TAIPEI (Reuters) - Investors have piled into shares of key Asian PC and niche component makers as they bet on robust demand for a new generation of tablet computers trying to emulate Apple’s wildly successful iPad.
In Taipei, Acer Inc shares rose to seven-month highs earlier this month and Asustek shares hovered around four-month highs. Component makers are also doing well, with names like TPK Holding, a supplier of touch screens, debuting strongly in late October.
Acer, the world’s No.2 PC seller, is set to introduce its first tablets later this month and rival Asustek Computer Inc will roll out its own tablets in early 2011 [ID:nTOE6A302R], joining other U.S. top brands. China’s Lenovo is also getting into the space.
Will the new products vindicate the confidence of investors?
“The tablet PC will be a very hot sector next year,” said Robert Huang, a vice president at the proprietary trading department of Pacific Securities.
“Acer and Asustek are still not expensive if you take a look at their valuations, and touch screen plays will also benefit.”
On a price/earnings basis, Acer trades at 13 times forecast earnings and Asustek at about 9, still lower than the average 15 times for the whole technology sector in Taiwan, Huang said.
“Not just hardware, they (Acer, Asustek) also try to improve software and user interface,” said Wang Wanli, an analyst at HSBC Securities in Taipei.
Wang has upgraded his rating on both Acer and Asustek to “overweight” from “neutral,” and raised his target share price on Acer by 12 percent. Wang forecast that tablet sales would make up about 5 percent of both Acer’s and Asustek’s sales next year.
Around two-thirds of 24 brokers tracked by Thomson Reuters I/B/E/S rate Acer as either a ‘buy’ or a ‘strong buy’. Most brokers also have a ‘buy’ rating on Asustek and Lenovo.
Bigger players with better access to content and applications — Apple’s strong points — could hold an edge over the longer term in an increasingly crowded market where many are using Google’s free Android system to power their devices.
Analysts expect worldwide tablet PC sales to reach 40-50 million units in 2011, with iPad dominating the market. Research firm IDC has said tablet shipments could grow by an average 57.4 percent per year in 2010-2014, reflecting the sector’s huge growth potential.
But a price war could be looming as more newcomers enter the emerging tablet PC market.
“Pricing pressure will intensify, so we don’t own any tablet or PC shares now,” said Michael On, managing director of Beyond Asset Management.
There are also lingering concerns over the impact from a faltering global economy.
“It is not a good time to buy PC shares even though we see some new products such as tablets now,” said John Chiu, a fund manager at Fuh Hwa Securities Investment Trust.
“We might have to wait till the industry’s inventory has been digested, and that’s probably early next year.” (US$1=T$30.4) (Editing by Doug Young and Muralikumar Anantharaman)