On Thursday, CLSA downgraded MediaTek Inc. (2454:TT) (OTC: MDTKF) stock from 'Outperform' to 'Hold,' adjusting the price target to TWD1,300 from TWD1,370. The firm acknowledged the company's strong third-quarter results and improved fourth-quarter guidance, which exceeded expectations.
However, the downgrade reflects concerns over weaker demand for MediaTek's non-smartphone segments and anticipated increases in operating expenses (Opex) due to new projects using advanced nodes that are expected to commence in 2025.
In light of the recent financial performance, CLSA has revised its earnings per share (EPS) forecast for MediaTek for the year 2024, increasing it by 8%. This revision is based on the company's robust third-quarter performance and the promising outlook for the fourth quarter. Despite this positive adjustment for 2024, the firm has reduced its 2025 EPS estimate by 8%, citing the weak performance in the non-smartphone business and the potential impact of higher Opex on the company's profitability.
The adjusted price target of TWD1,300 is still derived from a 17 times multiple of the projected EPS for the second half of 2025 to the first half of 2026. The new valuation reflects the updated earnings estimates and the firm's outlook on the company's financial prospects. The downgrade to 'Hold' suggests that while MediaTek has shown commendable performance, the potential for further stock appreciation may be limited at this time.
CLSA's decision to downgrade MediaTek's stock rating is based on the analysis that the benefits of market share gains and new opportunities in the PC and ASIC markets are already reflected in the current stock price. The firm indicates that while MediaTek has capitalized on these opportunities, the valuation now fully encompasses these achievements.
The report concludes with a tempered outlook for MediaTek, acknowledging its strong recent performance but also recognizing the challenges ahead. With the anticipation of higher operating expenses and a less robust non-smartphone segment, CLSA advises a more cautious stance on the stock.
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