 13,366 (5,452) 7,914 (1,748) (1,000) 4,122 1,374 4,291 (733) (6,108) (2,550) 6,737 18,266 25,003

2012E 10,806 4,476 130 15,411 (823) 14,588 (907) (2,800) (497) (4,203) 2,447 (922) 1,525 11,909 25,003 36,912

2013E 13,190 4,584 130 17,904 (609) 17,295 (907) (4,000) (497) (5,403) 2,447 (922) 1,525 13,416 36,912 50,328

6 October 2011

25

53 45.52 17.24 36.99 11.539 27.4 27.7 1.68 15.84 10.7 6.845 (23.964 (33.46 12.1 13.8 1.1 8.31 7.27 5.8 1.5 6.8 11.5 9.2 1.0 1.85 6.29 7.351 76.5 10.9 11.999) (45.2 10.58 25.0 101.030) (36.037 2.05 13.39 115.2 1.73 16.98 7.2 69.8 82.5 41.8 1.Barclays Capital | Asia ex-Japan IT Hardware Figure 37: FTC – key financial metrics (2009-13E) Year-end 31 Dec (NT$mn) Profitability Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Financial Cash (NT$mn) ST debt (NT$mn) LT debt (NT$mn) Net debt (NT$mn) Net debt/equity (%) Debt/equity (%) Current ratio (x) Quick ratio (x) Economic value NOPAT (NT$mn) Total capital (NT$mn) Gross debt/capital (%) Equity/capital (%) Valuation P/E (x) P/B (x) P/CFPS (x) EV/sales (x) EV/EBITDA (x) EV/EBIT (x) Performance ROA (%) ROE (%) ROIC (%) Asset turnover (x) Working capital/sales (%) Inventory processing days A/R collection days A/P payment days Coverage Interest coverage Value per share (NT$) Earnings per share Book value per share Sales per share Cash flow per share Gross cash per share Net cash per share Source: Company data.9 115.1 15.4 16.912 11.18 8.30 143.2 7.3 6.3 2.6 0.6 1.5 7.5 75.7 14.3 1.704 64.04 22.19 12.504 12.69 13.710 2.40 49.3 10.2 2.1 81.2 19.23 56.7 16.2 1.9) 37.9 0.84 9.3 10.3 9.726 (13.27 134.003 8.27 67.230 17.3 58.16 4.16 4.2 71.55 9.6 8.1 77.11 22.5 5.8) 22.7 1.8 2.1 6.365 2.233 (11.90 10.4 53. Barclays Capital estimates 2009 2010 2011E 2012E 2013E 8.41 6.5 4.7 41.92 7.8 73.5 9.3 15.3 1.8 9.8 8.1) 14.3 5.3 78.736 91.2 13.709) (9.4 87.7 9.228 65.7 11.0 7.57 18.41 9.11 33.26 47.4) 21.22 30.73 23.9 10.03 5.11 159.7) 21.631 (4.7 19.79 8.13 5.7 1.7 5.9 82.121) (22.168 13.4 49.3 23.9 66.567) (25.2 72.4 0.99 8.7 1.266 3.508 4.6 1.8 74.55 6 October 2011 26 .98 9.8 7.328 13.0 22.3 32.1 7.2 11.6 0.5 78.5 12.6 2.8 7.54 45.8 55.6 15.0 5.9 18.5 11.8 1.25 50.515 18.911 3.7 14.2 0.2 12.464 57.7 8.25 122.8 18.185 17.16 20.

We expect 2011 to be a tough year for the hinge providers due to the following: 1) cannibalization brought on by the tablet boom and 2) price-erosion from competition for conventional NBs.7 12.4% 25.1 16. We would welcome any move by the company to write off inventory.0 12. and we expect SZS with its advanced experience and technology in hollow-type hinges (which have a higher entry barrier) for Apple products – to maintain its lead on the back of this boom.4 13.71 3.7 11. 4% POTENTIAL DOWNSIDE): EXPECTING ULTRATHIN NBS TO TURN CANNIBALIZATION AROUND 3376 TT / 3376.8 12.85 4.5 1.04 4. 2) adoption of hollow-type hinges for ultrabooks. and 3) its high dominant market share of hinges for Apple’s MacBook Air/Pro should help SZS maintain its sales and earnings growth momentum.70 4. -4% Potential inventory write-off significant to 2012 outlook Because of weak NB demand in 2011. we forecast EPS growth of 25% y/y.00 Price (05-Oct-2011) TWD 60.40 Potential Upside/Downside We initiate coverage of hinge manufacturer SZS with a 2-Equal Weight rating and 12month price target of NT$58.3 1. Should this take place. In our view. based on the following: 1) inventory writeoffs by year-end 2011. For 2012.87 4.0 Div. Company data.4% -17.85 EPS growth (%) 15.5 1.6 9.443 743 613 768 769 EPS (NT$) 9.85 Source: TEJ. PT NT$58. Ultrabooks and ultra-thin (MacBook Air/Pro) NBs appear the lifesavers for higher-end hollow-type hinges for three reasons: 1) SZS holds the lead in terms of market share of hinges (45-50% of total NBs). yield rate and technology. we would expect the share price to strength by 12% by end-2011. which would improve its 2012 outlook. Barclays Capital estimates 6 October 2011 27 .9% -51.TW Stock Rating 2-EQUAL WEIGHT Sector View 2-NEUTRAL Price Target TWD 58. We see the MacBook Air/Pro and the potential from ultrabooks as helping to sustain and slightly ease this cannibalization impact. 2) it is also the major hinge supplier to Apple’s MacBook Air/Pro (90%+ share) due to its higher yield rate and reliability. yield (%) 8.2 1.8 P/B (x) 1.Barclays Capital | Asia ex-Japan IT Hardware SHIN ZU SHING (2-EW. SZS may be suffering from inventory overbuild.85 4. Figure 38: SZS – statistical abstract Year to 31-Dec 2009A 2010A 2011E 2012E 2013E Net profit (NT$mn) 1. and 3) the hollow-type hinge is also one of the keys to making NBs thinner (saving more space by allowing the antenna to be put inside the hinge.1% P/E (x) 6. the significant potential from ultrabooks and ultra-thin NBs (such as Apple’s MacBook Air/Pro) will be the lifesaver for the hinge manufacturers in 2012.8 8.5 ROE (%) 21.2% 0.88 4.85 4.

1% NA 83.7 18.8 17.4 5.2 1.660 3.7 6.8 32. because of tablet cannabilzation.4% 3. Revenue and EPS.7 5.00 2011E 8.640) (1.9 5.9 10.8 32.9 6.3 (25.0 7.8 15.8 14. driving the price to NT$51.012 768 4.349 (21) 1.1) NT$65 (7.4 5.7 18.0% 0.662) 360 6.721 12.4 14.760 12.1 4.8%) (4.6 11.8 5.880 7.68%) (-6. 2010.7 8.0% 16.3 13.Barclays Capital | Asia ex-Japan IT Hardware COMPANY SNAPSHOT 3376 TT Shin Zu Shing Income statement (NT$mn) Revenue EBITDA EBIT Pre-tax income Net income EPS (NT$) Diluted EPS (NT$) Diluted shares (mn) Dividend per share (NT$) Margin and return data (%) Gross margin EBITDA margin EBIT margin Pre-tax margin Net margin ROIC ROA ROE 2010A 6.5 4.5 11. driving the price to NT$65.535 3.2% NA 22.462 (420) 660 (273) 155 6.623) 360 6. we expect the potential adoption rate of higher-end hinges on thintype NBs to help sustain both sales and earnings growth momentum for SZS in 2012E.2 6.0% 1. Barclays Capital estimates Note: FY end Dec.8 6.50 2012E 9.186 6.4 10.2 8.295 957 903 743 4.85 158 3.6% 2.4% 24.85%) (-15.0% Average 19.8 (26.054 (240) 815 1.5 CAGR -8.5 4.222 Intangible fixed assets 67 66 Cash and equivalents 4. sales could decline 10% more than we model in 2012.13E 12 NT$bn 10 8 6 4 2 0 2010A Revenue EPS (NT$) 51 151 83 119 53 136 78 111 57 133 77 114 56 131 76 112 NT$ 6 5 4 3 2 1 0 2011E 2012E 2013E Source: Company data.739 Short.6 28.391 1. on a P/E of 12x 2012E lower EPS of NT$4.0%) Downside Case Price Target Asia ex-Japan IT Hardware Stock Rating Sector View Price (05-Oct-2011) Price Target Ticker Investment case 2-EQUAL WEIGHT 2-NEUTRAL NT$60.3 4.0) 12.00 2013E 9.0 9.8% 3.00 CAGR 13.9 6. Upside case NT$65 The shares could rise above our PT if ultrabook demand in 2012 impacts sales +10% more.013 769 4.87 3.85 4.7 19.8 (26.8 8.6 9.25 13.9 10.4 10.141 741 831 613 3.1 8.7 (28.2) 1.0% -1.4% 3.5 9.2% NA 0.71 4. on a P/E of 12x 2012E higher EPS of NT$5.503 (139) 1.5 4.4) 16.774 1.8% -5.823 66 4.41 Balance sheet and cash flow statement (NT$mn) Tangible fixed assets 2.3 1.0) Average 12.256 4.0 6.6 13.1% -0.373 919 1.5 4.4 5.85 158 3.8 18. 6 October 2011 28 .69 149 3.037 66 4.1% 1.0 31.T W 23.6 6.5 8.6 1.343 918 1.9% 1.157 6.097 (1.0 Why a 2-Equal Weight? Although we believe 2011 will be the toughest year for the hinge providers.8 13.1%) (-18.3 5.1 12.342 12.1% 2.082 6.828 Total assets 11.615 3.87 158 2.8 6.and long-term debt 1.731) Other long-term liabilities 360 360 Total liabilities Shareholders' equity Change in working capital Cash from operations Capital expenditure Free cash flow Valuation and leverage metrics P/E (x) EV/EBITDA (x) FCF yield (% ) P/B (x) Dividend yield (%) Total debt/capital (% ) Net debt/equity (%) Selected operating metrics Inventory days Accounts receivable days Accounts payable days Cash-conversion cycle 3.85 4.9% Upside/downside scenarios 104 84 NT$58 NT$51 (-3.201 (240) 961 Downside case NT$51 If ultrabook demand is lower than expected.657 (88) 925 (271) 508 2.8 10.0 11. Barclays Capital est.097 (1.097 Net debt/(funds) (2.8 (35.2 1.350 2.4 NT$58 3376 TT/3376.301 1.3 9.4 7.9 1.3 14.673 1.1 8.3%) Upside Case 64 44 24 29-Sep-10 9-Sep-11 Source: Thomson Reuters Datastream.

SZS continues to be the market share leader with 45-50% of total NBs and 90%-plus of MacBook Air/Pro. 2012E Consumer Others electronics 5% 9% Others 18% Hinges 82% TV/ monitors/ AIOs 26% NBs 60% Source: Company data. in our view. Barclays Capital estimates 6 October 2011 29 . Our price target represents potential downside of 4%. as the other suppliers are no longer able to afford the low yield rate. We value SZS by using a P/E multiple of 12x (with normal trading cycle (10-24x) of 12x. Barclays Capital estimates Source: Company data. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks. are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum. we assign a 2-Equal Weight rating. however. it is now increasing its market share. Figure 39: SZS – sales contributions. we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E. Downside risks: The key risks to the downside that could prevent our price target from being achieved. Risks Upside risks: The key risks to the upside that could prevent our price target from being achieved. which we estimate is in line with SZS’s peer group. due to its higher yield rate and reliability.Barclays Capital | Asia ex-Japan IT Hardware Valuation Our 12-month price target for SZS is NT$58. are the following: 1) lower-than-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs. Price-erosion competition never-ending. APSs and GMs have been declining. in our view. 2012E Figure 40: SZS – hinge sales contributions. However.85 for 2012. Although tablet cannibalization could negatively impact growth of NB hinge sales. SZS was not the sole supplier to Apple at first. therefore. We apply our target multiple for our EPS forecast of NT$4. but the yield rate makes the difference With increasingly more participants in the conventional NB hinge supply chain.

2010-13E 6 5 4 3 NT$ 4.80 8.96 Figure 43: SZS – EPS.85 4. Barclays Capital estimates Figure 42: SZS – ROE.038 4. Barclays Capital estimates EPS 2010-13E Source: Company data. Indeed.Barclays Capital | Asia ex-Japan IT Hardware Earnings outlook for 2011E-12E Apple MacBook Air/Pro and ultrabooks to drive SZS sales We believe SZS is set to benefit from the forecast growth in ultrabook sales. and most top-tier brand makers are launching ultrabooks using SZS’s solution. ROE 2010-13E Source: Company data.673 NT$ mn 9. Barclays Capital estimates 6 October 2011 30 .000 10. 2006-13E 12. the company is in the development stage for new models for 2012E.000 4.000 0 2006 2007 2008 2009 2010 2011E 2012E 2013E 5.85 6 4 2 0 2010 2011E 2012E 2013E 2 1 0 2010 2011E 2012E 2013E %.774 sales revenue Source: Company data.69 11.87 4. SZS is the main supplier of hinges for MacBook Air/Pro.000 8.71 3.406 7.140 6.391 8.301 9. 2010-13E 14 12 10 8 9.000 2.000 6. Figure 41: SZS – sales revenue.67 11.029 6.

5 2.5 4. Barclays Capital Share price (NT$) (LHS) Sensitivity analysis – sales and operating margins We analyze the sensitivity of our forecast for SZS’s EPS 2012 to examine and support our view that its risk-reward profile is positive under various scenarios.0 0. 3MMA (RHS) Source: TEJ. representing EPS of NT$4. We could see further upside to earnings revisions after that.0 3.9% for 2011E). 6 October 2011 31 . SZS still follows the pattern of the Apple products and ultrabook boom going forward.0 4.5 3. % ch YoY. Barclays Capital estimates Figure 46: SZS – share price performance 180 160 140 120 100 80 60 40 20 0 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 NT$ y/y % 80 60 40 20 0 -20 -40 -60 Sales.0 Sep-06 Sep-07 Sep-08 Sep-09 Dec-06 Mar-07 Mar-08 Dec-08 Mar-09 Mar-10 Sep-10 Dec-10 Mar-11 Jun-07 Jun-08 Jun-09 Jun-10 Dec-07 Dec-09 Jun-11 Rolling 1y PE Mean +1 SD -1 SD Rolling 1y PB Mean +1 SD -1 SD Source: Company data.8% (up from 8. Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency.4bn for 2012 (up 13% y/y) and an operating margin of 9. We conclude that two major factors affecting EPS are 1) sales and 2) operating margins. We conclude the following: Worst-case scenario: Quarterly volumes would remain flat and the operating margin would turn out to be lower than we forecast.85. Base-case scenario: On our earnings forecasts.5 0.5 1.Barclays Capital | Asia ex-Japan IT Hardware Figure 44: SZS – 12M forward P/E 30 25 20 15 10 5 0 Dec-06 Mar-07 Sep-06 Dec-07 Sep-07 Dec-08 Mar-09 Jun-07 Mar-08 Sep-08 Dec-09 Mar-10 Jun-08 Sep-09 Dec-10 Mar-11 Jun-09 Sep-10 Jun-10 Jun-11 Figure 45: SZS – 12M forward P/B 5.0 2. Barclays Capital estimates Source: Company data.0 1. Our base-case scenario calls for sales of NT$9.

