Investment research firm BNP Paribas Securities yesterday recommended investors buy shares of local flat panel makers and liquid-crystal-display (LCD) component suppliers ahead of an expected V-shaped recovery in the industry later this year.
The optimism is based on depleting inventories and a gradual pick-up in demand for LCD televisions in the world's largest slim-screen TV market, Europe, said Frank Su (
AU Optronics Corp (友達光電), the world's third-largest manufacturer of LCD panels, and flat panel backlight supplier Radiant Optoelectronics Corp (瑞儀光電) were Su's top picks at target prices of NT$65 (US$2) and NT$62.
Su, however, retained his "hold" rating on the world's largest flat-panel maker LG.Philips LCD Co.
"Our contacts in the LCD food chain indicate that order inflow is stronger than expected and inventory digestion is almost complete," said Su, who regards the improvement in inventory as one of primary factors for a turnaround in the volatile LCD industry.
Excessive inventories and weaker-than-expected demand prompted LG.Philips and AU Optronics to reduce output to increase inventory write-off and to stabilize panel prices.
Last month LG.Philips also axed its second-quarter financial forecast, while AU Optronics halved its quarterly output growth.
But, according to Su, there were more signs showing the industry is on the comeback trail. Flat panel makers are boosting their factory usage to around 90 percent now, compared to 80 percent late June, he said.
Prices for computer monitors, which suffered the biggest price decline over the past months, may also start to pick up later this month, heralding a solid recovery for the industry, Su said.
"Any negative reaction in share prices may provide a good buying opportunity," Su said, adding that he expected LG.Philips to give a conservative outlook for the industry during the quarterly investor conference scheduled for next Tuesday.
Sagging demand in the second quarter, which could be the worst period for panel manufacturers for the year, has driven down the revenues of Taiwan's two largest LCD panel makers, AU Optronics and Chi Mei Optoelectronics Corp (
AU Optronics reported lower second quarter revenues of NT$60.78 billion (US$1.8 billion), down 8 percent from the first quarter, while Chi Mei said revenues for the second-quarter fell 23 percent to NT$37.29 billion. Shares of AU Optronics and Chi Mei were trading at NT$45 and NT$34.8 on the Taiwan Stock Exchange yesterday.
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