Korean Shinhan Finc'l Concerns
We are maintaining our Hold on Shinhan Financial Group Co., Ltd. (Shinhan or SFG) (SHG), the largest financial holding company in South Korea. In its first quarter report, SFG posted net earnings of KRW620 billion, which included several unusual items. This was broadly in line with our estimate.
Shinhan Financial Group is intent upon becoming the leading provider of total financial solutions in Korea by achieving global standards in corporate governance, operational efficiencies, and integration of processes and services. Through its acquisition strategy, Shinhan plans to continue growing in both domestic and international markets.
However, our chief concern about SFG rests in the acquisition of LG Card, a troubled company that had previously experienced significant liquidity and asset quality problems, due to the potential for negative surprises. Greater-than-expected competition from well-positioned players that have a more diverse product portfolio and enjoy better economies of scale would hinder the bank's progress. Moreover, tighter mortgage lending rules could slow loan growth and profitability.
At its current price, Shinhan is trading at 7.9X the 2008 consensus earnings estimate and 7.8X the 2009 estimate, representing significant discounts to the industry median P/E ratios of 10.5X and 8.5X, respectively. We believe this is an appropriate level given the company's average growth prospects and below-average dividend yield. Our $95 target price represents a 7 ¾X P/E multiple of our 2009 EPADS estimate of $12.17, providing a PEG (P/E divided by estimated future growth rate) ratio of 0.8X, roughly in line with the median for the industry.
Conservative on TriQuint Semi
We are cautiously optimistic of TriQuint Semiconductor, Inc.'s (TQNT) projected path to margin improvement and inventory correction. Therefore, we maintain a Hold rating on the stock.
The company's wireless products are sold to all three major air interfaces: code-division multiple access (CDMA), global system for mobile communications (GSM), and time division multiple access (TDMA). Wireless enabled laptops are estimated to aggregate about $300 million in the radio frequency (RF) market in 2008.
The RF content is increasing, with new standards that provide greater bandwidth, higher data rates, and better quality of service. On the other hand, WiMAX is in the early stages of deployment and will be an important market for TQNT in the future. However, the company faces strong competition in every product category and also has significant customer concentration.
Going forward, management expects revenues around $130-$135 million in the second quarter. GAAP EPS is expected to come around $0.05 to $0.07 while pro-forma EPS should come around $0.07 $0.09.
