Hon Hai Precision Industry Co. Ltd.

Hon Hai is likely to continue to diversify its business focus away from cyclical consumer business as it tries to improve its operating and financial stability. This is also aligned with Hon Hai's strategy to increase its business exposure in growing enterprise revenue, mainly from servers, and return-focused new business investment including auto, semiconductors, and digital health for its long-term growth. The stable rating outlook reflects our view that Hon Hai could continue to grow its EBITDA over the next two years. This would be supported by sales growth particular in 2021 as well as a moderately improving profit margin amid an improving portfolio mix such as from increasing server shipments for cloud server providers and rising component revenue mix

...Hon Hai could moderately improve its profitability and performance stability through a shift in its business target. Hon Hai Precision Industry Co. Ltd. could see some near-term profit drivers particularly from server demand as well as from components and modules and the automotive sector. We forecast server products will increasingly penetrate markets in the U.S. and China where cloud server investment is accelerating because of an increase in online activities such as learning and working from home. In addition, Hon Hai's component and module offerings, particularly for optical and semiconductor use will help enhance the company's business integration and profitability. Hon Hai targets to improve its gross margin to 7%-8% over the next two years, through the Foxconn 2.0 plan, which aims to improve operating efficiency via digital transformation. Hon Hai is likely to continue to diversify its business focus away from cyclical consumer business as it tries to improve its operating and financial...

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