By Vikram Subhedar
HONG KONG (Reuters) - Shares of Foxconn International Holdings Ltd (FIH) <2038.HK>, the world's biggest contract maker of cellphones, surged as much as 35 percent after Citigroup upgraded the stock to a 'buy' and said it expected the firm to start assembling iPhones this year.
The report, Citigroup's first positive rating on the stock in nearly three years, spurred heavy buying. The shares have languished this year because of FIH's dwindling handset-making business as its biggest customers including Nokia Oyj
FIH will see a sharp turnaround next year as Internet and software companies enter the smartphone race and the firm starts assembling iPhones for Apple, Citigroup said.
Shares of FIH, which assembles handsets for the likes of Huawei Technologies Co Ltd and ZTE Corp <0763.HK> <000063.SZ>, jumped as high as HK$3.69 in their biggest one-day gain ever.
That compared with a 0.4 percent drop in the benchmark Hang Seng Index <.HSI>.
FIH shares are still down nearly 30 percent this year compared with a near-20 percent rise for the broader index.
FIH will receive orders of up to 200 million lower-to-mid-end Chinese smartphones next year, including the popular Xiaomi smartphone, said Alex Hu, chief of propriety trading at Mega Securities.
Hon Hai Precision Industry Co Ltd <2317.TW>, the main supplier of Apple's iPhones and an affiliate of FIH, fell 1 percent in Taipei trading, against a broader market decline of 0.6 percent.
Due to difficulties in recruiting labour at Hon Hai's iPhone factory in China, some production has been moved to FIH since October, Citigroup said.
Citigroup said it expected FIH had started metal casing production for iPhones in October, and forecast final assembly would begin by the end of the year, with Hon Hai gradually shifting 10-15 percent of iPhone production to the company.
Hon Hai and FIH are both units of unlisted Foxconn Technology Group, founded by Taiwanese billionaire Terry Gou.
"The stock (FIH) has been underweighted for a long time. If the plan as mentioned in the (Citi) report is a success, it will be a huge turnaround story for the company," said Steven Leung, a sales director at UOB Kay Hian.
In August, FIH posted its worst-ever first-half net loss due to dismal orders from key clients such as Nokia and warned that uncertainties in global handset demand were dimming its outlook for the rest of the year.
(Additional reporting by Donny Kwok in HONG KONG and Faith Hung in TAIPEI; Editing by Anne Marie Roantree and Ryan Woo)