While revenue and profit for 1HFY2022 beat forecasts, Apple Inc is hit by bottlenecks due supply constraints, says PhillipCapital.
In a May 4 note, PhillipCapital analyst Timothy Ang is maintaining “buy” on Apple with an unchanged target price of US$214.00 ($297.63).
“1HFY2022 revenue and PATMI were ahead of our FY2022F forecasts at 56% and 60% respectively. Demand remains robust for iPhone, Mac and Services despite concerns of softening consumer confidence. Gross margins beat estimates, demonstrating Apple’s ability to pass on higher costs,” writes Ang.
He adds: “We keep our forecasts unchanged despite the outperformance this quarter. Covid-19 shutdowns in China, ongoing semiconductor shortages and a stronger US dollar will impact revenue growth by US$4 billion to US$8 billion in 3QFY2022.”
Demand remains robust
Revenue grew 9% y-o-y to US$97.2 billion, beating estimates of 5% growth.
Services, iPhone, Mac and iPad all outperformed despite concerns of waning consumer confidence, notes Ang.
“iPhone demand was up 5%, and it remains strong for the iPhone 13 family. Mac demand grew 15%, and the new M1 chip Mac saw its best seven quarters with record upgraders and 50% new purchasers. iPad demand declined 2%, but it remains highly sought after in education, creativity and entertainment. It continues to be weighed down by supply constraints. Services demand was up 17%, and the installed base are at all-time highs for App Store, iCloud and Apple Care,” he writes.
Gross margins for products and services were 36.4% and 72.6%, beating estimates of 35.6% and 71.4% respectively. For products, Apple is successfully passing on higher costs to consumers. Services margins benefited from growth in the higher margin services mix, which we believe are App sales and subscriptions.
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No negatives, for now
Notably, Ang lists no current negatives in his report. Instead, he warns of a stronger US dollar and stoppage of sales in Russia, which is expected to hit growth by 300 basis points (bps) and 150bps respectively.
Meanwhile, an incremental US$90 billion share buyback program was announced, roughly 4% of market cap as at April 29. “This should lend some support to share prices. Apple aims to be net cash neutral. As at 2QFY2022, Apple’s net cash position was US$73 billion.”
Shares in Apple closed US$5.22 lower, or 3.32% down, at US$152.06 on May 9.
