Investment researcher Deutsche Securities suggested that investors hold off on purchasing shares of liquid-crystal-display (LCD) panel makers until late this quarter, due to falling panel prices and uncertain prospects for a solid recovery next quarter.
The comments came after the world's top LCD panel maker LG Philips LCD Co (LPL) disappointed investors by posting a record high quarterly loss for the second quarter last week, blaming faster-than-expected price declines.
This, along with LPL's 30 percent cut in capital spending for this year, has prompted investors to regain interest in buying LCD panel stocks on expectations that the second quarter will be the bottom of the latest cyclical downturn, high demand picking up in the second half of the year on seasonal factors, Deutsche Securities said.
"Significant share upside is unlikely because of uncertainty over LCD TV visibility, TV panel average selling price downside in the third quarter and the magnitude of fourth-quarter recovery," said Frank Lee (
LPL, which is still managing to reduce TV panel inventories, expects panel prices to drop another mid-single digit percentage at a quarterly rate this quarter. The company expected a sustainable growth of LCD TVs in the final quarter of this year.
As the prices for LCD TV panels are likely to drop further in the fourth quarter, Lee doubted the recovery, which was expected to arrive in the fourth quarter, would be strong.
As a result, Lee said a better entry point would emerge in the late third quarter after better fourth quarter visibility emerges.
Lee's comments on the LCD industry were relatively pessimistic compared to those by BNP Paribas Securities's Frank Su (
Lee expected local maker AU Optronics Co (友達光電) to outpace its rivals again during the last quarter. The company is scheduled to release second-quarter results next Tuesday and smaller rival Chi Mei Optoelectronics Co (奇美電子) is set to release its figures on Aug. 10.
Compared to LPL's historical quarterly loss in the last quarter, AU Optronics is expected to report quarterly profits of NT$769 million (US$23.53 million) for the same period and NT$1.1 billion for the third quarter, Lee forecast.
Chi Mei, based in Tainan, would still eke out profits of NT$191 million in the second quarter, but would drift into a quarterly loss of NT$1.3 billion next quarter due to weaker growth momentum on high inventories following LPL, Lee said.
Lee retained target prices of NT$62 and NT$50 for AU Optronics and Chi Mei, respectively, after a drastic downward adjustment late last month.
The objective prices imply a 28 percent and 31 percent upside for AU Optronics and Chi Mei, respectively, compared to the closing price of NT$44.85 and NT$34.3 last Friday on the Taiwan Stock Exchange.
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