80 4.12 4.56 4.0%-pts +0.5%-pts -1.75 5.4bn.00 3.Barclays Capital | Asia ex-Japan IT Hardware Figure 47: SZS – sensitivity analysis to Barclays Capital’s EPS forecast for 2012 based on sales and operating margin Revenue of NT$9.85 4. it is the major hinge supplier for Apple’s MacBook Air/Pro (90%+ share).07 5.08 5.83 4.28 4.5%-pts 61 58 54 51 48 45 42 -5% 65 61 58 55 51 48 45 0% 69 65 62 58 55 51 48 5% 73 69 65 62 58 54 50 10% 77 73 69 65 61 57 53 Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates Catalysts Near-term catalysts High exposure to Apple (MacBook Air/Pro) in 2011-12E: We expect SZS to continue to deliver strong absolute growth.40 5.5%-pts -1.44 5.10 4.5%-pts Operating margin +1.47 -5% 5.0%-pts -1.14 4.52 4.20 10% 6.26 3.07 4. In terms of volume.55 4.84 4. 6 October 2011 32 .14 4.43 5. both in terms of revenue/profit and share price performance.5%-pts Base case -0.74 5.45 5. And.5%-pts Operating margin +1.73 3. 2012E -10% +1.71 0% 5.76 5.5%-pts 5. because of its higher yield rates and reliability. In addition.41 6. SZS should benefit from being the major hinge components supplier for Apple’s MacBook Air/Pro.78 4.45 Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates Figure 48: SZS – sensitivity analysis to Barclays Capital price target for 2012 based on sales and operating margin Revenue of NT$9. Long-term catalysts – higher-end hinges for ultra-thin NBs We expect ultrabooks and ultra-thin NBs to be the lifesavers for higher-end hinge makers: SZS is the hinge leader in terms of market share (45-50% of total NBs).4bn.00 3.0%-pts -1.0%-pts +0.96 5% 6. despite recent weakness in the PC industry and tablet cannibalization.54 4. yield rates and technology.5%-pts Base case -0.27 4. 2012E -10% +1. the hollow-type hinge is also one of the keys to thinner NBs (saves space by allowing the antenna to be put inside the hinge).

but the yield rate makes the difference With increasingly more participants in the conventional NB hinge supply chain.Barclays Capital | Asia ex-Japan IT Hardware Potential inventory write-off significant for outlook for 2012: We believe SZS suffers from inventory overbuild in 2011 due to weak NB demand so any potential move to write off inventory this year would help our outlook for 2012. Figure 49: SZS’s competition – market share of NBs in 2012E. continues to be the market share leader – 45-50% of total NBs and 90%+ of Apple’s MacBook Air/Pro (SZS was not the sole supplier to Apple in the beginning. 18% GM) With the dramatic trend of declining ASPs since 2010 due to price competition. SZS’s gross margin shrank from 32% for 2009 to 18% currently. 2011 could turn out to be a tough year for SZS and could result in some short-term weakness for its stock price at year-end. Barclays Capital estimates Price-erosion competition never-ending. The competitive situation Hinges (82% of total sales for 2012E. We believe it will be difficult for the company to return its gross margin to the previous level with new entrants cutting prices to gain share in the NB market. % others 5% Lian Hong 15% SZS 45% Jarlly 15% Sin Her 20% Source: Company data. SZS’s share is increasing). but since the other suppliers can no longer afford the low yield rates. with its high yield rates and reliability. however. Should this take place. Barclays Capital estimates 6 October 2011 33 . Figure 50: SZS – hinges expected to account for 82% of total sales in 2012 Notebook & tablet PCs LCD monitors 3C MIM hinges Source: Company data. ASPs and GMs have been declining. SZS.

3% Figure 52: SZS – foreign investment (%) 6 5 4 3 2 1 0 Aug-10 Oct-10 Jan-11 Mar-11 Jun-11 Aug-11 3 4 5 6 7 8 9 10 Foreign Invest. which are applied primarily in computers. SZS provides 1) hinge products. By 1999..Barclays Capital | Asia ex-Japan IT Hardware Others (18% of total sales for 2012E. Suzhou. In effect. the company realigned itself toward the production of hinges and related products.0% 1. personal digital assistant (PDA) hinges. electronic products. Guangdong Chairman and president: Lu Sheng Nan SZS was founded in 1965 by Ming Wen Lu and Sheng Nan Lu in San Chung City. Taiwan Worldwide service: Taiwan.9% 1. to manufacture a variety of springs. optical products. SZS foresaw the growing importance of hinges. household electric appliances. which include stamping components and profiled products.%-TSE Source: TEJ. Shenzeng. 2) spring products.6% 1. 20% GM) SZS also manufactures key parts for hinge modules – springs.8% 3. industrial hinges. lathes and plastics – rather than fully rely on outsourcing. information products. stampings. Given its ample knowledge of precision mould development and production.185 worldwide (June 2011) Headquarters: Taipei. Singapore. which include commercial NB PC hinges. it launched new hinge research and development. Figure 51: SZA – others expect to account for 18% of total sales for 2012 Springs Stampings Lathes Plastics Source: Company data. military NB PC hinges. automobiles and bicycles. Taiwan. Barclays Capital 6 October 2011 34 .9% 2. Figure 53: SZS – shareholding structure Shareholder 1 2 Lu Sheng Nan Lu Min Wen Lu Yu Ch'eng Lu P'ei Fang Lu Tsun Hung--a Lu Yu Shu Lu Wen Ying Juan Ming Hui Lu You Lin-(a) Shin Kong Life Insurance Co. SZS had positioned itself as a preferred hinge supplier to ODM/EMS/brand PCs. and 3) stamping products.0% 2. instruments. communication products.0% 5. Ltd Holding % 10. among others. liquid crystal display (LCD) monitor hinges. Barclays Capital Source: TEJ. moulds and stamping-related tooling. it began manufacturing progressive dies. In 1990.7% 2. Then. Barclays Capital estimates Company profile COMPANY FACTS 2010 revenue: NT$6. LCD television hinges and electronic dictionary hinges.8% 1.6bn Employees: 6. as well as related components and accessories. in 1981.

Designed and received the first international patent for notebook PC hinges. Taiwan.. Adopted the name: Shin Zu Shing Co. Japan. when it entered into a technical cooperation agreement with with Riken Co. Awarded IECQ QC080000 status Selected for “Asia's Fastest-Growing Small Companies: The Top 10” in 2008 by BusinessWeek Source: Company data.. OTC approved initial public offering of SZS. China . Established itself as the largest hinge provider for notebook PCs in Taiwan . Launched a hinge-assembly line and established itself as an OEM and ODM for notebook PCs. Expansion led to the relocation of SZS to Su Lin city.Barclays Capital | Asia ex-Japan IT Hardware Figure 54: SZS – key historical events Year 1965 1968 1973 1981 1990 1993 1995 1997 1999 2001 2004 2004 2004 2005 2007 2009 Event Min-Wen Lu and Sheng-Nan Lu co-founded Shin Shing Springs Factory in San Chung city. Ltd was located in Su Zhou . Awarded ISO 9002 status. Investment Commission approved the establishment of a subsidiary firm: SZS Precision Electronic Co. Ltd.. Awarded ISO 14001 status. and tool manufacturing that was related to stampings. Established a department focused on the research and development of hinges. Awarded ISO 9001 status. Ltd. Barclays Capital 6 October 2011 35 .. The company adopted the name: Shin Zu Shing Spring and Mechanical Co. Launched progressive die and mold manufacturing. (2000 rev) SZS Financial Supervisory Commission approved the request for a public offering. Taiwan. Taiwan. Granted an "AA" grade Award company from Matsushita company.

0% -1.3% 112.651 -1.1% -31.0% -14.1% 23.1% 9.3% 32.69 8.2% 29.2% 43.0% 0.284 -581 1.66 6.0% 0.6% -73.721 -1.013 -244 769 4.74 2.7% 8.444 448 -217 232 52 284 -69 215 1.4% -24.4% -17.7% 4.4% -24.8% 7.87 9.4% 9.1% 3.3% 32.109 -1.8% -8.9% -20.0% 0.301 1.9% -3.989 27.85 -1.1% 6.4% 13.9% 18.995 -2.673 1.4% 14.5% 17.7% -7.25 2.2% 0.8% -1.1% 24.0% 20.6% -52.3% 19.2% 0.9% 99.7% 15.0% 9.576 -1.3% 19.5% 0.525 -1.9% -20.9% 13.8% 18.4% 55.2% 17.3% 8.3% 11.7% 38.774 1.554 398 -132 266 18 284 -38 246 1.120 399 -202 197 30 227 -55 172 1.8% -49.3% 190.4% -2.1% 9.8% -28.9% -69.1% -3.6% 9.5% 23.2% 14.2% -53.7% -69.0% -18.6% 7.4% 9.7% -33.6% 18.9% -5.1% -2.2% -5.6% 8.785 -866 919 94 1.0% 0.7% -33.004 -4.1% 0.763 -845 918 94 1.0% 9.745 -5.012 -244 768 4.3% -37.2% 9. 1Q10-4Q13E (NT$mn) Sales COGS Gross profit Operating expenses Operating income Non-op income Pre-tax income Tax or credits Net income EPS (NT$) Margin analysis (%) Gross profit Operating profit Net profit y/y (%) Sales Gross profit Operating income Net income EPS (NT$) q/q (%) Sales Gross profit Operating income Net income EPS (NT$) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2009 2010 2011E 2012E 2013E 1.0% -2.08 2.8% 22.7% 18.4% -43.1% 8.8% 18.5% 0.29 7.1% 1.4% Source: Company data.6% 17.6% 4.0% -1.5% 11.1% -6.444 440 -217 223 47 270 -66 205 1.1% -1.7% -35.969 -1.3% 9.5% -14.3% -8.6% 18.4% -5.2% 18.029 2.580 -623 957 -54 903 -160 743 4.7% -11.3% 39.8% -1.6% -6.3% -7.2% 21.4% 25.2% -6.9% 9.3% 9.1% 8.6% 15.9% 37.5% -27.543 -802 741 89 831 -217 613 3.0% 65.969 -1.3% 12.1% 0.8% -1.7% 10.3% -6.5% 0.6% 15.8% 18.5% 8.424 455 -217 238 52 291 -71 220 1.2% 5.42 1.444 448 -217 232 -36 196 -46 150 0.2% -1.95 2.1% 24.2% -18.4% 25.108 404 -202 203 52 255 -36 219 1.3% -22.092 -6.0% 15.4% 7.5% 6.0% -9.3% 9.6% 9.9% -6.6% 9.4% -41.48 2.157 -1.8% 18.8% 37.4% 0.2% -74.4% -8.39 2.6% -8. Barclays Capital estimates 6 October 2011 36 .4% 20.4% 18.969 -1.5% 12.4% 18.2% 15.2% -1.3% 10.3% 0.5% 8.3% 4.8% 8.2% -72.7% -2.9% -30.4% 17.1% 19.4% -40.7% -14.045 468 -208 261 -56 204 -49 156 0.8% -9.6% 8.2% -2.7% 25.771 -328 1.0% 32.36 2.3% 86.424 455 -217 238 47 285 -69 216 1.8% 8.8% -19.8% 8.4% 14.85 9.7% -41.8% 0.1% 0.2% -55.019 369 -187 182 -38 145 -69 75 0.0% 0.7% 20.0% 9.8% -51.3% -6.1% 0.8% 9.4% 0.6% -53.0% -38.8% 18.424 455 -210 245 -36 209 -49 160 1.0% 0.995 -1.995 -1.2% 14.7% -4.9% -4.5% 10.8% -1.759 -7.250 -1.8% -20.444 448 -217 232 30 262 -63 198 1.8% -3.9% 11.7% -5.6% 34.860 335 -182 153 27 180 -77 104 0.6% -27.7% 7.0% 28.8% 9.2% 61.3% 190.9% 4.3% -1.4% 4.66 2.9% -51.314 435 -232 203 47 250 -35 215 1.2% 9.7% -48.36 2.9% 7.6% 23.3% -27.3% 112.9% -41.628 -7.6% 15.2% 21.539 289 -159 131 -6 124 -7 117 0.2% 0.0% 18.0% 0.4% -2.8% 0.4% 85.703 68 1.8% 18.8% 1.56 1.9% 36.3% -8.4% 65.1% 14.5% 12.8% 37.38 2.6% 0.2% 43.3% 7.4% 14.6% -52.8% -22.5% -17.2% 18.443 9.879 -1.1% 24.7% -21.7% -50.391 1.4% 18.5% 0.534 425 -125 301 -10 291 -67 224 1.01 2.36 2.2% 0.Barclays Capital | Asia ex-Japan IT Hardware Figure 55: SZS – quarterly income statement.99 1.0% 32.704 -1.9% -43.

800 6.443 1.570 1.633 12.342 2011E 4.540 2.570 2010 4. Barclays Capital estimates 2009 5.349 12.800 6.880 1.037 66 382 148 2. 2009-13E Year-end 31 Dec (NT$mn) Total revenue COGS Gross profit Operating expenses EBITDA Depreciation Amortisation EBIT Interest income Interest expense Net Interest income/expense Gains on disposals Net associated profits Profit before tax Tax Profit after tax Minority interest Net profit Average weighted ordinary shares EPS (NT$) Fully diluted EPS (NT$) Source: Company data.116 1.87 3.462 11.350 67 384 2.499 370 370 3.439 360 1.222 66 382 149 2.169 529 9.702 11.71 4.658 1.868 1.763 (845) 1.819 12.503 12.186 1.530 1.634 11.284 (581) 1.439 360 1.080 129 7.082 1.535 6 October 2011 . 2009-13E Year-end 31 Dec (NT$mn) Cash and equivalent Short-term investments Receivables Inventory Other current assets Total current assets Net fixed assets Intangible assets Other assets Associates & other LT investments Total other assets Total assets Short term debt Payables Current portion of LT liabilities Other current liabilities Total current liabilities Long-term debt Other liabilities Total other liabilities Total liabilities Share capital Share premium and other reserves Minority Interest Others Total equity Total liabilities and equity Source: Company data.614 1.415 72 147 2.85 4.66 2010 6.760 51 3.439 360 1.013 (253) 759 9 769 158 4.247 529 10.012 (253) 759 9 768 158 4.823 66 382 148 2.828 51 3.535 1. Barclays Capital estimates 2009 7.157 1.493 6.802 11.998 (295) 1.343 1.580 (623) 1.443 149 9.225 529 10.283 1.566 1.Barclays Capital | Asia ex-Japan IT Hardware Figure 56: SZS – income statement.301 (6.295 (338) 957 40 (27) 13 (5) 903 (160) 743 743 158 4.703 35 (60) (26) 124 1.092) 1.029 (4.584 5.69 2011E 8.518 1 360 361 3.989) 1.386 1.058 4.921 2.543 (802) 1.628) 1.058 4.657 12.739 1.771 (328) 1.448 317 6.658 1.342 1.256 85 2.660 2013E 4.328 1 576 3.774 (7.713 993 22 771 3.584 4.85 4.739 2012E 4.141 (400) 741 62 (33) 28 (3) (0) 831 (222) 609 4 613 158 3.419 12.721 51 3.213 3 2.027 2.823 802 574 8.70 9.688 634 398 8.673 (5.745) 2.85 Figure 57: SZS – balance sheet.111 (38) 6.391 (7.584 4.658 1.85 2013E 9.800 6.759) 1.785 (866) 1.670 1.87 2012E 9.660 1.058 4.501 1.584 6.641 1.019 (141) 7.373 (454) 919 62 (33) 28 1 (0) 1.343 (425) 918 62 (33) 28 1 (0) 1.779 140 6.937 2.357 1.

418) 64 572 4.760 6 October 2011 .896 (307) (44) (350) (678) 11 578 (89) 1.443 295 1.828 4.222 (21) 1.081 (420) 660 (273) (233) (506) (120) (9) (983) (1.757 5.457 3.193 (139) 1.828 2012E 768 425 0 1.213 2010 743 338 1.013 (88) 925 (271) 3 (149) (417) 1.256 4. Barclays Capital estimates 2009 1.Barclays Capital | Asia ex-Japan IT Hardware Figure 58: SZS – cash flow statement.256 2011E 613 400 0 1.721 4.054 (240) 0 (240) (922) (922) (108) 4.721 2013E 769 454 0 1.213 4.738 158 1. 2009-13E Year-end 31 Dec (NT$mn) Net profit Depreciation Amortisation Associate share of (profits)/loss Total gross cash flow Change in total working capital Total operating cash flow Capex less disposals Change in other assets Change in associates Total investment cash flow Change in gross debt Change in other long-term liabilities Change in equity Total financing cash flow Total cash flow Cash balance at beginning of the year Cash balance at end of the year Source: Company data.112) (957) 5.482 0 (1.201 (240) 0 (240) (922) (922) 39 4.

