Fri, Jan 20, 2006 - Page 11 News List

Analyst upbeat on AUO's profit prospects this year

OUTPERFORMER Morgan Stanley raised AU Optronics' forecast earnings for this year by 10 percent following the flat-panel maker's strong fourth-quarter showing

By Lisa Wang  /  STAFF REPORTER

The investment bank Morgan Stanley revised up its financial forecasts for Taiwan's top flat-panel maker, AU Optronics Corp (AUO, 友達光電), for this and next year, as the company beat larger rivals in sales growth after selling more higher-margin, large-sized computer and TV flat panels last quarter.

The stronger-than-expected fourth-quarter results prompted Morgan Stanley analyst Frank Wang (王安亞) to lift his forecast for AUO's earnings this year by 10 percent to NT$27.56 billion (US$857.5 million) or NT$4.7 per share, amid booming demand for slim-screen TVs.

Wang also adjusted his estimate for AUO's full-year earnings last year by 14 percent to NT$14.98 billion from NT$13.17 billion, citing strong fourth-quarter revenues and margins. Earnings per share was also lifted to NT$2.68 from NT$2.35.

"AU Optronics dwarfed Samsung Electronics Co and LG-Philips LCD Co on revenue growth and operating, EBITDA margins in the fourth quarter," Wang said in a report dated Jan. 18.

He also raised the 12-month price target for AUO to NT$54 from his earlier estimate of NT$52, while retaining his "equal-weight" value rating on the stock.

The new price target represented an upside of around 11 percent for the stock, compared with its closing price of NT$48.50 yesterday on the Taiwan Stock Exchange.

Market researcher iSuppli Corp yesterday ranked AUO the world's third-largest LCD maker last year with a market share of 14.5 percent, after LG-Philips LCD's 21.4 percent and Samsung Electronics' 20.9 percent.

AUO posted higher revenues of NT$72.8 billion in the final quarter of last year, up 22 percent from NT$59.5 billion in the third quarter, on record-high shipments of computer and TV panels.

AUO said it sold 9.6 million units of large-sized flat panels during the fourth quarter of last year, up 22 percent from 7.97 million units in the third quarter.

The double-digit growth in sales volume of larger-sized flat panels lifted the firm's average selling price by 3 percent quarter on quarter.

The quarterly increase in sales outpaced the world's top LCD panel maker LG-Philips LCD, which said sales grew 8 percent during the same period.

The expansion would drive AUO's operating margin and EBITDA margin to 15 percent and 29 percent, respectively, according to Wang's estimates.

Wang believes, however, that "the fourth quarter will be the peak." He expects AUO's panel shipments this quarter to increase merely 5 percent due to weaker computer demand and panel prices to drop by a similar 5 percent from the previous quarter, offset partly by strong demand for TVs.

AUO is scheduled to hold an investors' conference on Feb. 8.

Macquarie Research also expects the fourth quarter of last year to be the most profitable period for local flat panel makers.

Sluggish demand for computer monitors in the first quarter may drive down prices and result in operating losses for Taiwanese companies, Macquarie said in a report released earlier this month.

Prices for computer panels may drop another 2 percent to 4 percent this month and fall further later this quarter after new production comes on stream, Macquarie forecast.

Flat-panel supply would exceed demand by as much as 6.4 percent in the April-June period, according to market researcher DisplaySearch's latest forecast.

Nonetheless, Wang expects strong demand for LCD TVs to ease the oversupply concern during the first half of this year, as TV vendors are launching campaigns ahead of popular sport events,including the Super Bowl, Winter Olympics and World Cup.

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