HTC Falls as Top-Ranked Analyst Sees Continued Nightmare

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The top-ranked analyst covering HTC Corp. is predicting the company’s “nightmare” is poised to get even worse after the smartphone maker slashed its sales forecast, triggering the stock’s biggest two-day drop in three years.

Sinopac Financial Holdings Co. analyst Calvin Huang in February suggested investors take profit on the stock amid poor reviews of the M9 smartphone that was yet to be introduced at the time. Shares of HTC fell their daily limit on the two trading days since the Taoyuan, Taiwan-based company cut its sales projection as much as 35 percent and announced a writedown that makes turning a profit this year almost impossible.

“The nightmare isn’t over,” Huang wrote Monday, cutting his price target to NT$53, indicating the stock could fall 37 percent more from Monday’s close. “HTC will keep losing share in the smartphone market and will keep losing money in the coming quarters.”

Slower demand for high-end smartphones and weaker sales in China prompted HTC’s June 5 warning and spurred Credit Suisse Group AG, Fubon Financial Holding Co. and BNP Paribas SA to cut their ratings on the stock. Once the only company to produce Android-based phones, HTC is now being squeezed by larger competitors Samsung Electronics Co. and Apple Inc., and cheaper prices offered by China’s Lenovo Group Ltd. and Xiaomi Corp.

HTC slumped by its 9.9 percent limit to NT$75.30 at the close of trade Tuesday, the lowest in a decade. The stock, which has lost 94 percent from an April 2011 record of NT$1,238.10, has fallen 47 percent this year while the benchmark Taiex is down 1.2 percent.

Downgrade Flurry

As recently as April 27, the day before HTC first provided a forecast for second-quarter sales, only 42 percent of analysts covering the stock had a sell rating, according to data compiled by Bloomberg. Even Huang didn’t downgrade it to underperform until almost four weeks after his February prediction for a “nightmare” scenario of weak sales for the M9 phone.

Investors who followed Huang’s advice on HTC over the past year generated a 44 percent return through Monday, placing him top of the Bloomberg Absolute Return Rank.

Now, 68 percent of the 31 analysts tracked by Bloomberg recommend investors sell the stock. Barclays Plc’s Dale Gai cut his recommendation to underweight, removing the last buy rating on the stock by analysts who have covered HTC since before the M9’s release.

In addition to cutting its quarterly sales forecast, which could now be the lowest in six years, HTC said it would write down NT$2.9 billion ($93 million) on impaired assets and prepaid expenses, a figure that’s double the net income HTC posted for 2014.

Cash Valuation

“Forecast losses and great business volatility” prompted Morgan Stanley analyst Jasmine Lu to be among those turning to book value instead of earnings to value the stock. Her estimate that HTC is worth 0.9 times its expected 2016 book value prompted Lu to cut her price target by 46 percent, predicting shares will fall to NT$57, the lowest in a decade.

“Given HTC’s questionable asset quality, we don’t think book value is an appropriate measure to value HTC,” Sinopac’s Huang wrote. “For now, the best measure for HTC’s value is cash.”

HTC had NT$51.7 billion of cash and equivalents at the end of March, or about 83 percent of its current market value.

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