213 1.58 30.27 6.0 6.08 61.0) 46.3 13.2 4.84 30.1 1.05 59.439 (1.1 21.614 2 (2.640) (35.0 4.9 53.57 47.52 5.8 0.6 2.91 23.86 16.65 29.2 13.1 34.3 133.6 0.0) 47.7 5.6 33.5 8.4 57.447 32.5 8.9 6.1 3.3 14.8 1.760 1.92 18.80 10.7 2.7 0.29 23.437 18.0 76.3 75.67 18.6 56.4 8.2 135.078 17.4 2.9 6.02 52.49 24.600 32.3 1.1 12.17 26.40 5.12 4.6 77.4 50.1 6.2 47.9 665 9.59 8.9 520 9.6 75.7 60.2) 22.8 4.Barclays Capital | Asia ex-Japan IT Hardware Figure 59: SZS – key financial metrics.2 0.7 12.8 58.721 1.54 11.6 41.5 9.0 1.375 9.01 7.9 666 9.8 1.0 4.70 51.713 22 (3.478) (45.662) (26.8 68.2 16.8 5.8 3.7 67.658 1.8 67.658 1.85 41.6 6.7 83.5 131.93 10.3 0.25 18.5 10.86 4.4 1.4 81.9 0.9 0.8 1.4 9.85 40.3 1.18 4.3 67.1 8.8 2.23 25.49 6 October 2011 .6 2.0 6.36 7.2 0.35 13.10 42.40 10.19 20.3 51.5 2.5 9.3 0.2 12.3 1.1 9.658 1.439 (1.71 47.8 5. 2009-13E Year-end 31 Dec (NT$mn) Profitability Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Financial Cash (NT$mn) ST debt (NT$mn) LT debt (NT$mn) Net debt (NT$mn) Net debt/equity (%) Debt/equity (%) Current ratio (x) Quick ratio (x) Economic value NOPAT (NT$mn) Total capital (NT$mn) Gross debt/capital (%) Equity/capital (%) Valuation P/E (x) P/B (x) P/CFPS (x) EV/sales (x) EV/EBITDA (x) EV/EBIT (x) Performance ROA (%) ROE (%) ROIC (%) Asset turnover (x) Working capital/sales (%) Inventory processing days A/R collection days A/P payment days Coverage Interest coverage Value per share (NT$) Earnings per share Book value per share Sales per share Cash flow per share Gross cash per share Net cash per share Source: Company data.69 14.0 797 9.77 9.8 8.70 7.8 2.2 141.5 150.8 82.2 86.731) (26.3 1.7 6.0 11.828 1.04 10.69 34.78 10.8 5.47 10.1 4.4) 21. Barclays Capital estimates 2009 2010 2011E 2012E 2013E 32.754 31.2) 48.39 4.87 42.256 1.6 78.5 2.439 (1.13 4.623) (25.07 12.6 15.78 8.7 40.26 9.7 6.

Company data.HK Stock Rating 3-UNDERWEIGHT Sector View 2-NEUTRAL Price Target HKD 1.66 0.3 0.20 0.8 4. Figure 60: Ju Teng – statistical abstract Year to 31-Dec 2009A 2010A 2011E 2012E 2013E Net profit (HKD mn) 705 331 226 229 230 EPS (HKD) 0. However.2 for 2012.20. and 3) their well-recognized market positions in terms of producing quality metal casings.3 0.8 4. Barclays Capital estimates 6 October 2011 . Thus. thin-type NBs (Apple’s MacBook Air/Pro). we expect the major metal casing suppliers like Foxconn Tech and Catcher will take the lead in 2012 due to their 1) existing big scale of production capacity. With a solid global market share in plastic casings for NB products and leadership in technology for injections.2 4.7 1. in our view.20.1 4.0 Div. moldings and painting.7 1. Without a strong growth driver.7 Source: TEJ. Could Ju Teng catch up with competitors and gain share in the metal casing supply chain? Not likely in 2012.3 0.3 0. 2) higher yield rates because of accumulated experience with various clients and products.Barclays Capital | Asia ex-Japan IT Hardware JU TENG (3-UW. 14% POTENTIAL DOWNSIDE): SUFFERING FROM THE MATERIAL MIGRATION 3336 HK / 3336.0 6.20 Price (05-Oct-2011) HKD 1. Our price target is based on 6x our EPS forecast of HK$0. we expect a significant slowdown in plastic casings given the trend for metal casing is becoming the mainstream for products such as tablets (Apple’s iPad in particular). such as tablets and thin-type NBs.7 6. -14% Long-term investment thesis The market share for plastic casing clients is close to being saturated.40 Potential Upside/Downside We initiate coverage of Ju Teng (3336 HK) with a 3-Underweight rating and 12-month price target of HK$1.20 0. upside potential for further share price gains might be limited since the company faces pressure from the boom of metal casing and from competitor such as Foxconn Tech in supplying metal casings for Apple’s iPads and iPhones as well as for other upcoming ultrabooks.9 5. high-end smartphones and potential ultrabooks. PT HK$1.3 ROE (%) 18.30 0.0 5. We believe Ju Teng is the leader of casing design/manufacturing in NB supply chain. We also estimate that Ju Teng’s market share of plastic casings is nearly 40-50% for 2011. Ju Teng will likely contiue to maintain its leading position for products using plastic casings.7 6. however.20 EPS growth (%) 1% -55% -32% 1% 1% P/E (x) 1.7 1.9 P/B (x) 0. yield (%) 6. We estimate that Ju Teng’s major clients account for more than 70% of its sales for 2011 as Ju Teng has been the first source for plastic casings for major top-tier brand makers. we expec a de-rating during the 3-year trend of a switch to metal casing that we forecast for 2010-12E.

1 8.5 126.9 93.133 0.2 4.1 9.0 3.2 HK$1 (-23.8% (28) NA 685 -13.133 2.7 96.230 11 4.4 1.346 681 220 300 229 20.4 Average 5.052) (12) 2.0 10.686 5.44 HK$1. Upside case HK$1.0 2012E 2013E Source: Company data.4% -15.0 4.0 2012E 7.0% -6.8%) (1.9 -4.3 -0.228 38 796 10. Barclays Capital estimates Note: Company data.0 2013E 7.8 124.0 If ultrabook and NB demand in 2012 is lower than we model.113 1.0% 0.Barclays Capital | Asia ex-Japan IT Hardware COMPANY SNAPSHOT Juteng Income statement (HK$mn) Revenue EBITDA EBIT Pre-tax income Net income EPS (HK$ cents) Diluted EPS (HK$ cents) Shares (mn) Dividend per share (HK$ cents Margin and return data (%) Gross margin EBITDA margin EBIT margin Pre-tax margin Net margin ROIC ROA ROE 2010A 7.9 106.0 0.2 7.736 0.7 2.4 HK$0.35 7.8 CAGR 5.9% 1.3 1.3 1.6 24.96 HK$1.0 85.578 2.9 3.28 Balance sheet and cash flow statement (HK$ mn) Tangible fixed assets 4.3%) (-36.113 1.0% 4.841 5.0.3 7.5 4.5%) (-49.7 3.310 658 219 294 226 20.7 28.2 20.4.HK 20.9 -6.3 Source: Thomson Reuters Datastream.979 Intangible fixed assets 38 38 Cash and equivalents 884 902 Total assets 9.7 28.490 38 713 10.3% -10. on a P/E of 5x 2012E higher EPS of HK$0.4% 12.1 5.742 4.784 5.4 0.25 7.2%) (-15.7% Average 9.5 9.3 1. Barclays Capital est.6 3.0 22.9 5.0 4.3 3.212 11 4.0 4.1 2. Revenue and EPS.9 0.3 2.2% 0.4 0. at the earliest.3 5.13E 7.113 1.400 11 0.635 (61) 628 (710) (82) 5.5 2.4 1.9% 2.2 2.7 23.5% Asia ex-Japan IT Hardware Stock Rating Sector View Price (05-Oct-2011) Price Target Ticker Investment case 3-UNDERWEIGHT 2-NEUTRAL 1.and long-term debt Net debt/(funds) Other long-term liabilities Total liabilities Shareholders' equity Change in working capital Cash from operations Capital expenditure Free cash flow Valuation and leverage metrics P/ E (x) EV/EBITDA (x) FCF yield (%) P/ B (x) Dividend yield (%) Total debt/capital (%) Net debt/equity (%) Selected operating metrics Inventory days Accounts receivable days Accounts payable days Cash-conversion cycle 2.6 88. Barclays Capital 6 October 2011 .2 4.6 4.113 1.6 99.133 2.8 23. but not until end2012E.1 -10.1 2.8 -2.15 7.4% 5.0 3.2.166 781 363 420 331 29.4%) Downside Price Upside Case Target Case 4.6 28.5 3.1 59.1% -11.9 4.2 4.1 0.225 290 1. has been negatively impacted by the 3-year material cycle and the popularity of metal casings caused by the tablet PC boom since about 2010.3 0.270 Short.4%) (-32.1 3.0 -36.2 8. Juteng's efforts to expand capacity could help it improve its share of metal casings.317 11 4.05 2010A 2011E Revenue EPS (HK$ cents) 54.7 27. Juteng. driving the price down to HK$1.1 0.1 2. sales could decline 10%.8 8. on P/ E of 5x 2012E lower EPS of HK$0.0 2011E 7.8% -3.9 HK$ 0.119 8.4 cents 0.6 57.0% (745) (60) NA NA HK$1.8 1.0 3.2 3.2 125. 2010.346 704 220 305 230 CAGR 0.0 Why a 3-Underweight? Plastic casings leader.0 19.8% 20.1 2.0% 4.0 1. this could drive the share price to HK$1.9 3.912 10.7 26.0 9.9 145.429 56 722 (676) 46 5.3 23.9 5.2 94.4 6.842 3.419 2.3 6.4 If sales are 10% higher than we model on metal casing share gain in 2012.3 -11.0 9.1 7. Downside case Upside/downside scenarios 6 5 4 3 2 1 0 29-Sep-10 27-Sep-11 HK$1.2 0.1 3.4 HK$bn 7.2 3336 HK/3336.7 88.4 3.5 4.3 2.4% 2.039 (1.7 59.0 3.9 27.5 6.0 3.

Barclays Capital | Asia ex-Japan IT Hardware Near-term prospects Cost-down pressure from ODM/brands never ends With the BOM more transparent than ever and the continuous cost-cutting pressure from ODM/brands. such as those for Foxconn Tech and Catcher (2474. Ju Teng’s gross margin are significantly exposed. which we apply to our 2012 EPS forecast of HK$0. However. with the significant increased in demand for metal casings since 2011 – contributed by the iPad/iPhone boom – Ju Teng has become one of the victims of tablet cannibalization. are the following: 1) lower-than-expected demand for metal casings. Ju Teng and other key casing suppliers are disadvantaged by not having the scale of FTC.TT. in our view. We value the company using a target P/E multiple of 5x. Catcher is covered by Dale Gai as part of his coverage of Asia ex-Japan Wireless Equipment & products) as Foxconn Tech benefits from order allocations from Hon Hai (the major EMS of Apple’s iPhones.20. We believe Ju Teng has the necessary injection/molding/casings experience. Ju Teng’s metal casing department is growing relative slower than those of other metal casing suppliers. but it will still take some time to expand its capacity for higher-end metal casings. Our price target represents potential downside of 14%. which we estimate is at the bottom end of Ju Teng’s peer group. iPads and other products). therefore. which in line with the stock’s normal trading cycle (2-10x) of 6x because we do not expect Ju Teng’s to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years. moulding and painting of NB casings. it is suffering from the slowdown in NB demand since 2010 from the cannibalization of tablets. However. We set our target multiple at 6x. Apple (iPad and iPhone) has been sourcing from FTC since the beginning. Ju Teng has still been able maintain to its leading position in the plastic casing supply chain.2. which requires a lot of CNC machines for mass production. we assign a 3-Underweight rating. while Ju Teng is in the NB supply chain. Valuation Our 12-month price target for Ju Teng is HK$1. Efforts in metal casings Ju Teng has been making an effort for several years now to catch with its peers on metal casings. 6 October 2011 42 . The customer mix limits Ju Teng’s expansion for metal casings We believe Ju Teng’s leading technology leave it will managed to execute on injections. Risks The key risks to the upside that could prevent our price target from being achieved. Thanks to its high yield rates (about 95%) on plastic casings. and when it comes to product design such as the ‘unibody’ (the metal casing MacBook Air/Pro use). 2) Ju Teng’s capacity for and experience in metal casing (both die-casting and stamping) catching up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng’s metal casing manufacturing.

1 4.5 2.276 2011E 2012E 2013E Figure 62: Ju Teng – ROE.0 6. Figure 61: Ju Teng – sales revenue.30 0. Barclays Capital estimates Figure 64: Ju Teng – 12M forward P/E (x) 35 30 25 20 15 10 5 0 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Figure 65: Ju Teng – 12M forward P/B (x) 2.20 0. 2007-13E 8.Barclays Capital | Asia ex-Japan IT Hardware Earnings outlook for 2011E-2012 We believe the market/product trend will continue to move toward metal casings for several years.000 0 2007 2008 2009 2010 sales revenue Source: Company data.464 7. 2010-13E. % Source: Company data. as it is currently suffering from tablet cannibalization and weak NB demand.5 1.0 1. 2010-13E 0. 2010-13E 8 7 6 5 4 3 2 1 2010 2011E 2012E 2013E 4.000 4.310 7.40 0.000 2. Barclays Capital estimates 6 October 2011 43 .000 5.8 Figure 63: Ju Teng – EPS. We are conservative on Juteng’s earnings potential for 2011E-12E.20 0. NT$ Source: Company data.166 7.0 0.5 0.000 1.2 4. The plastic casing providers will likely suffer from cannibalization and it will also take some time for them to expand capacity. Barclays Capital estimates EPS.20 0.000 7.000 3.249 7. Barclays Capital estimates HK$ (mn) 7.10 0.000 6. Barclays Capital estimates Source: Company data.00 2010 2011E 2012E 2013E ROE.30 0.0 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Rolling 1y PB Mean +1 SD -1 SD Rolling 1y PE Mean +1 SD -1 SD Source: Company data. 2010-13E.346 7.20 0.346 5.

23 0.36 1.19 0.23 1.5%-pts Operating margin +1.74 1. We conclude that two major factors affecting EPS are: 1) sales.12 0.0%-pts +0.10 0% 0.21 0.16 0.40 1.57 1.76 0.13 0.62 1.65 1.16 0.0%-pts -1.5%-pts 0.16 0.55 1.29 1.27 0.61 5% 2.23 0.58 0% 1.10 5% 0. Juteng still follows the pattern of the Apple products and ultrabook boom going forward.98 0.89 0.70 1.5%-pts Operating margin +1.18 0.5%-pts -1.40 1.66 Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates 6 October 2011 44 . Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency.13 0.26 0.2.28 0.0%-pts -1.22 0.25 0.15 0.29 0. 2012E -10% +1.25 0.06 0.5%-pts Base case -0.08 1.18 0. and 2) operating margins.23 0. Base-case scenario: On our earnings forecasts.26 0.94 0.15 0.5% y/y) and an operating margin of 3% (same as 2011E).79 0.08 0.5%-pts Base case -0. Figure 66: Ju Teng – sensitivity analysis to Barclays Capital’s EPS forecast for 2012 based on sales and operating margin Revenue of HK$7bn.20 0.Barclays Capital | Asia ex-Japan IT Hardware Sensitivity analysis – sales and operating margins We analyze the sensitivity of our forecast for Juteng’s 2012 EPS to examine and support our view that its risk-reward profile is positive under various scenarios.47 1.85 1.11 Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates Figure 67: Ju Teng – Sensitivity analysis to Barclays Capital price target for 2012 based on sales and operating margin Revenue of HK$7bn.72 10% 1.5%-pts -1.0%-pts +0.91 1.17 0.12 10% 0.31 0.28 0. Our base-case scenario calls for sales of HK$7bn for 2012 (up 0.20 0.32 0.12 0.49 1.72 0. We conclude the following: Worst-case scenario: Quarterly volumes would remain flat and the operating margin would turn out to be lower than we forecast.55 -5% 1.5%-pts 1.28 1. representing EPS of HK$0.20 0.09 -5% 0.20 0. We could see further upside to earnings revisions after that.35 0. 2012E -10% +1.95 0.87 0.

2001 The company’s first production plant in Suzhou.5% interest in Chengyang Precision Mold (Kunshan). the company’s production facilities are spread across eastern and southern China and Taiwan. Its major customers are worldwide famous brand name companies and OEM/ODM companies. Ju Teng has a leading 31% market share in the global notebook casing market and was listed on the Hong Kong main board in 2005. a joint venture with Compal. China. Company profile COMPANY FACTS 2010 revenue: US$922mn Employees: 31. a joint venture with Wistron. Figure 68: Ju Teng – Key historical events Year Event 2000 Ju Teng International Holdings Ltd was founded by three individuals with extensive industry experience: Li-Yen Cheng. 2003 The second production base (Suzhou Dazhi) began mass production. China. 2006 Acquisition of a 70% interest in WIS Precision (Kunshan).Barclays Capital | Asia ex-Japan IT Hardware Catalysts Long-term catalysts We believe Ju Teng may have a better chance than other upcoming competitors to gain market share of metal casings due to: 1) the company’s proven experience in injections/mouldings/casings. In the same year.44% interest in Compal Precision Module (Jiangsu). 2005 The mold department commenced production. 2002 The second production plant in Suzhou. was listed on the Taiwan Stock Exchange by way of Taiwan depository receipts (TDRs). Ju Teng International Holdings Ltd. 2004 Ju Teng Electronics (Shanghai) was acquired to expand the group’s production capacity. In May. was established (Everyday Computer). and acquisition of 36. Ju Teng International Holdings Ltd was listed on the Main Board of Hong Kong Stock Exchange. Taiwan Business field: Design and manufacturing of various casings and mechanic parts Ju Teng International Holdings Ltd. Source: Company data. 2008 Increase of equity interest in Chengyang Precision to 100% and acquisition of 71% interest in Lian-Yi Precision (Zhongshan). 2) close relationships with top-tier brand makers. As a manufacturer specializing in 3C products. Li-Yu Cheng and Tsai-Chin Horng. the group established its own mould department in the Suzhou Dazhi plant. 2005 In Nov.000 worldwide (June 2011) Headquarters: Taipei. Li-Yu Cheng and Tsai-Chin Horng. was established (Suzhou Dazhi). 2007 Increase of equity interest in Chengyang Precision to 74%. was established in 2000 by Li-Yen Cheng. Barclays Capital 6 October 2011 45 . and 3) growing capacity/facility of CNC machines (for higher end product design – ‘unibody’). 2009 Acquisition of a 53.

