Hon Hai shares fall after reports on sales target cut

TAIPEI (BestGrowthStock) – Shares in Hon Hai Group (2317.TW: ), maker of Apple’s (AAPL.O: ) iPhones, fell as much as 4 percent on Monday after its chairman was quoted as saying in a report that the group will halve its long-term sales growth target to 15 percent annually.

In interviews with Bloomberg Businessweek magazine and the Wall Street Journal in the southern Chinese city of Shenzhen over the weekend, Chairman Terry Gou said the company was likely to meet its original 30 percent growth target this year thanks to a global recovery.

But beyond that, the pace would drop as demand for iPhones and iPads was unlikely to counter the impact of slowing PC sales and as the company came up against constraints after growing rapidly in recent years, the reports said.

“How many companies have grown this big and still grow 30 percent?” Guo told Businessweek. “Fifteen percent is also big.”

Hon Hai was not immediately available to comment.

Hon Hai, the world’s biggest electronic parts maker, and its Hong Kong-based Foxconn (2038.HK: ) unit have struggled this year with the fallout from a series of suicides at a manufacturing site in southern China that focused international attention on labor practices in the region.

The issues prompted the company to raise wages and were a trigger for a series of labor disputes over working conditions in a region dubbed the world’s workshop. Hon Hai employs more than 900,000 people in China.

By 0430 GMT, Hon Hai’s shares were down 3 percent in a Taipei market (.TWII: ) up 0.8 percent. The shares have shed nearly 18 percent so far this year versus a 3.5 percent fall in the broader market. Foxconn shares rose 2.2 percent in a strong Hong Kong market (.HSI: ) after initially falling.

Analysts said a slowdown in growth was expected and any fall stock reaction was likely to be shortlived.

“The rate of growth is slowing but in absolute terms, it is still an extremely big and profitable company,” said Robert Cheng, an analyst at Credit Suisse.

“At the AGMs, Terry Gou has already mentioned more than one time, he knows it’s becoming more and more challenging to grow. The global economy is becoming more volatile … so the growth rate is already slowing down. It’s not suddenly happening.”

According to consensus estimates, analysts expect the group’s revenue to some 37 percent this year to some T$2.6 trillion ($85 billion), slowing to about 23 percent growth next year and about 18 percent in 2012.

“I think there will be a de-rating of the stock,” said an analyst at a European brokerage, who asked not to be identified.

“It’s no longer worth 15-18 times P/E. Over the long run, it’ll probably go down to 12-13 times P/E, like the other hardware names in Taiwan.”

Guo told the Wall Street Journal he believed Hon Hai had taken effective measures to address the spate of suicides, and did not think the incidents had hurt relations with customers, which also include Dell (DELL.O: ), Nokia (NOK1V.HE: ) and Hewlett-Packard (HPQ.N: ).

“This is not a sweatshop. I’m very proud to say this,” he was quoted as saying.

He told the Businessweek that Hon Hai was considering building a fully automated component factory in the United States as one way of reducing its reliance on labor.

Also on the agenda were possible expansions into biotechnology, while auto parts and energy saving devices were also areas for possible growth, the reports said.

($1=31.87 Taiwan Dollar)

(Reporting by Faith Hung and Jonathan Standing in Taipei and Sui-Lee Wee in Hong Kong; Editing by Ken Wills and Anshuman Daga)

Hon Hai shares fall after reports on sales target cut