Morgan Stanley is neutral on MediaTek (2454), with a target price of 649 yuan.

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[Financial Channel/Comprehensive Report] Morgan Stanley (Morgan Stanley, Morgan Stanley) reported that the price competition of 5G SoC (single-chip system) in the market is worrying, and the Chinese Android (Android) market has not yet recovered, so Morgan Stanley We believe that MediaTek (2454)'s short-term profit will further decline. Investors are advised to wait and see and maintain the "neutral" rating with a target price of 649 yuan.

Morgan Stanley predicts that MediaTek's revenue in the first quarter of 2023 will decline by 4% in a single quarter and 27% annually, which is more pessimistic than investors' expectations of a flat quarter.

Morgan Stanley said the forecast was based on expectations of China reopening and smartphone inventory restocking.

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Morgan Stanley believes that the annual growth of Q1 revenue will show a significant decline, mainly because MediaTek’s market share will flow to Qualcomm (Qualcomm), China’s Android smartphone market will be taken away by the iPhone, the average selling price of MediaTek’s chips will be eroded, and Q1 in 2023 Overall demand is weak.

As Morgan Stanley estimates that the comprehensive selling price of 5G SoC may drop in 2023, Morgan Stanley expects MediaTek's annual revenue growth to be flat.

China's demand does not seem to be recovering so fast. Compared with the demand before the Spring Festival last year, Morgan Stanley's survey shows that the annual sales growth is only a low single-digit growth, which is not up to the double-digit growth expected by the market.

The sales after the Spring Festival have not yet ended, but so far, Morgan Stanley has not seen any urgent orders for smartphone SoCs.

Morgan Stanley expects that MediaTek’s gross profit margin in Q1 will fall at about 47%, while Wall Street’s consensus estimate is 46.5%, both lower than the 49% in Q4 in 2022.

Morgan Stanley’s survey on the supply chain shows that Qualcomm will reduce the price of low-end 5G SoC chips by 15-20% in Q1, and MediaTek is bound to follow up with price cuts in order to maintain its market share.

Morgan Stanley mentioned that not all price cuts will be reflected in the gross profit margin of Q1, and it is expected that the actual blow may appear in Q2.

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