655 (3.0% 8.0% -3.699) 285 (145) 140 82 222 (47) 174 15.133 1HE 3.577 (2.8% 3.7% Source: Company data.133 1HA 3.0% 4.8% 280.4% 2.6% -18.0% -53.02 1.4% 0.0% -1.5% 51.5% 41.7% -63.5% 2.060) 303 (222) 81 (2) 79 (24) 54 4.59 1.3% -56.9% 22.6% -31.0% 1.0% 2.66 1.6% 2360.0% 0.758) 588 (367) 220 85 305 (76) 230 20.3% 1.2% 12.8% 0.0% 0.8% 3.2% 12.0% -11.2% 159.345 (436) 908 26 934 (229) 705 63.8% 12.5% 297.9% 4.346) 308 (243) 66 49 115 (4) 111 9.346 (6.2% 3.428 (2.4% 7.78 1.047 2HA 3.39 1.5% 297.2% 0.085 (3.764) 320 (161) 159 82 241 (53) 188 16.0% 2.5% -5.1% 1HA 3.47 1.8% 0.1% 25.6% 8.1% -27.0% -27.4% 1.0% 3.6% 14.1% 3.5% 5.1% -60.1% -6.6% -24.6% 10.119) 1.342) 313 (160) 153 26 180 (64) 116 10.1% 5.20 1.758) 588 (367) 220 80 300 (72) 229 20.133 FY2013E 2HE 4.590 (3.0% 21.9% 3.1% 11.552) 788 (241) 547 19 565 (150) 415 35.8% 0.4% 1.2% 0.0% 4.4% 353.171 FYE '10A 7.8% 11.0% -1.133 FYE '11E 7.3% -6.118 FY2010A 2HA 3.98 1.133 FYE '12E 7.362 (3.3% 13.346 (6.0% 4.1% 9.6% 7.9% -0.133 -6.8% 21.166 (6.310 (6.2% 4.4% -23.0% -99.568) 557 (195) 361 7 368 (79) 290 27.688) 621 (402) 219 75 294 (68) 226 19. 1Q10-4Q13E FY2009A (HK$mn) Sales COGS Gross profit Op expenses Op income Int & other inc/(exp) Pretax income Taxes or credits Net income EPS in HK$ cent Shares (mn) Margin analysis Gross margin Op margin Pre-tax margin Net margin YoY change Sales Gross profit Op income Net income HoH change Sales Gross profit Op income Net income 11.984 (3.7% 8.3% 5621.171 1HA 3.133 FY2011E 2HE 3.0% 0.9% 8.0% 12.262 (2.1% 3.2% 4.2% -1180.994) 267 (206) 61 3 64 (23) 41 3.7% -8.9% 50.66 1.9% 4.0% -8.4% 18.2% 1.2% 3.0% -3.9% 5.13 1.77 1.0% 3.4% -57.3% 43.5% -93.8% 10.4% -51.5% 12. Barclays Capital estimates 6 October 2011 46 .0% -23.Barclays Capital | Asia ex-Japan IT Hardware Figure 69: Ju Teng – quarterly income statement.3% -47.3% 1.133 FY2012E 2HE 3.6% 4.9% 2.2% 8.5% 9.1% 9.3% -90.308) 858 (495) 363 57 420 (89) 331.61 1.133 FYE '13E 7.0% 5.6% 8.821 (3.4% 2.3% 5621.0% 0.1% 0.2% -48.0% 3.9% -8.4% -6.249 (6.19 29.655 (3.17 1.4% 16.3% 7.1% -76.9% 18.6% -39.8% 19.5% 17.1% 8.6% 4.2% 4.332) 258 (255) 3 25 27 2 29 2.2% -99.133 FYE '10A 7.5% 1.1% 3.57 1.4% 8.976) 600 (240) 361 32 393 (91) 302 27.5% 3.8% 73.8% -34.1% 221.1% 18.6% -81.133 1HE 3.4% -53.3% 15.4% -8.5% -5.0% 8.27 1.8% 10.

050 3.346 (6.841 113 4.20 0.364 4.360 9.20 2013E 7.364 4.842 10.736 113 4. 2009-13E Year-end 31 Dec (HK$mn) Total revenue COGS Gross profit Operating expenses EBITDA Depreciation and amortization EBIT Interest expense (net) Net interest income/ expense Gains On disposals Net associated profits Other net gains/losses Profit before tax Tax Profit after tax Discontinued operation Minority interest Net profit Average weighted # of ordinary shares Basic EPS (HK$) Diluted EPS (HK$) Source: Company data. Barclays Capital estimates 2009 7.353 11 1.256 869 420 5.029 436 4.119 0.581 980 3.688) 621 (402) 658 (439) 219 (35) (35) 110 294 (44) 250 (24) 226 1.521 883 2.108 38 158 55 4.419 2013E 713 18 2.322 1.473 1.372 1.30 0.225 9.346 (6.364 4.742 38 251 42 5.225 (316) 908 (49) (49) 74 934 (173) 761 (56) 705 1.28 2011E 7.216 4.63 2010 7.050 3.758) 588 (367) 704 (484) 220 (35) (35) 120 305 (52) 253 (24) 230 1.751 5.521 2010 884 18 2.839 4.091 422 4.961 112 3.089 772 3.228 38 257 42 5.561 9.162 4.119) 1.979 38 256 42 5.535 1.479 837 5.202 14 1.353 11 1.827 10.270 2012E 796 18 2.565 10.464 (6.20 0.133 0.490 38 257 42 5.039 3.758) 588 (367) 681 (461) 220 (35) (35) 115 300 (48) 252 (24) 229 1.065 0.20 2012E 7.102 383 4.270 761 1.133 0.20 0. 2009-13E Year-end 31 Dec (HK$mn) Cash and equivalent Short-term investments Receivables Inventory Other current assets Total current assets Net fixed assets Intangible assets Other assets Associates & other LT investments Total other assets Total assets Short term debt Payables Current portion of LT liabilities Other current liabilities Total current liabilities Long term debt Other liabilities Total other liabilities Total liabilities Share capital Share premium and other reserves Minority Interest Others Total equity Total liabilities and equity Source: Company data.610 1.561 1.578 761 1.419 761 1.745 1.686 113 4.854 5.310 (6.308) 858 (495) 781 (418) 363 (35) (35) 92 420 (65) 355 (24) 331 1.892 837 5.353 11 1.166 (6.685 837 5.635 10.345 (436) 1.364 4.073 9.429 10.677 1.133 0.912 761 1.784 113 4.955 4.102 403 4.912 2011E 902 18 2.854 595 4.66 0.315 10.578 6 October 2011 47 . Barclays Capital estimates 2009 617 0 3.477 1.20 Figure 71: Ju Teng – balance sheet.535 1.522 1.Barclays Capital | Asia ex-Japan IT Hardware Figure 70: Ju Teng – income statement.353 11 1.276 837 5.420 1.

052) (93) 14 (1.087 57 559 617 2010 331 418 749 290 1. Barclays Capital estimates 2009 705 316 1.131) 28 (3) 334 359 267 617 884 2011E 226 439 665 56 722 (676) (5) (681) (23) (23) 18 884 902 2012E 229 461 689 (61) 628 (710) (1) (711) (23) (23) (106) 902 796 2013E 230 484 713 (28) 685 (745) (745) (23) (23) (83) 796 713 6 October 2011 48 . 2009-13E Year-end 31 Dec (HK$mn) Net profit Depreciation Associate share of (profits)/ loss Total gross cash flow Change in total working capital Total operating cash flow Capex less disposals Change in other assets Change in associates Total investment cash flow Change in gross debt Change in other long term liabilities Change in equity Total financing cash flow Total cash flow Cash balance at beginning of the year Cash balance at end of the year Source: Company data.039 (1.145) 76 (22) (2.061 (2.Barclays Capital | Asia ex-Japan IT Hardware Figure 72: Ju Teng – cash flow statement.091) 208 5 874 1.021 39 1.

6 20.7 18.0 6.10 902 761 1.3 7.469 32.1) 8.0 298 7.748 27.9 0.353 1.2 4.87 4.7 19.2 54.6 0.5 59.3 2.1 0.4 1.1) 8.98 5. Barclays Capital estimates 2009 2010 2011E 2012E 2013E 18.4 6.7 1.5 0.3 2.2 4.0 0.6 88.339 28.955 26.4 3.2 4.7 5.5 18.7 19.6 0.7 88.6 107.50 3.7 3.8 (1.00 4.4 2.4 1.9 12.4 3.0 0.00 3.202 1.353 1.03 3.00 4.8 0.4 37.00 4.5 0.0 0.646 31.9 11.4) 11.212 22.1 0.0 175 7.00 3.5 2.2 2.3 1.13 713 761 1.4 1.3 72.2 4.0 85.1 2.6 0.4 1.4 149.02 12.6 (1.0 2.543 28.Barclays Capital | Asia ex-Japan IT Hardware Figure 73: Ju Teng – key financial metrics (2009-13E) Year-end 31 Dec (HK$mn) Profitability Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Financial Cash (HK$ mn) ST debt (HK$ mn) LT debt (HK$ mn) Net debt (HK$ mn) Net debt/equity (%) Debt/equity (%) Current ratio (x) Quick ratio (x) Economic value NOPAT (HK$ mn) Total capital (Rmb mn) Gross debt/capital (%) Equity/capital (%) Valuation P/E (x) P/B (x) P/CFPS (x) EV/sales (x) EV/EBITDA (x) EV/EBIT (x) Performance ROA (%) ROE (%) ROIC (%) Asset turnover (x) Working capital/sales (%) Inventory processing days A/R collection days A/P payment days Coverage Interest coverage Value per share (HK$) Earnings per share Book value per share Sales per share Cash flow per share Gross cash per share Net cash per share Source: Company data.5 0.0 1.4 3.3 0.400 24.5 1.8 71.9 18.3 1.8 0.4 3.0 172 7.4 68.2) 8.6 0.2 0.0 168 7.6 73.24 6.2 22.2 1.2 4.44 617 883 1.4 0.07 5.9 1.09 3.8 59.16 3.4 5.9 25.2 45.9 12.2 4.7 (1.3 38.0 50.9 0.5 0.7 11.8 (1.9 0.5 1.7 21.1 2.05 6.6 (1.42 6.1 0.0 72.2 125.6 1.8 4.1 8.230 23.353 1.1 3.1 0.2 0.2 57.72 7.317 23.8 124.11 796 761 1.2 0.3 0.0 36.5 40.3 3.3 3.7 20.0 0.62 884 761 1.9 106.3 1.353 1.9 19.51 9.17 12.4 1.0 736 6.92 6.2) 6 October 2011 49 .1 0.7 2.5 126.9 0.2 4.9 145.

as we believe the Windows platform is still welcome in terms of usage in medicine. Windows 8 + ARM-based platform to win together Cannot win it alone According to our checks. and it offers support for touch solutions. but when any bugs are found and problem solving is needed. etc. we believe neither the Windows 8 nor ARM-based platform can go it alone. often failing in the end because of users’ lower confidence in and experience with these other OS. smartphones and PCs. As for an ARM-based platform. In addition to the iPad series. but familiar Windows on a cheaper platform that offers more portability and additional functionality. PC makers can now offer clients a reliable. Samsung and TI) that have been dedicated to this platform for a while. The benefit of smoothly operating on an ARM-based platform is more than that it offers a new alternative – an ARM-based OS platforms is 50% cheaper in terms of CPUs/chipsets/passive components vs an Intel solution. we believe sales of other tablets (non-Apple camp) will still grow. office work.Barclays Capital | Asia ex-Japan IT Hardware APPENDIX I: WOA! (WINDOWS ON ARM) – AN OPPORTUNITY FOR NON-APPLE TABLETS/ULTRABOOKS WITH WIN8/ARM Why we expect component suppliers’ growth momentum to be driven by ultrabooks/tablets For 2012. education. Google’s Android OS is open source. Which segment to penetrate? Commercial: Definitely. Some PC makers are trying to avoid the pricier Intel CPU/chipset solutions. which provides cost savings. 6 October 2011 50 . there is general concern among end-users and PC makers because the Google platform does not offer the same level of support that Microsoft does. AMD and ARM are not likely to replace Intel’s solution in the near term. as Windows 8 does not seem to provide end-users with a surprisingly new OS nor is it competitive with Apple’s iOS (with comprehensive applications and mature users’ adoption on tablets). this means another Linux-based OS (such as Chrome OS) is being used. we know there are several major solution providers (such as nVidia. and since the previous Windows version (Windows 7) cannot run smoothly on current ARM-based platforms. due to demand from the commercial segment. due to various concerns. Although Windows 8 is not a surprising OS – we view it more as a service pack upgrade – it does incorporate together versions of the OS to run tablets. Gray area between Apple iOS and Google: The combination of Windows 8 + ARM might gain market share in the grey area that consists of PC makers and end-users who are hesitant to use the Google platform because of slow responsiveness and ownerships issues (in comparison to well-built Microsfot Windows) if there are any technical bugs or specific tailor-made requests. Our checks suggest that Windows 8 will still get a sizable market share in terms of the commercial segment (Windows is still the preferred OS for commercial usages) and that Windows 8 could be regarded as the first Windows OS that fits the ARM-based platform. Indeed. Windows 8 + ARM-based platform synergies Windows 8 is the first Widows OS that can be operated smoothly on ARM-based platforms. we are still positive on the growth momentum for tablet PCs. However.

