Global manufacturing upgrade to benefit Taiwan industrial automation suppliers

Monday, Aug 24, 2015

Taiwan's industrial automation suppliers are notable beneficiaries of an aggressive global push to upgrade manufacturing, according to research by a U.S.-based brokerage.

The brokerage firm said that Taiwan's industrial automation stocks have "retreated" since the second quarter of the year as macroeconomic weakness has resulted in softer sales, providing a good reentry point to buy select stocks due to their lower share prices.

"We view the current macro slowdown as a good opportunity to selectively buy industrial automation stocks," said the U.S. brokerage, whose name cannot be disclosed because it was offering specific forecasts that could influence the market.

"While the global industrial automation market is dominated by players from Europe, Japan, and the U.S., Taiwanese players are catching up in some key components and entry-level robots thanks to cost advantage, customized products, and better localized service," it wrote in a research note dated Aug. 20.

On the other hand, growth for Taiwanese companies focusing on factory automation has slowed since 2014 due to their high reliance on China, as well as a boost to their key rivals in Japan from yen depreciation, the U.S. brokerage said.

"However, with easing yen depreciation and stabilization in China's PMI (Purchasing Managers' Index), we expect these companies to resume gaining market share. Moreover, most of them enjoy higher operating profit margins than their Japanese rivals," said the U.S. brokerage.

Considering these factors mentioned above, the brokerage maintained its "overweight" ratings on Delta Electronics Inc., Airtac International Group, Advantech Corp. and Ennoconn Corp.

It also kept its "equal-weight" ratings on Chroma ATE Inc. and Adlink Technology Inc. and stayed "underweight" on Hiwin Technologies Corp.

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