Advantech’s Long-Term Prospects Priced in but Short-Term Surprises Abound; FVE Increased to TWD 339

After factoring in structurally lower operating expenses and lower near-term gross margin outlook in view of higher component costs, we modestly raise our fair value estimate by 4% to TWD 339 per share. The fair value estimate corresponds to 27 times 2022 P/E, close to the company’s five-year average. We view the stock as fairly valued, as the prospects from post-coronavirus reopenings are priced in, underpinned by high book/bill ratios in the past 12 months. We think lower operating expenses are made possible by a simpler corporate structure, with Advantech merging some of its subsidiaries; and a shift toward online marketing. Possible upside catalysts of the stock are better-than-expected supply chain easing, plateauing of semiconductor costs and significant adoption of its WISE-PaaS automation platform.