0% 2.0% 5.3% 0.695 8.0% 0.5% 0.000 100.4% 3.4% 0 4.0% 39.000 0.0% Flextronics 80.0% Toshiba #3 Toshiba #1 Consumer 3.5% 31.0% 13.0% 0 0.0% 0 0. DESKTOP AND TABLET PCS Figure 74: NB buyer/supplier matrix Barclays Capital Asia ex-Japan Technology Hardware Research .3% 0 3.2% 0 0.2% 9.4% 13.0% 20.0% 0.0% 0.953 214.000 100.000 16.0% 18.9% 0.1% 0. based on company data Source: Company data.0% 0 0.6% 15.0% 33.0% 0 9.0% 22.7% 2.0% Brand units Lenovo Brand ranking Products Brand units Toshiba Brand ranking Products Brand units Asustek Brand ranking Products Brand units Apple Brand ranking Products Brand units Sony Brand ranking Products Brand units Fujitsu Brand ranking Products Brand units Others 2011E Total 2010E Total 0 4.000 54.0% 0 0.5% 21.0% Flextronics 9.2011E Notebook Buyer/Supplier Matrix (version 2.1% 0.000 0 0 1.500 17.000 18.0% 41.4% 0.0% 100.0% 0.0% 14.2% 0.8% HP #3 Corporate and server 8.000 0 14.425 9.3% 40.500 56.0% Wistron 4.1) Supplier HP Brand ranking Products Brand units Acer Brand ranking Products Brand units Dell Brand ranking Products Quanta Compal Wistron Hon Hai 44.9% 100.000 1.000 0.9% 0.0% Lenovo #3 Lenovo #1 Lenovo #2 IdeaPad Consumer: IdeaPad Corp: ThinkPad.0% Inventec 47.0% Others 0.0% 13.0% 0.9% Corporate 25.0% 7.0% Fujitsu #1 Fujitsu #3 2.040 2011E Notebook brand as a % of supplier Quanta HP Acer Dell Lenovo Toshiba Asustek Apple Sony Fujitsu Others Total 35.4% 22.000 23.2% Sony #1 Sony #2 Sony #2 E-series E-series Y-series (CULV) 3.000 33.3% Lenovo #4 1.0% 2.0% 0.0% Others 0.000 0.300 100.195 100.000 11.500 9.0% 100.5% 23.000 100.0% 0. 14".000 2.0% Pegatron 0.000 2.0% 0.0% Dell #5 0 0.0% 0 33.3% 17.0% 1.2% 22.0% 9.000 0.2% 5.9% 0.6% 9.000 8.0% 6.0% 0.0% Acer #3 Acer #1 Acer #2 Acer #4 Slim NB Netbooks.6% 5.300 4. small Corporate and lowmainstream consumer consumer end consumer 19.6% 0.7% 1.2% HP #1 HP #5 HP #6 HP #2 Low-end and Corporate.0% 0 22.0% 0.000 9. CULV 4.100 0 500 55.4% Asus #1 Corp.000 1.3% 5.0% 2011E Total 100.8% 0.500 26.000 36.528 14.500 0 11.0% 15. Some consumer (IdeaPad) 3. N-series 11.8% 41.0% 0.7% 13.000 36.8% 36.076 200.500 0 3.0% 0.0% 0.0% 5.3% 22.000 2.9% 42.000 7.0% 0.0% 15.6% 62.0% 18.500 100.0% 42.9% 0.4% 0 2.7% 8.000 31.500 0.500 12.7% 0.0% 0.500 100.6% 5.500 27.3% 1.5% 21.0% 0 18.000 7.3% 100. Consumer Consumer slim NB 3.0% 15.000 10.5% 0.0% 5.0% 0.0% 0.9% Dell #3 Dell #1 Dell #2 Dell #4 Corporate and Consumer Corporate CULV (13".0% Note: Brand ranking refers to PC brands’ major supplier.0% 2.0% 9.350 0 0 5.000 0 17.6% 5.500 0 0 25.7% Apple #1 Apple #2 MacBook Pro/Air MacBook 12.8% 9.000 0.0% 0.6% Asus #2 Asus #3 Asus #4 K-series 5.0% 0 0. AMD Corporate.956 28.000 7.0% 0 0.0% 0 0.2% 0.0% 0.000 0 500 92.7% 5.000 1.9% 38.0% Dell #5 0 4.0% 14.0% 0.4% 19.7% 59.3% 0.3% Toshiba #2 Consumer 7.0% Inventec 18.4% 5.9% 30.150 0 0.6% 0.9% 100.2% 100.000 0.0% Hon Hai 48.000 1.0% 0.8% 0 0.9% 0 0.6% 3.0% Compal 1.0% 1.4% 51. Consumer.000 3.6% 100.0% 0.4% HP #4 AMD Yukon.2% 5.000 100.425 18.4% 0.000 0.000 0 2.Barclays Capital | Asia ex-Japan IT Hardware APPENDIX II: NOTEBOOK.0% 7.0% 10.4% 18.1% Toshiba #4 Consumer 1.260 500 1.2% 100. 15") Consumer and mainstream consumer 3.2% Fujitsu #2 1.000 52.695 48.0% 74.600 Pegatron 0.6% 3.000 3.4% 0.0% 29.500 15.0% 9.5% 25.0% 0.4% 10.0% 2.0% 0.0% 8.8% Acer #4 Corporate 1.4% 6. Barclays Capital estimates 6 October 2011 51 .

531 6% 36% 118.300 11% -5% 4% 13.400 2.650 -17% -24% 18% 3.200 17% 0% 24% 10.050 33% 2009 168.245 -1% 22% 13.3% 18.000 19% 1Q11 47.522 4% 20% 42.400 -13% 22% 18% 2.350 4Q10 54.400 4% 1% 10.184 Y/Y Q/Q % of Total Japan 18% 23% 14.950 16% -14% 23% 2.758 -9% 22% 18% 3.216 2011E 355.550 0% 2% 22% 11.378 Y/Y Q/Q % of Total Rest of World 40% 19% 30. Gartner.464 21% 28% 55.988 4Q11E 59.630 28% 26% 6% 11.100 7% 22% 68.745 9% 2013E 252.500 13% -19% 4% 25.600 20% 8% 30% 12.805 4.175 18% 7% 35% 24.515 -4% 8% 22% 19.994 13% 29% 64.550 -19% 0% 5% 13.893 -15% 16% 15.616 4% 21% 41.900 -3% 6% 22% 8.600 3Q10 87.305 18% 1Q10 47.867 73.190 11.646 0% 18% 56.255 42.548 7% 4% 133.260 0.982 Y/Y Q/Q % of Total Western Europe 15% 24% 42.525 15% 6% 33% 19.470 15.S.S.100 3% 4% 12.893 Y/Y Q/Q % of Total Asia Pacific 6% 5% 72.750 30% 10% 32% 17.196 11% 31% 82.8% 17.800 3Q11E 56.500 -4% 13% 24% 13.840 24% 29% 6% 23.7% 65.963 6% 14% 23% 12.694 3Q11E 92.0% 2009 295.5% 16.441 4.4% 2012E 378.288 0% 14% 16.905 41% 2% 29% 17.7% 18.025 6% -14% 22% 13.786 Y/Y Q/Q % of Total 52% 21% 10% 20% 61% -13% 20% 51% 4% 22% 40% 29% 25% 23% 4% 25% 40% 23% 20% -15% 24% 21% 6% 25% 20% 28% 28% 21% 5% 28% 21% 26% 16% 28% 13% 29% 13% 30% Source: IDC.538 9% 2014E 273.824 11% 11% 13.6% 1Q10 81.375 11% -7% 28% 22.670 Y/Y Q/Q % of Total Rest of World 12% 25% 69.114 8% 34.200 2Q11 48.400 2Q11 83.775 13% 12% 11. Barclays Capital estimates 6 October 2011 52 .644 Y/Y Q/Q % of Total 14% 24% -8% 22% 34% -8% 22% 28% 1% 22% 23% 20% 25% 16% 5% 25% 24% 23% 10% -13% 24% 13% 3% 24% 13% 20% 26% 14% 6% 26% 13% 25% 11% 26% 9% 27% 9% 28% Note: NB = notebooks.600 3% 0% 5% 14.700 38% 4% 27% 10.725 24% 25% 45.100 1% 5% 20% 14.058 73.316 51.281 7% 36% 108.665 17% 34% 89.100 20% 11% 26% 13.550 23% 30% 79.750 13% 5% 49.550 46.815 -5% 5% 82.800 18% 0% 4% 27.500 -5% 8% 21% 12.500 9% 23% 47.560 70.650 1% 8% 19% 3.400 5% 24% 9.199 19% -6% 31% 25.375 3% 17% 10.406 5% 4% 83.250 22.8% 20.688 3% 19% 43.666 2011E 212. 2008 287.629 -3% 5% 59.880 2010 340.537 4Q11E 97.360 4.2% 4. Barclays Capital estimates Figure 76: Barclays Capital’s global NB shipment forecasts Units in (000) Calendar Year Worldwide Y/Y Q/Q U.100 2Q10 46.700 2% 9% 4% 11.774 11% 30% 73.603 -1% 13% 16.815 5% 9% 4% 14.200 -7% 17% 25% 2.325 -1% 9% 22% 2.760 -21% -17% 14% 3.225 28.400 -22% -17% 17% 2.312 7.215 2% 4% 4% 30.950 2Q10 81.674 6% 2012E 232.904 3.750 10% 17% 11.650 -7% 16% 21% 3.847 72.1% 19.603 6.654 48.3% 1Q11 81.750 41% -9% 11.830 72.400 1% 5% 38.500 14% 4% 23% 15.505 17% -15% 22% 4.450 16% 5% 102.850 16% 6% 31% 21.734 5.028 2% 4% 151.553 1% 22% 40.932 2% 16% 11.600 17% 12% 36% 20.200 6% 11% 21% 9.885 6.196 -3% 15% 16.051 Y/Y Q/Q % of Total Western Europe 2% 23% 65.465 -9% -18% 20% 14.755 5% 4% 75.2% 0. Gartner.452 Y/Y Q/Q % of Total Japan 39% 30% 8.800 12% -21% 5% 12.000 -17% -2% 5% 27.425 15% 16% 29% 11.3% 17.355 -3% 20% 58.100 3Q10 51.250 9% 5% 4% 25.075 41% 23% 33.680 25% -13% 24% 16.1% 2014E 416.514 0% 18% 56.639 12% 35% 99.150 20% -13% 22% 17.Barclays Capital | Asia ex-Japan IT Hardware Figure 75: Barclays Capital’s global PC (NBs + DTs) shipment forecasts Units in (000) Calendar Year Worldwide Y/Y Q/Q U.120 64% 6% 25% 9.523 2% 4% 143.595 6% 27% 8.475 14% 28% 63.0% 18.750 5% -4% 4% 16.000 74.3% 7.700 0% -12% 10.319 50.300 33% -17% 23% 12.0% -10. 2008 143.150 3% -1% 4% 32.515 Y/Y Q/Q % of Total Asia Pacific 16% 6% 27.600 28% 25% 46.794 8% 4% 67.183 -3% 4% 119.130 0% 19% 56.400 46.250 23% 14% 30% 15.1% -6.350 2% -1% 21% 16.750 -8% -21% 21% 9.850 7% 24% 65.875 -19% -27% 21% 2.705 21% -16% 26% 2.375 28% -3% 11.945 11.615 2% 18% 10. DT = desktops Source: IDC.2% 4.511 -15% 19% 9.850 2010 200.3% 3.000 4% 1% 5% 30.400 4Q10 90.785 -14% 17% 15% 3.175 2% 9% 21% 17.825 5% 20% 15.5% 2013E 397.5% 10.304 -7% 26% 21% 2.525 16% -12% 19% 3.

0% 97.365 149% 1798% 13.850 2Q10 34.789 3.5% 2014E 72.078 106.600 -8% 11% 19% 3.000 47.030 28.3% 418.003 7.913 -9% 10% 5.300 -4.430 1Q11 33.1% CORE Notebooks Excluding Netbooks & Tablets Entire 136.0% 6.750 13% 0% 38% 8.500 4.700 15% -16% 4% 13.229 31.0% 6.6% 77.S.3% 13.6% 90.937 -6% 55% 3.792 1% 13% 3Q11E 11.305 17.507 3% 47% 35.4% 355.6% 263.6% 74.800 5% -6% 20% 5.3% 31.115 25% 2013E 62.700 20% 4% 52.305 17.812 9.784 72% 90% 3.419 144% 330% 3.669 248% 87.600 4% 20% 20.305 y/y change 2.660 26% 135.293 Y/Y Q/Q % of Total Rest of World 0% 31% 39.924 25% 46% 4.130 31% 14% 19.6% 9.470 15.475 14% -4% 6.114 8.229 24% 66% 31.5% 2010 14.751 -5% 53% 2Q11 9.6% 295.950 19% 37% 33.643 7% 2.400 -3% 35% 30.857 Y/Y Q/Q % of Total -4% 27% -22% 24% 12% -3% 24% 7% -4% 22% 4% 8% 24% 8% 7% 24% 8% 24% -1% -11% 24% 2% -1% 22% 2% 8% 24% 3% 8% 25% 2% 24% 3% 24% 2% 24% 1% 25% Source: IDC.925 14% 0% 43% 8.715 -9% -12% 18% 4.095 -12% 1Q10 33.575 15% -9% 14% 1.1% 53.313 10.504 26% 33% 4Q11E 14.755 8.5% 4Q11E 14.454 -6% 25% 16. Barclays Capital estimates 295.3% 5.000 8.927 29% 185% 66% 6.2% 2011E 40.6% 378.211 18.444 -34% 18.124 -7% 16% 13.549 4Q11E 37.600 -7.754 6% 4% 65.700 -0.7% 168.4% 24.170 283% 56.789 82% 3.450 26.1% 20.000 14% 15% 43% 7.000 204.519 14% 1% 41% 9.030 457.885 6.260 0.125 -12% 22% 19.487 1Q11 4.0% 340.647 15% 113% 2.470 11% 6% 4% 7.2% 218.734 5.767 -4% 4% 67.5% 21.560 4.270 4.773 34.504 2% 6% 6.164 30% 21% 67% 5.400 -3% -5% 4% 15.554 -3% 4% 59.775 -13% -18% 14% 1.694 1. Barclays Capital estimates Figure 79: Barclays Capital’s worldwide PC shipment forecasts – tablet PC impact Units in (000) Apple iPad Forecast Other Tablets Total Tablet Forecast y/y change Total Notebooks (includes netbooks) y/y change Notebooks INCLUDING Tablets y/y change Total Netbooks y/y change 2009 168.727 14% 7% 64% 7.5% 6.9% 356.415 8% 2% 7.246 97% 183% 68% 4.750 36% 105% 8.180 22.824 10.264 491.875 15% 4% 7.043 -10% 28% 3.291 6.4% 396.857 38% 9% 35.100 15% -2% 40% 8.015 -4% 0% 19% 5.560 0% -9% 6.055 121.000 18.170 182% 283% 17.300 10% 9% 22% 4.611 289% 48.200 2Q11 35.382 -15% 12% 5.0% 397.800 8% -12% 16% 1.3% 2012E 50.212 -7% 0% 17% 4.000 -3.4% 22.939 38% 101% 4.188 7.5% 75.400 4.588 -40% 83% 60% 5.400 0% 5% 4% 15.1% 2Q11 9.246 4.069 Y/Y Q/Q % of Total Western Europe -8% 22% 23.500 3Q10 35.325 5% 4% 14% 1.550 22% -2% 4% 13.785 24% -2% 35% 8.622 -5% 4% 68.8% 21.364 26% 78.324 15.468 37% 2.193 24.750 -28% 6.3% 26.211 18.224 11.378 Y/Y Q/Q % of Total Asia Pacific -7% 4% 45.650 -14% 16% 4.833 -42% 233% 14.538 8.1% 169.671 -8% 9% 5.444 80% 151% 30.415 -15% 4% 44.895 -5% 2009 127.5% 13.731 Y/Y Q/Q % of Total Japan -8% 16% 5.850 4% -7% 20% 5.305 27.660 26% 232.102 16.750 9.549 2011E 142.405 346.750 9.850 14% 273.4% 2013E 62.360 -19% -15% 11% 1.704 4.712 7% 33% 3Q12E 12.470 87.050 24% 15% 39% 7.1% 358.818 40% 24% 64% 9.3% 275.4% 309.603 6.618 -73% 22% 26.704 97.7% 42.9% 92.306 16% 23% 4Q12E 17.700 -36.854 10% 33% 2011E 40.1% 21.Barclays Capital | Asia ex-Japan IT Hardware Figure 77: Barclays Capital’s global DT shipment forecasts Units in (000) Calendar Year Worldwide Y/Y Q/Q U.196 2% 0% 2014E 143.835 8.365 13.694 -36% 73% 1.243 43% 1011% 18.700 13.444 47.489 62.964 9.000 24.0% 15.920 32.454 -14% 14% 13% 1.385 -16% 8% 12% 1.1% 24.1% 188.000 54.8% Total PC Unit Forecast (includes netbooks) y/y change Total PCs INCLUDING Tablets y/y change CORE PCs Excluding Netbooks & Tablets Entirely y/y change Source: IDC.745 9.835 12% 94.400 2.515 111.331 28% 75% 88% 75% 93% 230 562 2.364 78.144 62.350 15% 1% 37% 8.6% 376.6% 84.907 10% 2010 14.547 22.1% 379.180 172% 64% 22.897 -12% 27% 3.489 600% 62.674 6.611 -24% 289% 20.947 40% -2% 27.000 200. Gartner.200 -11.300 -5.686 2% 2012E 2013E 145.7% 6 October 2011 53 .327 -1% 31.011 29.131 24.360 4.135 2% 2% 6. Gartner.050 -16.050 4Q10 2010 36.421 -41% 124% 28.798 16.296 25% 64% 28.2% 83.666 85% 12.444 151% 59.814 Source: IDC.927 6.235 -4% 68% 15% 2.500 29% 9% 4% 13.6% 210.826 -7% 15% 12.398 14.894 3Q11E 36.7% 32.131 62% 319% 24.065 20% 252.514 -6% 17% 15.802 -8% 18% 17.765 67% 14% 44.4% 7.312 7.8% 1Q11 4.4% 42.335 1% 48% 35.400 5% 2% 4% 15.602 11.469 -10% 26% 2Q12E 11.470 17.629 8% 20% 2012E 50.900 -7% -5% 18% 4. Barclays Capital estimates Figure 78: Barclays Capital’s tablet PC shipment forecasts Units in (000) Apple iPad Forecast q/q change y/y change % Unit Share Other Tablets q/q change y/y change Total Tablet Forecast q/q change y/y change Apple iPhone Forecast q/q change y/y change Apple MacBook series Forecast q/q change y/y change 2Q10 3Q10 4Q10 3.296 28.450 -7% 12% 15% 1.441 4.434 5.4% 81.400 2.858 145. 2008 144.065 20% 9.835 94.750 6.338 9% 142% 2.904 3.7% 86.3% 416.201 14% 42% 33.313 20% 95% 59% 10.7% 523.450 -14% -5% 4% 13. Gartner.6% 20.901 31% 1Q12E 8.145 11.7% 252.487 2% 4% 6.6% 50.343 311.243 18.843 55% 16.910 6.400 -5.425 4% 15% 5.268 32.705 140.645 10% 45% 34.814 9.6% 330.200 7.450 -21.141 5.210 16% 35% 5% 11.500 -16.669 248% 212.4% 3Q11E 11.8% 231.581 -14% 10% 5.742 21.238 10.

