886 Taiwan Research -- Taiwan Market Afternoon Commentary

TAIEX See-Saws to 0.46% Gain

TAIEX +0.46% to 5781.66 on NT$121.46bn (US$3.59bn)
Tech +1.10% on 59% of trading; Financials +0.67% on 14%
Gretai -0.70% to 89.78 on NT$20.05bn (US$0.59bn)

FINI net bought NT$3.4bn
Domestic investment trusts net sold NT$2.3bn
Domestic proprietary traders net bought NT$1.16bn

Taiwan Market Afternoon Commentary, April 20, 2009

After Friday¡¦s 4% sell-off, TAIEX traded in a somewhat tamer 150-point range on the way to a modest 0.46% gain to kick off a busy week of economic and corporate earning releases. TAIEX challenged 6000 points (5797) shortly after the market opened but soon fell back to the day¡¦s low of 5648 before large cap tech stocks and cross-strait beneficiaries sparked a mid-morning turnaround. Turnover remained solidly above NT$100bn (NT$121.46bn) but substantially below Friday¡¦s explosive NT$223.65bn. Our Head of Research, Jonathan Liao, looks for TAIEX to remain in a 5,400-5,800 point trading range in the short term.

Tech (+1.10%) movers included Hon Hai Precision (2317 TT, NT$92, +2.34%), on reports that it is in the running for Apple netbook orders; IC Design (+2.15%), on projections of QoQ shipment growth for Mediatek (2454 TT, NT319.50, +2.73%) in 2Q09 on strong HS baseband chip demand that threatens to spark a chip shortage in May; and Solar (+4.01%) and LED (+5.58%) on expectation that the legislature will approve the NT$50bn energy bill on Thursday. Tourism (+2.8%) was the primary engine for Non-Tech as buyers continue to cheer the relaxed regulatory environment, including a possible hike in cap on daily visitors allowed from China. Financials (+0.7%) slightly outperformed on the upcoming ARATS-SEF meetings later this month in Nanjing, China, which are expected to lay the framework for a Financial industry MOU to be signed at a later date. Meanwhile construction (-3.86%) continued to slump on profit taking and the recent halt in NT dollar appreciation.

Tourism gained on the rising tide of visitors from Mainland China
Tourism gained 2.8% today on news that the number of daily visitors from China has reached the government¡¦s 3,000/day, averaging 3,013 people per day so far this month, compared with the daily average of 580 over the past eight months. The government reportedly favors a higher quota of 7,200/day. Meanwhile applications for visits during the China Golden Week (the first week of May) have already reached the current cap of 3,000 visitors per day.

Financials outperform on pre-MOU hype
Financial (+0.7%) shares climbed on positive sentiment ahead of the upcoming third round of cross-strait talks. The date of the talks between Taiwan¡¦s SEF and China¡¦s ARATS have been set to take place from April 25 to April 29 in Nanjing, China. Both sides are expected to discuss the financial MOU during the negotiations before signing it at a future date. SinoPac sector analyst Julie Chu expects the third round of talks to be a clear positive catalyst for big cap financial names such as Cathay (2882TT, NT$36.80, +3.08%) First Financial (2892 TT, NT$18.55, +3.92%) and China Trust (2891TT, NT$15.70, +2.28%).

DRAM falls on Nanya¡¦s and Promos¡¦ cash issues
DRAM names fell as DDR2 1GB prices fell 4.20% on Friday and Nanya Tech (2408 TT, NT$7.78, -7%) announced a plan to reduce its capital by NT$31.18 billion in common shares, or 66.43%, more than the market expectation of 50%. Meanwhile the company intends to raise capital through a private placement and rights issue, which will not exceed 4 million shares respectively. Our DRAM analyst Sophie Chuang sees this type of move as a short-term necessity for most local DRAM companies as cash runs low. Promos (5387 TT, NT$1.46, -7%) fell limit-down on fears it will have to delay its ECB payment owing to uncertainty about a NT$3bn loan extension previously approved by a bank syndicate.

Marcos Torres, torres.ma@sinopac.com, (886 2) 2382-8154