Tue, Sep 18, 2007 - Page 12 News List

Capital helps LCD panel maker

POSITIONINGAnalysts agree that Wargurg Pincus LLC's investment in a struggling panel maker represents a very good opportunity to enter the LCD panel market


With new capital from US private equity fund Wargurg Pincus LLC, struggling Chunghwa Picture Tubes Ltd (中華映管) will be able to remain operational for a while, but analysts said yesterday that the measure was a short-term bailout and hoped to see more aggressive restructuring efforts.

Shares of the nation's third-biggest liquid-crystal-display (LCD) panel maker jumped 1.96 percent to NT$8.33.

The benchmark TAIEX index, meanwhile, lost 1.46 percent yesterday. Shares of bigger rivals AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) fell 1.69 percent and 1.62 percent respectively.

On Sunday, the local flat-panel maker said it had signed an agreement with Wargurg Pincus to sell up to US$250 million convertible bonds to two subsidiaries of the private equity fund.

"The fresh capital will certainly give a boost to Chunghwa Picture and allow it to stay in the market. But it does not mean a bright future for the company," said Roger Yu (游智超), a LCD panel industry analyst at Polaris Securities Co (寶來證券).

"It is not a panacea," Yu said.

He did not expect the investment would make the Taoyuan-based company a threat to competitors or tilt the supply-and-demand environment.

In the past year-and-a-half, Chunghwa Picture lost NT$21.15 billion (US$639 million) and lagged behind rivals' recoveries in the boom-and-bust LCD industry. As a result of the poor financial situation, speculation on possible buyouts remained frequent.

Wargurg Pincus' investment was far from enough for the company to reshape its business strategy, Yu said.

Moreover, it was not the right time for Chunghwa Picture, which has focused on making computer panels, to operate a next-generation plant because of its lagging technological abilities, he said.

"Now we are watching whether Wargurg Pincus will launch reorganization efforts to boost the value of Chunghwa Picture," Yu said.

Wargurg Pincus would own a 10.2 percent stake in Chunghwa Picture and become a major shareholder after it converts all the corporate bonds into common shares in six years' time.

Chunghwa Picture chairman Lin Wei-shan (林蔚山) told the Chinese-language United Evening News yesterday that the new US investor would not interfere in the company's management, adding both sides would discuss important issues together.

But Simon Yang (楊勝帆), an analyst at the Topology Research Institute (拓墣產業研究所), said investment in Chunghwa Picture was a first step by Wargurg Pincus to position itself in the LCD industry.

"This is a good beginning for Chunghwa Picture to secure close ties with its Chinese partners and may open the door for more opportunities," Yang said.

No matter how you look at it, Chunghwa Picture was not an ideal investment target for investors, unless the company brings in more outside resources from the LCD industry, Yang said.

To sell panels in the market trough, Chunghwa Picture has formed strategic partnerships with Chinese TV brand Xiamen Overseas Chinese Electronics Co (廈華電子) and Chinese computer monitor maker Proview Electronics Co (唯冠電子).

"We believe Wargurg Pincus will make more investments in the LCD industry to generate respectable returns from its investment in Chunghwa Picture," Yang said.

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