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AU Optronics stock price rises on positive forecast

Shares of AU Optronics Corp (友達光電) jumped 1.48 percent yesterday as the company predicted a rosy outlook for next quarter after posting stronger-than-expected financial results, defying the benchmark TAIEX index's 4.22 percent loss.

The stock price of AU Optronics closed nearly 7-percent limit-up in the mid session, but retreated to end at NT$54.8 after the world's third-biggest maker of liquid-crystal-display (LCD) panels reported net profits of NT$6 billion (US$183 million) for the second quarter on Thursday.

The quarterly results greatly exceeded most analysts' expectations, including Morgan Stanley's Frank Wang (王安亞). Wang had projected AU Optronics would earn NT$3.1 billion.

Turnover almost tripled to NT$9.5 billion from the previous trading session, making it the sixth most traded stock on the local bourse.

"AU Optronics' second-quarter operating margin was 6.5 percent versus our 5 percent assumption," Wang said in a report released yesterday, adding that the merger of Quanta Display Inc (廣輝電子) was one factor.

Wang expected AU Optronics' gross margin and return on equity (ROE) to improve significantly to 12.4 percent and 10.7 percent respectively, this year from last year.

To match the strong growth, Wang yesterday raised the target price for the stock from NT$64 to NT$70 and gave it rated it "overweight," implying a 27.73 percent upside in the next 12 months.

He also hiked the forecast for the LCD panel maker's earnings for this year from NT$2.65 to NT$3.43 per share, driven by growth of LCD TV demand and PC replacement demand because of Microsoft Corp's new Vista system later this year.

AU Optronics said average selling prices for computer and TV screens would rise in the third quarter another 8 percent and 5 percent respectively, as a result of foreseeable constraints in supply.

Shipments of computer and TV panels would also expand by 5 percent and 20 percent quarter on quarter, the company forecast.

Looking ahead, AU Optronics is expected to benefit from an upturn through next year amid potential supply limitations as LCD makers' disciplined capacity expands at a slow pace, Wang said.

AU Optronics axed its capital spending for next year to NT$70 billion, down approximately 25 percent from NT$90 billion to NT$95 billion for this year.

Shares of local rival Chi Mei Optoelectronics Corp (奇美電子) were unchanged at NT$36.7. Chi Mei is scheduled to release its second-quarter results on Thursday.
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