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Earnings forecasts for two LCD panel makers raised

AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) share prices were buoyed yesterday after Deutsche Securities almost doubled its earnings forecast for the nation's two biggest makers of liquid-crystal-display (LCD) panels, citing an earlier-than-expected recovery.

Shares of the nation's top panel maker AU Optronics jumped 1.9 percent to NT$48.2, ending four straight losing sessions last week on the Taiwan Stock Exchange. The earnings adjustment also underpinned Chi Mei, which closed unchanged at NT$38.25 after losing over the past four trading days.

Deutsche Securities said that improving industry outlook prompted it to revise up its projection for AU Optronics to NT$2.5 billion (US$75 million) in net income during the current quarter and NT$9 billion in the final quarter, from previous estimates of NT$1.1 billion and NT$4.8 billion, respectively.

"Overall, LCD monitor panel ASPs [average sales prices] have already rebounded more aggressively than was expected in August and September, while stable ASPs for 32-inch LCD TV panels should also lead to additional earnings upside in the fourth quarter," said Deutsche Securities analyst Frank Lee (李宜家) in a report that was issued yesterday.

The price for a 17-inch LCD monitor panels, which has suffered the brunt of the latest overcapacity-driven trough, has bounced back around 20 to 25 percent to US$120 to US$135 this month from the cost level of US$100 in July, Lee said.

The price for the mainstay 32-inch LCD TV panels held steady at US$350 per unit, according to the report.

To cope with the reviving demand, Lee expected AU Optronics to fully operate its factories by the end of the year, compared to less than 85 percent usage in the second quarter.

Chi Mei would also benefit from the stronger recovery, but Lee said he "continues to prefer AU Optronics as the top pick in the sector."

He expected smaller rival Chi Mei to pick up at weaker strength and slower pace than AU Optronics due to more excessive inventory and smaller presence in the 17-inch LCD panel market.

Besides, Chi Mei has a weaker TV panel customer base, which has caused disappointing panel sales in the second quarter, as the company told investors last month.

Lee predicted that Chi Mei would return to the black this quarter by making NT$707 million in profits rather than posing the NT$939 million loss estimated earlier.

Lee reiterated his “buy” rating on Chi Mei and AU Optronics. But uncertainties over the long-term demand caused Lee to keep the target price for Chi Mei and AU Optronics unchanged at NT$47 and NT$62 for the next six months.

The objective prices implied more than 23 percent upside, compared to the stocks' closing prices yesterday.

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