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Title:Pegatron (4938 TT) U/G Buy, TP: NT$65.6
Download File:4938 TT Pegatron note 191002-sinopac.pdf 
Summary:Upgrade to Buy, TP of NT$65.6 (11.5x 2020F P/E): 1) We think Pegatron・s operations have turned the corner in 2H19. Last year, Pegatron supplied two smartphone models for its major US client, but uninspiring sales of the handsets depressed the assembler・s GM. This year, the company is supplying the US customer・s LCD smartphone model, which has affordable pricing and is enjoying solid sales. We expect Pegatron・s earnings will recover steadily in 2019. Then we assume a wave of replacement demand will emerge in 2020 when the US customer presumably will introduce 5G handsets. 2) Pegatron・s dividend yield offers downside protection. Given our 2019 earnings estimate and Pegatron・s historical average payout ratio of 70-80%, we estimate the company will pay a cash dividend of NT$4 in 2020, implying a yield of 7.3% based on current stock price. The impressive dividend yield will provide downside protection.
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