Barclays Capital estimates 6 October 2011 54 .000 87.425 54. Dell HP Asustek.8mn units 5mn units 40mn units 1.704 Total 117.612 40% 2012E 30.305 189.674 420.5-2mn units Shipment targets from company (2011E) 2-2.745 567.765 283. Source: Company data.000 282.317 27% 2010 12.843 908.554 78. D ell Note * Shipments are based on Barclays Capital estimate.000 Smartphones iPhone 3.306 42% 2011E 24. Barclays Capital estimates 2008 100 143.669 212.666 719. HTC.487 512.150 23% 2009 3.000 200.375 229.959 26% Figure 81: Barclays Capital’s tablet PC shipment targets by NB ODM/PC brand Company NB ODMs Compal Quanta Wistron Inventec Pegatron PC vendors Acer Asustek Lenovo* HTC* Samsung* Apple* RIM* MOTO* Shipment targets from c ompan y (2011E) 3mn units "couple of "million units 1mn units less than 1mn units 1.5-2mn units For FY12 (Feb year-end) Over 10% market share in nonApple platform OEM customers Acer. Dell Acer. Gartner.Barclays Capital | Asia ex-Japan IT Hardware Figure 80: Barclays Capital’s mobile products shipment forecasts Mobility Products .375 107.425 Y/Y Growth 39% 41% Source: IDC.000 135.000 82.1mn units 1. not company guidance.5mn units 1.012 168.Units 2005 2006 2007 Units in (000) eReaders Tablets Notebooks 63.000 122.050 140.660 232.000 25. RIM Acer.268 62. Lenovo.000 47.150 162.150 80.5-2mn units 1mn units 1. Lenovo.000 15.105 360.306 18.

Barclays Capital | Asia ex-Japan IT Hardware Figure 82: Customer-supplier sales matrix (2011E) Hon Hai Apple HP Dell Lenovo Acer PC Asustek Toshiba Sony IBM Cisco Microsoft Nokia Motorola RIM HTC Sony Ericsson Handset Samsung LG Electronics Sharp ZTE Huawei TCL DIRECTV Other Tech Sirius XM AUO Kingston Others Total 24% 100% 17% 100% 14% 100% 12% 100% 5% 100% 28% 100% 25% 100% 2% 100% 5% 100% 25% 100% 14% 100% 15% 100% 63% 100% 22% 100% 40% 100% 8% 100% 25% 100% 6% 8% 49% 100% 21% 100% 25% 11% 3% 2% 3% 3% 1% 5% 20% 20% 24% 4% 4% 5% 3% 15% 15% 5% 5% 3% 3% 2% 30% 14% 12% 40% 18% 21% 6% 11% 20% 2% 5% 8% 30% 30% 15% 15% 6% 15% 40% 5% 25% 45% 15% 3% 15% 3% 1% 26% 20% 3% Quanta 33% 23% 4% 4% 7% 6% 2% 4% 3% 10% 15% 32% 4% 22% 18% 30% 4% 23% 20% 18% 59% 6% 3% 7% 32% 9% 8% Compal Wistron Inventec Pegatron 13% Cheng Uei 35% Simplo Dynapack 30% 15% 18% 8% 7% 20% 40% 45% 10% 5% 10% 6% 2% 11% AAC 35% BYDE Largan Unimicron Catcher 3% 27% 10% 30% Young Fast Silitech FIH Tripod 6% Wistron NeWeb Source: Company data. Barclays Capital estimates 6 October 2011 55 .

Barclays Capital | Asia ex-Japan IT Hardware Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research – Tablet PC buyer/supplier matrix Company Acer Product ICONIA Tab A500/Picasso ICONIA Tab A100 ICONIA Tab W500 ICONIA iPad iPad 2 ODM Compal Display 10.7". 800x480 Android 2.1" 10. HDMI port (32G+WiFi) US$349 Dual camera: 5MP (rear).2 Samsung 667MHz (ARM) Qisda 5". 1280x800 10. 1280x800 Op System CPU Memory 1GB RAM Storage 16/32GB Flash 8GB Flash 32GB Flash Weight 760g Battery Life 8 hours Price Other features Launch time endMar'11 Jul’11 Mar'11 Mar'11 3 Apr'10 11 Mar'11 Android 3. US$149 (3G+WiFi) Amazon Amazon Kindle Fire Kindle Touch Quanta Hon Hai 7". 3D US$249 N/A N/A US$550 US$399 N/A US$305 0. Dual camera. Dual camera: 5MP (rear). 800x480 Android 2.100mAh N/A N/A 4Q11 4Q10 1Q11 Aug'10 N/A 4GB Flash 512MB ROM 16GB Flash 512MB RAM 4GB SDRAM 16/32GB Flash N/A N/A 2GB RAM 250GB HDD Dual camera: 5MP (rear).3MP (front).1".0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core 10. Support Adobe Flash US$499-799 Dual camera: 5MP (rear).0 NVIDIA Tegra 2 (ARM) 256MB RAM 256MB RAM 2GB/4GB RAM 512MB/ 1GB RAM 1GB RAM 2GB 4GB 32/64GB SSD 16/32GB Flash 16/32GB Flash US$79 US$99 (WiFi-only). Support Adobe Flash US$499-699 Dual camera: 5MP (rear).2MP (front).1". 1280x800 10.2 Qualcomm Snapdragon Qisda (ARM) QSD8250 1 GHz 7".1". 221g (3G+WiFi) 170g 1 months 247g 1.2MP (front). 1024x600 Android 2.3MP camera 4Q10 Source: Company data. 33% 3G: US$629-829 thinner. 15% lighter.16kg 886g 2 months 10 hours N/A US$395(16G+WiFi).2MP (front). 1024x600 Android 2.3MP front camera 5MP camera Sep'11 Aug'10 Jan'11 Aug'11 Asustek EeePad Transformer Pegatron Android 3. US$499 2MP (front).2 9. 2MP (front) US$499-699 Camera: 1.MX515 (ARM) 256MB RAM Ink 800MHz Nov'11 Nov'11 Amazon Amazon Asustek Asustek Kindle Hon Hai Kindle Keyboard Hon Hai EeeSlate EP121 EeePad Slider Pegatron Pegatron 6".0 N/A Windows 7 Intel Celeron 1. optional dock: US$499 keyboard set. Windows 7 AMD Fusion C-50 APU 1280x800 1.2 TI OMAP3621 (ARM) 800MHz 10". Barclays Capital 6 October 2011 56 . Support Adobe Flash Pad only: US$399.0 NVIDIA Tegra 2 (ARM) Barnes and Nook Color Noble R100 BenQ Streak 5 Dell Dell Dell Hanwang Streak 7 Streak 10 TouchPab B10 Inventec/Pegatron 10".199 HDMI port US$399-729 (cut US$100 after iPad 2 launch) Wi-Fi: US$499-699. Dual camera: 5MP (rear).1". 1280x800 Linux Freescale i. 1024x600 Android 3.3 TI OMAP 4 (ARM) 1GHz 512MB RAM 6". HDMI port US$1. 1024x600 Android 3. 1.8kg 3 hours HDD 16/32/64GB 680-730g 10 hours SSD 16/32/64GB 601-613g 10 hours SSD 8GB 4GB 413g 8 hours 213g 2 months (WiFi). Apple iOS Apple A4 (ARM) 1GHz 1024x768 4. With keyboard 1.33GHz Dual Core Android 3. 800x600 E Ink 6". 1. 1024x600 Android 3. 800x600 E Linux Freescale i.099 2MP camera.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core Acer Acer Acer Apple Apple Wistron Pegatron Compal Hon Hai Hon Hai 7".7".2 NVIDIA Tegra 2 (ARM) Qisda Pegatron Pegatron 10. 800x600 E Ink 12. Apple iOS Apple A5 (ARM) 1GHz 1024x768 4.0 NVIDIA Tegra 2 (ARM) Dual Core 675g up to 16 hours (on dock) Apr'11 Asustek EeePad MeMO Pegatron 7".MX515 (ARM) 800MHz Linux Freescale i. 1024x600 Android 2.750 GB 2.530mAh 2.0GHz 14"(Dual Windows 7 Intel Core i5 touchscreen) 9.3MP (front) N/A 2H11 1.1".1".3 Dual Core 512MB RAM 2GB RAM 4GB RAM 256MB RAM 512MB RAM N/A 970g N/A 3-cell 320.3GHz 512MB SDRAM 512MB 8GB-64GB Flash 8GB N/A 450g 700g 220g 500g N/A 900g N/A 8 hours 12 hours 1. 1Q11 1.MX353 (ARM) 532MHz Windows 7 Intel Core i5 1. Smart cover US$199 Free cloud storarage US$99 (WiFi-only). US$139 (3G+WiFi) US$999-1.

1".1".0 1024x600 10. (16G) Turn into Win 7 when connected to a dock US$479(16G). US220 for 16GB VGA (front) US$199 for 8GB. SIM card slot.0/Win 7 Android 3. HDMI port US$700 1. HDMI port Below US$500 1.300mAh 7.6mm thin Apr'11 in US 22 Feb'11 in US Sep'11 Jul'11 Jul'11 19 Apr'11 Nov'10 in US Jun'11 Source: Company data.300mAh 4000mAh 6 hours N/A N/A 8 hours Price US$99 (16G) US$699 Other features Camera: 1.1 16/32/64GB 760g Flash Lenovo ThinkPad Tablet Compal/Wistron 10.0 Android 2.3MP (front) Launch time Jul'11 Sep'11 Apr'11 Aug'11 Sep'11 Mar'11 in China 9. 1280x800 Compal/Wistron 10. US249 for 16GB VGA (front) Wi-Fi only: 2MP camera.9". Dual camera: 5MP (rear).3MP (front). 1024x600 Android 2.3MP front camera. digitizer pen. SIM card RMB3. HDMI port N/A 2MP camera (front).2 (Dock)/Qualcomm Snapdragon 1. USB Aug'11 Jul'11 4Q11 4Q11 in China US$1.2GHz Android 2.3 NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GB RAM 2GB RAM 1GB RAM 10 hours 6 hours N/A Dual camera: 8MP (rear).000mAh 7 hours 6000mAh 10 hours Samsung Galaxy Tab In-house 8.0 NVIDIA Tegra 2 (ARM) Dual Core Android 3. 1280x768 10.1". HDMI. 800x480 NVIDIA Tegra 2 (ARM) 1GHz Dual Core Windows 7 Intel Oak Trail Z670 1.9".1".3GHz/ Intel Core i5 1.4 Compal/Wistron 7".3MP (front).1".5GHz Windows 7/ Intel Core i5 1. 599 Dual camera: 5MP (rear). 1024x600 Androd 2. digitizer pen) USB US$499 (32G) Dual camera: 5MP (rear). 1. 1024x600 Androd 2. 4G/LTE US$499 Dual camera: 5MP (rear). 1280x800 7". Android 3.3 Compal/Wistron 7".7". 8.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core N/A 16/32GB Flash 467g 2MP camera. (32G). 2MP (front). 3D video recording.400mAh 7.1 LG G-Slate/ Optimus In-house Pad Xoom In-house 8. HDMI port US$699 (3G). Dual camera: 3MP (rear). and rear camera. and rear camera. Dual camera: 3MP (rear). from US$599) 1. 1280x800 Android 3. and rear camera.5 hours N/A 7 hours 8-10 hours 5-6 hours N/A MOTO MSI MSI MSI RIM 1GB RAM 512MB RAM 512MB RAM 32GB Flash 4GB Flash 8/16GB Flash 32GB HDD N/A 395g 800g 800g WindPad Enjoy 7 MSI WindPad 100A WindPad 110W PlayBook MSI MSI Quanta 10.1". Dual camera: 3MP (rear). 1024x600 Android 2. US$499 (Wi-Fi) 2MP (front). 1280x800 1GB RAM 16/32/64GB 750g Flash 16/32/64GB 750g Flash 16/32/64GB 900g Flash 16/32GB N/A Flash 10 hours Lenovo Lenovo Lenovo Android 3. 699 (64G) 3MP (front). Windows 7 1024x600 7''. Support Adobe Flash.1". Dual camera: 5MP (rear).3MP front camera.2GHz (Dock) NVIDIA Tegra 2 (ARM) 1GHz Dual Core Memory 512MB RAM N/A 1GB RAM 512MB RAM 512MB RAM 1GB RAM Storage 16/32GB N/A 32GB Flash 2GB/16GB 8GB/16GB Weight 740g 708g 415g 400g 400g Battery Life 6.499/US$532 slot. US$569(32G) 2MP (front). (US$509 with 2MP (front). Dual-core Cortex A9 1GB RAM 16/32/64GB 400g Flash 16GB Flash 380g Samsung Galaxy Tab In-house 1GHz Cortex A8 512MB RAM 4.Barclays Capital | Asia ex-Japan IT Hardware Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research – Tablet PC buyer/supplier matrix (continued) Company Product HP HTC HTC Lenovo Lenovo Lenovo TouchPad Jetstream Flyer LePad A1 IdeaPad A1 LePad ODM Inventec N/A Pegatron Display Op System CPU Qualcomm Snapdragon (ARM) 1.000 N/A 32GB Flash 650g 6.1 1280x768 7".2/LeOS 2.1".0 1024x768 10. 1280x800 Compal/Wistron 10. up to 32GB SD card US$469(16G). Turn into Windows 7 OS when connected to a stationing dock US$750 Dual camera: 5MP (rear).3MP (front).5GHz TI OMAP3622 (ARM) 1GHz TI OMAP3622 (ARM) 1GHz Qualcomm Snapdragon (ARM) 1. Support Adobe Flash US$499 (lowered Dual camera: 3MP (rear). Android 3. WebOS 3.3GHz (Tablet) Android 3.3 Compal/Wistron 10.5GHz Dual Core Qualcomm Snapdragon (ARM) 1. 1280x800 IdeaPad K1 IdeaPad P1 IdeaPad U1 Hybrid Compal/Wistron 10. With stylus US$156 for 2GB. HDMI port US$499 (16G). 1024x600 RIM OS (QNX) 7".2GHz Dual Core Qualcomm Snapdragon (ARM) 1. 2MP (front).1".2 AMD Brazos APU Dual 2GB RAM Core ARM. 1280x800 Android 2. 1. Barclays Capital estimates 6 October 2011 57 . USB US$230 2MP front camera.

