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Novatek stock a must buy: analysts

"We [Merrill Lynch] think there is no doubt that Novatek would be in a position to maintain stable growth momentum in the coming quarters."

Jonah Cheng, Merrill Lynch analyst

Backed by robust demand from the liquid-crystal-display (LCD) display sector in the quarters ahead, Merrill Lynch reiterated its buying rating for Novatek Microelectronics Co (聯詠科技), the nation's largest maker of LCD driver integrated circuits (ICs), in a report released over the weekend.

Shooting up

The US investment bank expected Novatek shares to shoot up to NT$200 (US$5.95) in the next 12 months, which would represent a 45-percent climb from current prices, and raised their forecasts for the chipmaker's earnings per share by 8.1 percent and 6.5 percent respectively to NT$12.4 for this year and NT$15.6 for next.

Shares of Novatek closed up 2.61 percent at NT$137.50 on the Taiwan Stock Exchange on Friday.

"Under aggressive capacity expansion plans of LCD panel makers and limited price pressure of LCD driver ICs in the near-term, we think there is no doubt that Novatek would be in a position to maintain stable growth momentum in the coming quarters," Merrill Lynch's analyst Jonah Cheng (程正樺) said in the report.

10-percent growth

Novatek forecast its fourth-quarter revenue would grow by around 10 percent from the previous quarter and gross margins would stay at between 29.4 to 30.4 percent in the meantime, the report said.

As a subsidiary of the world's second-largest made-to-order semiconductor manufacturer, United Microelectronics Corporation (聯電), Novatek last week had reported a 36-percent increase in third-quarter net income over the previous quarter, to NT$1.71 billion, or NT$3.7 earnings per share, on revenue of NT$6.83 billion, up 11 percent from the previous quarter.

For the first ninth months of the year, the company's net income totaled NT$3.98 billion, or NT$8.64 earnings per share, up 41 percent from a year ago on sales of NT$18.07 billion, up 38 percent compared with the corresponding period last year.

New business

The chipmaker also reaped the rewards of its new handset display driver IC business after it received certification from global No. 1 handset maker Nokia Ojy after getting approval from another first-tier mobile phone maker Motorola Inc earlier this year, Cheng said.

The analyst expected Novatek to start delivery to Nokia in the second half of next year, which would help to bolster the company's growth momentum afterwards, he said.

Bright performance

Betting on possible bright performance in the coming quarters, SinoPac Securities (建華證券) and First Taisec Capital Management Inc (一銀投顧) advised investors to bottom fish for Novatek shares with a short-term target price of between NT$160 and NT$165.

Novatek shares closed up 2.61 percent at NT$137.50 on the Taiwan Stock Exchange last week.
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