On Wednesday, HSBC revised its price target on Faraday Technology Corp (3035:TT), a semiconductor company, lowering it to NT$400 from the previous NT$477.39. Despite the reduction, the firm maintained its Buy rating on the stock.
The adjustment in the price target is attributed to a slower-than-anticipated recovery in the turnkey services provided by Faraday and the time needed for inventory digestion. HSBC has also revised its earnings per share (EPS) estimates for the years 2024 and 2025, decreasing them by 22% and 19%, respectively. These revisions result in the 2024 EPS forecast being 15% below the consensus, while the 2025 EPS prediction is 11% above the consensus. The optimism for 2025 stems from potential opportunities in automotive projects.
HSBC's decision to roll forward its forecast period to 2025 is based on the belief that the market has already fully accounted for the expected weakness in 2024. The target price-to-earnings (PE) ratio for Faraday has been lowered from 37 times to 28 times, aligning it with the historical average 5-year forward PE rather than a standard deviation above it.
Applying the new target PE to the revised 2025 EPS estimate of NT$14.39, which is down from NT$17.78, HSBC has derived the new target price. Despite the revision, HSBC's target price still implies an approximate 36% upside from the current levels, which supports the firm's decision to maintain a Buy rating on Faraday Technology shares.
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