3MP camera.0GHz 1. 1024x768 7".200mAh US$599(16G). Support Adobe Flash in China Source: Company data.3MP (front) 3. Feb'11 US$679 (32G) USB. SD card 2Q11 reader 12WHr.380 (US$210) RMB1. 800x480 5" 8". USB port. 1280x800 7”. 1280x800 Android 3. Adobe Flash 6 hours US$629 1.1". SD card reader.0 1280x800 9. 1280x768 7" 8" 7" Op System CPU Android 2. 4G Fall 2011 N/A Dual camera. Compal 1024x600 Compal/Pegatron 10. Nov’10 0. Support Launched Adobe Flash in China Wi-Fi.5 hours USB.3MP camera in China MicroSD.198 (US$182) Other features Launch time Android WiFi In-house 8650 Android WiFi 803 In-house Android WiFi 7100 In-house MicroSD. HDMI port. USB port.1". USB. 1024x600 8". Dual camera: 3MP (rear). May'11 USB.120mAh N/A N/A N/A N/A N/A N/A Price N/A RMB930 (US$142) RMB499 (US$76) RMB599 (US$91) RMB799 (US$122) RMB1. USB port. Support Launched Adobe Flash in China Wi-Fi. Launched 1.0 US$499(16G). Barclays Capital 6 October 2011 58 . HDMI.3MP camera.300mAh US$430 1.1".2 NVIDIA Tegra 2 (ARM) 1GHz Dual Core 512MB RAM 512MB Flash 730g ViewSonic ViewPad 10pro Hon Hai Vizio ZTE Via Tablet Light 2 Hon Hai N/A Dual OS (Win Intel Oak Trail Z670 1. SD card reader. USB port. 1024x600 Android 2.6mm thin N/A Dual camera.3MP camera.1". USB port. HDMI port.2GHz Dual Core Memory 512MB RAM N/A N/A N/A N/A 512MB RAM N/A Storage 4/16/32GB HDD 16GB HDD 8GB HDD 4GB HDD 2GB HDD 4GB HDD 8GB HDD Weight 465g N/A N/A N/A N/A N/A N/A Battery Life 3.0 Android 3. Adobe Flash 3. HDMI port. 6.2 Android 2.2) Android 2.Barclays Capital | Asia ex-Japan IT Hardware Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research – Tablet PC buyer/supplier matrix (continued) Company Product Samsung Sony Sony Galaxy Tab S1 S2 ODM In-house Hon Hai N/A Display Op System CPU NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) NVIDIA Tegra 2 (ARM) Memory N/A N/A N/A Storage 16/32GB Flash N/A N/A Weight 595g N/A N/A Battery Life 6860mAh 10 hours N/A N/A Price Other features Launch time 10.4". SD card reader. HDMI Launched port.1". Adobe Flash N/A N/A Dual camera: 5MP (rear). USB port. USB port Launched in China Wi-Fi. Mar'11 0. May'11 US$599(32G) 2MP (front). Android 3. Barclays Capital estimates Figure 84: Barclays Capital Asia ex-Japan Technology Hardware Research – China white-box tablet PCs Company Product Aigopad AINOL AINOL ALEO EPAD EPAD MicroBee Aigopad N700 V8000HDX V5000G A802 ODM In-house In-house In-house In-house Display 7" 7". 1024x600 10. 800x480 Hon Hai Hon Hai 10.1". 8.6) Android 2. 1024x600 10.66GHz 7/Android 1. 1.2 Android 2. dual screen.3MP camera.3MP (front) 10 hours N/A Dual camera 2Q11 € 399 Source: Company data.0 Android 2.2 Qualcomm Snapdragon 4GB RAM (ARM) QSD8250 1 GHz 32GB Flash 800g 2GB Flash 32GB Flash N/A 403g 1. SD card 4Q10 in reader Europe N/A HDMI port.5".1 N/A N/A N/A Android 2. 4G Fall 2011 Toshiba Toshiba ViewSonic ViewSonic Folio 100 Regza AT300 ViewPad 7 ViewPad 10 5.2 N/A 1GB RAM 512MB RAM 1GB RAM 16GB Flash 16GB Flash 16/32GB Flash 16/32GB Flash 760g N/A 410g 875g 1. HDMI Launched in China MicroSD Launched in China MicroSD. 1024x480 10.5 hours US$349 Dual camera: 3MP (rear). Feb'11 7.2 Qualcomm Snapdragon 512MB RAM (ARM) QSD8250 1 GHz Android 2.2 Android 3.5GHz 2GB RAM 7/Android 2.1 NVIDIA Tegra 2 (ARM) 1GHz Dual Core N/A N/A N/A 600MHz 1.020mAh 7 hours N/A ViewSonic ViewPad 10s Hon Hai Qualcomm Scorpion (ARM) MSM 600MHz Dual OS (Win Intel Atom N455 1. USB port.

SD Card US$899 (TBD) TBD US$1195 US$1000 64GB or 128GB SSD 1.Barclays Capital | Asia ex-Japan IT Hardware Figure 85: Tablet PC pricing in China Company Lenovo Product LePad LePad Apple iPad1 iPad1 iPad1 iPad2 iPad2 iPad2 Motorola Xoom Storage 16G 32G 16G 32G 64G 16G 32G 64G 32G Price (RMB) 3.6GHz / 4GB DDR3 Core i7-2637M 1.3" (1440x900) OS Mac OS Mac OS Win 7 Win 7 Win 7 Win 7 Win 7 CPU Core i5-2467M 1.999 2.0.7GHz Core i5-2557M 1. Barclays Capital Figure 86: Barclays Capital Asia ex-Japan Technology Hardware Research – ultrabook buyer/supplier matrix Company Product Apple Apple Acer Asustek Asustek Lenovo Toshiba ODM Display 11.6" (1366x768) 13. 1.888 3. VGA. USB 3.9mm 1.688 4.35kg 17mm 1.34kg 14. VGA.0.08kg 17mm 128GB or 256GB SSD 240GB SSD or 320/500GB HDD 1.499 3.3MP cam Oct-11 Nov-11 Protege Z830 / Z835 Compal Core i3 / i5-2467M 1.3" (1366x768) Core i3 / i5-2467M 1.488 5.999 Price (USD) 547 625 451 576 701 576 701 826 781 Source: Company data.6GHz / Core i7-2637M 1. Compal.6GHz Core i5-2557M 1.299 / US$1.3" MacBook Air Quanta Aspire 3951 (S3) UX21 UX31 U300s 64GB or 128GB SSD 1. Barclays Capital 6 October 2011 59 .7GHz 6GB DDR3 Source: Company data. 13.3MP cam HDMI.6GHz / Core i7-2667M 4GB DDR3 4GB DDR3 4GB DDR3 US$1134-1709 (EUR799-1199) HDMI.688 4.6" MacBook Air Quanta 13. SD Card Launch Time Jul-11 Jul-11 Sep-11 11.288 4.3" Quanta (1366x768) Pegatron Pegatron Wistron 11.199 US$1.488 3.0 4Q11 HDMI. USB 3.7GHz Memory 2GB DDR3 / 4GB DDR3 4GB DDR3 Storage Weight Thickness Battery Life 5 hours / 30 days standby / 35Wh 7 hours / 30 days standby / 50Wh 7 hours / 50 days standby 5 hours / 10 days standby 7hours / 10 days standby 8 hours / 30 days standby 8 hours / 47Wh Price US$999 / US$1. USB 3. mini-HDMI.7GHz / Core i7 Core i5-2467M 1.6" (1366x768) 13.0 Sep-11 min-DisplayPort.09kg 17mm 128GB 256GB SSD 128GB SSD 1.599 Other Features Thunderbolt port Thunderbolt port. 1. USB 3.4kg 13mm Wistron.3" (1366x768) 13.32kg 17mm 1.8mm min-DisplayPort. mini-HDMI.7GHz / Core i7 Core i5-2557M 1.3" (1600x900) 13.13kg 15.

Bluetooth.1) 3. 3MP (rear).0" 854x480 TFT Android 2.3MP WiFi.8" 800x480 TFT V880 3. RMB2.5" 480x320 TFT 3. 1350mAh (front) GPS 5MP (rear). RMB1700 (Sep 11) RMB2599 (when launched).840 (Sep 11) Qualcomm 512MB MSM7227 600 MHz Qualcomm MSM8260 1. GPS (front) WiFi.3 Android 2.2 Android 2.5" 480x320 TFT 3. WiFi. Bluetooth.3MP 2000mAh Bluetooth. 0.3MP 1230mAh (front) GPS 8MP (rear). RMB2300 (Sep 11) Qualcomm QSD8250 512MB 1GHz Qualcomm QSD8250 512MB 1GHz MediaTek MT6573 650MHz MediaTek MT6573 650MHz 256MB 512MB Aug-11 RMB999 (Sep 11) Sep-11 RMB1600 (when launched) May-11 RMB1. 0.3MP CMMB. 0. 0. GPS (front) Dual-sim. RMB1885 (Sep 11) Qualcomm 256MB MSM7227 600 MHz Qualcomm 512MB MSM7227 600 MHz Qualcomm 256MB MSM7227 600 MHz Qualcomm 256MB MSM7227 600 MHz Qualcomm 100MB MSM7227 600 MHz Marvell PXA310 624MHz 512MB 3MP (rear). Bluetooth.2) Android 2.3MP WiFi. 1930mAh (front) GPS WiFi.3 Android 2.5" 960x640 TFT 3.3MP WiFi.2 Android 2. Barclays Capital 6 October 2011 60 . 0. 0.7" 854x480 TFT Android 2.8" 320x240 TFT 3. 5MP (rear).0 (Android) 3. 0.2" 480x320 TFT Op System Android 2. 0.189 (Sep 11) Motorola Defy Source: Company data.61" 800x480 TFT 3. 1150mAh (front) GPS 5MP (rear). Bluetooth. 0. WiFi.5" 480x320 TFT Samsung i5508 (Galaxy 5) Samsung i579 Lenovo Lenovo Lenovo Lenovo Lenovo HTC O3 LePhone LePhone S1 A60 P70 Wildfire S 3. WiFi. 0.3MP 1370mAh GPS (front) WiFi.2" 480x320 TFT LeOS 2.5GHz dual core Samsung-Intrinsity S5PC110 1GHz TI OMAP3610 800 MHz 1GB Xiaomi M1 4.3MP WiFi. Bluetooth.3MP 1500mAh GPS (front) U8800 (IDEOS X5) 3.480 4Q10 RMB979 (Sep 11) 3Q10 RMB1000 (Sep 11) 1Q11 RMB1980 (when launched).5 (Android 2. Bluetooth.3MP 1500mAh Bluetooth.3MP WiFi. 5MP (rear). 0.5" 800x480 AMOLED OMS 2. 0.3MP WiFi. 5MP (rear). Bluetooth.2 4Q10 RMB2200 (Sep 11) May-10 Jun-11 RMB2899 (when launched).3 4GB Oct-11 RMB1.1 Android 2.3 Android 2.2 512MB 512MB 512MB 2GB Jan-11 RMB2. 1500mAh (front) GPS 3MP (rear).999 (when launched) Meizu M9 3. GPS.009 (Sep 11) 4Q10 RMB2420 (when launched). 5MP (rear). 1200mAh (front) GPS 5MP (rear).5" 800x480 TFT 2.Barclays Capital | Asia ex-Japan IT Hardware Figure 87: Barclays Capital Asia ex-Japan Technology Hardware Research – China’s smartphone line-up Brand Huawei Huawei ZTE Product U8500 / C8500 Display 3. 1500mAh (front) Bluetooth 5MP (rear).2 CPU Memory Storage Camera 512MB 2GB 512MB 170MB 384MB 512MB 512MB 512MB 512MB 2GB 512MB Batteries Other Features Launch Price time 4Q10 RMB850 (Sep 11) 4Q10 RMB1. Bluetooth. 0. Bluetooth.3MP WiFi. 0. Bluetooth. 1500mAh (front) GPS WiFi. 5MP (rear).7" 800x480 AMOLED LeOS (Android 2.2 Android 2.3MP 1500mAh GPS (front) Dual-sim. 1250mAh (front) GPS 2MP (rear). Bluetooth.

Barclays Capital | Asia ex-Japan IT Hardware APPENDIX II: INTEL MICROPROCESSOR ROADMAP 2007 1H07 Technology Intel Core Microarchitecture Microarchitecture 2H07 1H08 45nm process Nehalem Microarchitecture 2008 2H08 1H09 2009 2H09 1H10 32nm process Sandy Bridge Microarchitecture "Tick" Ivey Bridge (Sandy Bridge on 22nm) "Tock" Sandy Bridge Lynnfield (45nm Nehalem) 3Q09 Clarkdale (32nm Westmere) 4Q09 Montevina NB platform Refresh (2Q) Calpella NB platform Clarksfield (45nm Nehalem) 3Q09 Arrandale (32nm Westmere) 4Q09 Pine Trail Netbook platform Gulftown (32nm Westmere) CULV Nehalem based Oak Trail tablet platform "Tock" Haswell 2010 2011/2012 2H10 22nm process Haswell Microarchitecture (22nm) 2013 "Tick" Penryn on 45nm "Tick" Westmere (Nehalem on 32nm) "Tock" Nehalem Yorkfield (3Q07) Wolfdale (3Q07) Santa Rosa Refresh (1Q08) Menlow Netbook platform Desktops Bloomfield (4Q08) Sandy Bridge (32nm) 1Q11 Cedar Trail-M Netbook platform Future processor Santa Rosa (2Q07) Montevina NB platform (3Q08) Moorestown MID platform Huron River NB platform Chief River NB platform NBs Intel Core 2 Duo (Merom. Barclays Capital 6 October 2011 61 . DP. Penryn) Stealey (3Q07) Gilo (4Q07) Atom Silverthorne (2Q08) 2nd gen Intel Core 2 Duo Pineview (45nm) 4Q09 Atom (45nm) Arrandale (32nm) Lincroft Sandy Bridge (32nm) 1Q11 Atom Medfield (32nm) 2H11 Ivy Bridge (22nm Sandy Bridge) 2H11 Future processor Servers Xeon (1Q07) Core 2 Quad & Duo Caneland (3Q07) Penryn (4Q07) Harpertown (UP. 1H08) Dunnington (3Q08) Nehalem 1P (4Q08) Nehalem EP (1Q09) Nehalem EX (4Q09) Westmere 1P (1Q10) / Westmere EP (1H10) Westmere EX (1H11) Sandy Bridge 1P (1Q11) Sandy Bridge EP (2H11) Future processor Source: Company data. 4Q07) Harpertown (MP.

TT) Connector Cheng Uei (2392.GY) Qualcomm (QCOM.TT) Cover glass G-Tech (3149 TT) Flexible copper clad laminates and cover layers (foTaiflex Scientific (8039.TT) Casing Catcher Tech (2474.TT) G-Tech (3149 TT) Samsung (005930.JP) Samsung (005930.KS) Hon Hai (2317. RF ** Bluetooth Camera module (20%) Camera module (80%) Casing Casing Compass sensor Cover glass CPU core FM GPS Gyroscope IC substrate Image sensor LCD Panel LCD Panel LCD Panel LCD Panel Magnetic sensor NAND Flash NAND Flash Power amplifier Power amplifier Power management Quartz Crystal (45%) SDRAM Speaker Touch Panel Touch Panel Touch Panel Touch Panel Touch Panel Touch screen controller VGA sensor WiFi ** for CDMA version only iPhone 5 Assembly Assembly Casing Casing Cover glass NAND Flash NAND Flash Speaker Touch panel Touch panel Touch panel Touch panel Company STMicroelectronics (STM.TT) Touch Panel * Sintek Photronic (3049.TW) LG Display (034220. thermal module Chaun-Choung (6230.TT) Wintek (2384.KS) Toshiba (6502.TT) Casing Foxconn Tech (2354.US) Kinsus (3189.US) RF.KS) Toshiba (6502.TT) Foxconn Tech (2354.TT) PCB Compeq (2313.TT) Quartz Crystal for oscillators for PC TXC (3042.TT) Omnivision (OVTI.US) Chimei Innolux (3481.US) TFT-LCD color filters Sintek (3049.US) Genius Electronic Optical (3406.TT) Power supply Delta (2308. Bluetooth Broadcom (BRCM.US) Omnivision (OVTI.TT) Gyroscope * STMicroelectronics Heat pipes.TT) FPCB Career Technology (6153.TT) Computer components United Alloy (3162.TT) Touch Panel Wintek (2384.TT) Speaker AAC Technology (2018 HK) USB connectors.US) Broadcom (BRCM.US) * New supply chain/features in additional to iPad 1 Source: Company data.TT) PCB (double sides/multi-sides) Gold Circuit (2368. Barclays Capital iPhone 4 supply chain Components Accerlerometer Application processor Assembly Assembly ** Audio codec Baseband processor.TW) STMicroelectronics (STM.TT) Inductor series Mag Layers (3068.Barclays Capital | Asia ex-Japan IT Hardware APPENDIX III: APPLE BUYER/SUPPLIER MATRIX Apple Buyer/Supplier Matrix iPad 2 (9.US) Hon Hai (2317.TT) Semi Application processor Samsung (005930.US) G-Tech (3149 TT) ARM (ARMH. handset baseband (CDMA version) * Qualcomm (QCOM.KS) Toshiba (6502.JP) Samsung (005930.US) System power mgmt NXP (NXPI.TT) Catcher Tech (2474. heat sinks.KS) RF.US) WiFi Broadcom (BRCM.TW) Catcher (2474.KS) LCD panel Samsung (005930.TT) Foxconn Tech (2354.TT) Chimei Innolux (3481.TT) FPCB Flexium Interconnect (6269.US) Broadcom (BRCM.TT) Touch Panel * Cando (8056.US) Assembly. connectors.JP) Skyworks (SWKS.KS) Battery power management Linear (LLTC.TT) Optical fiber connector Jarllytec (3548.TW) Chimei Innolux (3481.US) Broadcom (BRCM.TT) 6 October 2011 62 . WiFi. RF Baseband processor.TT) Cando (8056.US) LCD backlight Radiant Opto (6176.TT) Touch Panel * Chimei Innolux (3481.TT) Battery packs Dynapack (3211.TT) Largan (3008.TW) Elpida (6665.TT) PCB Unimicron (3037.US) STMicroelectronics (STM.TT) Texas Instruments (TXN.TT) Touch Panel TPK (3673.US) Triquint (TQNT.TW) Wintek (2384.TT) Touchscreen controllers.TT) Battery packs Simplo (6121. handset baseband Infineon (IFNNY.TT) LCD panel LG Display (034220. power cords Wanshih Electronic (6134.TT) LCD glasses G Tech Optoelectronics (3149.GY) TXC (6042.KS) AKM Semiconductors (3407.TT) Camera module * Asia Optical (3019.TW) Cirrus (CRUS.US) Infineon (IFX.TW) AUO (2409. A4 processor Samsung (005930.TW) Sintek (3049.TT) LCD backlight Coretronic (5371.US) GPS Broadcom (BRCM.JP) AAC Technology (2018 HK) TPK (3673.TW) Pegatron (4938.TT) Coaxial cables.TT) Memory.KS) LCD panel * Chimei Innolux (3481.TT) Gyroscope * Lingsen Precision (2369.US) Samsung (005930.TT) Camera module * Largan (3008.TT) Passive components Yageo (2327.US) Broadcom (BRCM. connectors Hon Hai (2317.TT) Pegatron (4938. cable connectors Advanced Connectek (5491.TT) Camera module * Genius (3406.7'') supply chain Components Company Hardware Accelerometer STMicroelectronics (STM.TT) PCB NY PCB (8046.TT) PCB Tripod (3044.TT) LCD driver Novatek (3034.JP) AAC Technology (2018 HK) TPK (3673.US) Dialog (DLG.

