Wednesday, HSBC adjusted its stock price target for MediaTek Inc. (2454:TT) (OTC: MDTKF), reducing it to NT$940 from the previous NT$975. The firm continues to recommend a Hold rating on the stock. This revision comes amid expectations of a downturn in the smartphone sector, which is anticipated to affect the company's revenue and margins in the second half of 2024.
The financial institution has revised its earnings per share (EPS) estimates for MediaTek for the fiscal years 2024 and 2025, decreasing them by 4% and 5% respectively. These adjustments are based on the projected industry-wide smartphone weakness.
The new EPS forecasts of NT$55.32 for 2024 and NT$63.88 for 2025 are 10% and 16% below the consensus estimates, reflecting a cautious stance as the firm monitors the demand trajectory for the latter half of 2024.
The new stock price target of NT$940 is derived from these updated EPS figures and is based on a 2024 expected price-to-earnings (PE) ratio of 17 times. This ratio is consistent with the five-year average and has not been altered. Still, the revised price target suggests a 3% downside from the previous target, leading HSBC to maintain its Hold rating for MediaTek shares.
HSBC noted that with MediaTek discontinuing its special dividend in the fiscal year 2024, the stock's downside support from dividend yield is diminished. This change also decreases the likelihood of a positive re-rating for the company's shares in the near future. The firm's outlook remains guarded as it awaits further clarity on the demand for MediaTek's offerings in the second half of the year.
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