1% 5.00 4.8% 10.5% 8.2% 12.7% 35.2% .0% .25.0.2% - .7.5.8.4% 10.00 3.6% 4.0% 9.8% .6% 14.8% 3.0% 4.5% 6.0.30 1.3.8% 6.4% 9.9% .4% .9% 1.7.$116 .0% .3% 0. Barclays Capital estimates Source: Gartner.5% .1. US$) Component Monitor CPU Hard Disk Drive DRAM Power source / casing Chipset (data processing / ASP) Connectors Circuit Board Optical drive Keyboard Others Software Warranty Total Cost Range $63 40 42 29 33 25 19 6 21 4 6 75 20 $382 .8% Figure 89: Bill of materials for a typical desktop PC (estimated.7% .00 3.2% 1.0% 1.3.4% 1.8% 2.7% 7.0% Figure 91: Bill of materials for a typical ultrabook (NB) Component Display CPU (Intel Core i3) SSD (128G) DRAM Battery (polymer) Metal casing Optical drive Chipset Connectors Circuit Board Power adapter WLAN Keyboard Others Assembly Software Warranty Total Source: Barclays Capital estimates Cost (US$) $67 $173 $150 $26 $47 $55 $0 $40 $25 $15 $7 $15 $5 $17 $20 $75 $45 $781 % of Total 9% 22% 19% 3% 6% 7% 0% 5% 3% 2% 1% 2% 1% 2% 3% 10% 6% Source: iSuppli. Barclays Capital estimates 6 October 2011 63 .7% .4% 5.8% .9% .15.1% .6% 25.1% 8.7% 6.4% .00 7.6% 19. Barclays Capital estimates Figure 90: Example of bill of materials for an iPad 2 (US$) 32 GB 3G Wireless Version NAND flash & DRAM Display & Touch screen Baseband RF/PA A5 Processor User Interface Battery BT/FM/GPS/WLAN Electromechanical & mechanical Power Management Camera Modules Box Contents Manufacturing Total Pricing % of Total $65.1% 7.3% . US$) Component Display CPU Hard Disk Drive DRAM Battery Casing Optical drive Chipset (data processing / ASP) Connectors Circuit Board Power adapter WLAN Keyboard Others Software Warranty Total Cost Range $51 45 42 23 26 30 27 36 21 15 6 6 4 12 75 30 $449 $63 200 61 29 48 45 42 44 29 15 7 24 6 23 75 60 % of Total 11.00 1.5.5.00 10.7.3% 9.9% .4% 10.5% 1.1.1% 4.30 100.9% .9% .9% 6.3% 127.4% 10.6% 5.6.9% 2.5.21.00 5.3.3.3% .$760 .8% 19.8% 6.3% .10.6% 3.0.00 2.5% 11.00 3.$772 Source: Gartner.00 19.0% 9.3% 6.5% .0% $336.1% .00 37.9.6% 16.6% 5.7% .Barclays Capital | Asia ex-Japan IT Hardware APPENDIX IV: BILLS OF MATERIALS Figure 88: Bill of materials for a typical notebook PC (estimated.3% .162 71 53 54 44 26 7 79 6 17 75 50 % of Total 16.

averaging 13. Risks which May Impede the Achievement of the Price Target: The risks that our NT$58 PT for Shin Zu Shing will not be achieved include the following. in our view. 2) Ju Teng's capacity for and experience in metal casing (both die-casting and stamping) catchs up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng's metal casing manufacturing. however.85.20 PT Ju Teng is based on P/E using a target P/E multiple of 5x our 2012 EPS forecast of HK$0. We set our target multiple at 6x. are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum. Ltd.2. Going forward. We conservatively value the stock.20 PT for Ju Teng from being achieved are: 1) lower-than-expected demand for metal casings.HK) Valuation Methodology: Our HK$1. we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E.23. such as the iPad and iPhone. which in line with the stock's normal trading cycle (2-10x) of 6x. proving to be lower than we expect. Downside risks: The key risks to the downside that could prevent our price target from being achieved.. Source: Barclays Capital 6 October 2011 64 . (2354 TT / 2354. Although tablet cannibalization could negatively impact growth of NB hinge sales. (3336 HK / 3336.TW) Valuation Methodology: Our NT$58 PT for Shin Zu SHing is based on P/E using a target P/E multiple of 12x (with a normal trading cycle (1024x) of 12x. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue. FTC's historical P/E for 2007-11E was 10-40x. in particular. we believe FTC may deserve a premium because of its promising metal casing business for iPad. Ju Teng International Co. Risks which May Impede the Achievement of the Price Target: The risks that could prevent our NT$120 PTfrom being achieved are: 1) demand for Apple products. 2) demand for ultrabooks also lower than expected. because we do not expect Ju Teng's to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years.5x in 2009-11E. iPhone and ultrabooks.. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks.TW) Valuation Methodology: Our 12-month PT for FTC is NT$120 based on a target P/E multiple of 13x our 2012 EPS forecast of NT$9. Ltd. Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could prevent our HK$1. in our view. are the following: 1) lowerthan-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs.Barclays Capital | Asia ex-Japan IT Hardware Valuation Methodology and Risks Asia ex-Japan IT Hardware Foxconn Technology Co.. We apply our target multiple for our 2012 EPS forecast of NT$4. Upside risks: The key risks to the upside that could prevent our price target from being achieved. and 3) FTC's capacity proves insufficient to meet demand for metal casings (for unibody types. (3376 TT / 3376. which require FTC to operate numerous CNC machines). Ltd. Shin Zu Shing Co. and so view a P/E of 13x as justified. due to the volatile sales contribution from game consoles and the downward trend of thermal sales and their gross margin.

a portion of which is generated by investment banking activities. 2-Neutral . (0861. 2-Equal Weight . (2354.. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products. (3336. NY 10019 or refer to http://publicresearch. (3336.TW) Chicony Electronics (2385. Ltd. including. Sector View 1-Positive . price target charts. Primary Stocks (Ticker. (3211. Ltd..TW.The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12month investment horizon. TWD 96.. Ltd. 2-Equal Weight/2-Neutral Guide to the Barclays Capital Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight. are not registered/qualified as research analysts with FINRA. 3-Negative . or otherwise. Ltd.TW) Foxconn Technology Co.HK) 6 October 2011 65 ..Barclays Capital | Asia ex-Japan IT Hardware ANALYST(S) CERTIFICATION(S) I. Barclays Capital produces a variety of research products including. TWD 60. (2353.TW) Dynapack International Technology Corp.TW) Asustek Computer Inc.. (2324.TW) Ju Teng International Co. 17th Floor.HK) Hon Hai Precision Industry Co.barcap. Price) Foxconn Technology Co. 3-Underweight . Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. quantitative analysis. 3-Underweight/2-Neutral Shin Zu Shing Co.TW. 05-Oct-2011.The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. Research analysts employed outside the US by affiliates of Barclays Capital Inc.8). regarding companies that are the subject of this research report. (3376. whether as a result of differing time horizons. 05-Oct-2011. New York.The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisory capacity in a merger or strategic transaction involving the company.sector coverage universe fundamentals/valuations are deteriorating. 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sector coverage universe”). 1-Overweight/2-Neutral Ju Teng International Co. In addition to the stock rating. HKD 1. (2354. Allen Chang. methodologies.The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was. we provide sector views which rate the outlook for the sector coverage universe as 1-Positive. Stock Rating 1-Overweight . equity-linked analysis. Below is the list of companies that constitute the "sector coverage universe": Asia ex-Japan IT Hardware Acer Inc. Ltd.TW) Darfon Electronics (8163. but not limited to.com or call 1-212-526-1072. A rating system using terms such as buy. public appearances and trading securities held by a research analyst’s account. 745 Seventh Avenue.4). and trade ideas.TW) Cheng Uei Precision Industry Co. (2317.40). neither improving nor deteriorating. IMPORTANT DISCLOSURES CONTINUED For current important disclosures. (2392.sector coverage universe fundamentals/valuations are improving. is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.sector coverage universe fundamentals/valuations are steady. The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues. fundamental analysis. 05-Oct-2011. 2-Neutral or 3Negative (see definitions below). hold and sell is not the equivalent of our rating system. (2356. where relevant. Ltd. Date..TW) Digital China Holdings Ltd.HK. please send a written request to: Barclays Capital Research Compliance. (2357. RS-Rating Suspended .TW) Inventec Inc.TW) Compal Electronics Inc. These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company.. Ltd.

Ltd. Hong Kong branch (Barclays Bank. (0903. New York) Tokyo Barclays Capital Japan Limited (BCJL.Barclays Capital | Asia ex-Japan IT Hardware IMPORTANT DISCLOSURES CONTINUED Lenovo Group Ltd.. Singapore branch (Barclays Bank. a division of Absa Bank Limited (Absa Capital.TW) Simplo Technology Co. (3376. (4938. 12% have been assigned a 3-Underweight rating which. São Paulo) Hong Kong Barclays Bank PLC. Barclays Capital offices involved in the production of equity research: London Barclays Capital. for purposes of mandatory regulatory disclosures. Ltd. Hong Kong) Toronto Barclays Capital Canada Inc. (0751.A. for purposes of mandatory regulatory disclosures. 59% of companies with this rating are investment banking clients of the Firm. 36% of companies with this rating are investment banking clients of the Firm. for purposes of mandatory regulatory disclosures. Upside/downside scenarios. (2347. (BCI. S. Toronto) Johannesburg Absa Capital. Johannesburg) Mexico City Barclays Bank Mexico. where provided. is classified as a Sell rating..TW) Distribution of Ratings: Barclays Capital Inc. is classified as a Buy rating. Mumbai) Singapore Barclays Bank PLC.TW) Skyworth Digital Holdings Ltd. (2382. Tokyo) São Paulo Banco Barclays S. Mexico City) Taiwan Barclays Capital Securities Taiwan Limited (BCSTW.HK) Shin Zu Shing Co.TW) Wistron Corporation (3231. the investment banking division of Barclays Bank PLC (Barclays Capital.A.TW) Sunrex Technology (2387. 42% have been assigned a 2-Equal Weight rating which. Guide to the Barclays Capital Price Target: Each analyst has a single price target on the stocks that they cover. is classified as a Hold rating. The price target represents that analyst's expectation of where the stock will trade in the next 12 months.TW) Quanta Computer Inc. Seoul) Mumbai Barclays Capital Securities (India) Private Limited (BSIPL. (0992.TW) TPV Technology Ltd. (BBMX. Taiwan) Seoul Barclays Capital Securities Limited (BCSL. London) New York Barclays Capital Inc. 51% of companies with this rating are investment banking clients of the Firm. represent potential upside/potential downside to each analyst's price target over the same 12-month period. Equity Research has 1815 companies under coverage. 44% have been assigned a 1-Overweight rating which.HK) 6 October 2011 66 . (BBSA. Singapore) Pegatron Corp. (BCC.HK) Synnex Technology International Corp. (6121.

09 Jul. Ltd. FTC's historical P/E for 2007-11E was 10-40x..TWD (as of 04-Oct-2011) Stock Rating 1-OVERWEIGHT Currency=TWD Date Closing Price Rating Sector View 2-NEUTRAL Price Target 150 125 100 75 50 Jan. iPhone and ultrabooks. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Foxconn Technology Co. due to the volatile sales contribution from game consoles and the downward trend of thermal sales and their gross margin.11 Jul. we believe FTC may deserve a premium because of its promising metal casing business for iPad. Risks which May Impede the Achievement of the Price Target: The risks that could prevent our NT$120 PTfrom being achieved are: 1) demand for Apple products.. Valuation Methodology: Our 12-month PT for FTC is NT$120 based on a target P/E multiple of 13x our 2012 EPS forecast of NT$9. 2) demand for ultrabooks also lower than expected. such as the iPad and iPhone. and 3) FTC's capacity proves insufficient to meet demand for metal casings (for unibody types.00 (04-Oct-2011) Rating and Price Target Chart .TW) TWD 104. Going forward. 6 October 2011 67 .. averaging 13. and so view a P/E of 13x as justified. which require FTC to operate numerous CNC machines). Ltd.5x in 2009-11E.10 Jan. (2354 TT / 2354. in particular. or one of its affiliates.Barclays Capital | Asia ex-Japan IT Hardware IMPORTANT DISCLOSURES CONTINUED Foxconn Technology Co. We conservatively value the stock. proving to be lower than we expect. Ltd. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue.23. however.10 Jul..09 Jan.11 Closing Price Link to Barclays Capital Live for interactive charting Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Foxconn Technology Co.

because we do not expect Ju Teng's to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years. We set our target multiple at 6x.10 Jan. or one of its affiliates.11 Jul.50 3....50 0.75 Jan.10 Jul. Valuation Methodology: Our HK$1. 2) Ju Teng's capacity for and experience in metal casing (both die-casting and stamping) catchs up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng's metal casing manufacturing..HK) HKD 1.09 Jan. 6 October 2011 68 .20 PT for Ju Teng from being achieved are: 1) lower-than-expected demand for metal casings. Ltd. Ltd. (3336 HK / 3336.50 6.75 3.00 8.25 7. which in line with the stock's normal trading cycle (2-10x) of 6x.75 6.20 PT Ju Teng is based on P/E using a target P/E multiple of 5x our 2012 EPS forecast of HK$0.00 2. Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could prevent our HK$1.HKD (as of 04-Oct-2011) 9.09 Jul.40 (04-Oct-2011) Rating and Price Target Chart .25 1.00 5.2.11 Stock Rating 3-UNDERWEIGHT Currency=HKD Date Closing Price Rating Sector View 2-NEUTRAL Price Target Closing Price Link to Barclays Capital Live for interactive charting Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Ju Teng International Co. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Ju Teng International Co. Ltd.25 4.Barclays Capital | Asia ex-Japan IT Hardware IMPORTANT DISCLOSURES CONTINUED Ju Teng International Co.

10 Jan... Risks which May Impede the Achievement of the Price Target: The risks that our NT$58 PT for Shin Zu Shing will not be achieved include the following. are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum.TW) TWD 61. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks.85. Valuation Methodology: Our NT$58 PT for Shin Zu SHing is based on P/E using a target P/E multiple of 12x (with a normal trading cycle (1024x) of 12x.09 Jul.TWD (as of 04-Oct-2011) Stock Rating 2-EQUAL WEIGHT Currency=TWD Date Closing Price Rating Sector View 2-NEUTRAL Price Target 200 175 150 125 100 75 50 25 Jan. 6 October 2011 69 . Ltd.11 Jul..00 (04-Oct-2011) Rating and Price Target Chart ..Barclays Capital | Asia ex-Japan IT Hardware IMPORTANT DISCLOSURES CONTINUED Shin Zu Shing Co. we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E.10 Jul. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Shin Zu Shing Co.11 Closing Price Link to Barclays Capital Live for interactive charting Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Shin Zu Shing Co. in our view.09 Jan. Although tablet cannibalization could negatively impact growth of NB hinge sales. in our view. We apply our target multiple for our 2012 EPS forecast of NT$4. or one of its affiliates. (3376 TT / 3376. Downside risks: The key risks to the downside that could prevent our price target from being achieved. are the following: 1) lowerthan-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs. Upside risks: The key risks to the upside that could prevent our price target from being achieved. Ltd. Ltd.

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