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AU Optronics shares fall after storms hurt orders

Sharres in AU Optronics Corp (友達光電) declined nearly 1 percent yesterday as speculation about a significant drop in sales last month offset positive impact from growing orders for its new touch panels business.

The stock price of the nation's top liquid-crystal-display (LCD) panel maker slid NT$0.6, or 0.98 percent, to NT$60.7, despite a Chinese-language Economic Daily News report yesterday that the company has landed orders of red-hot touch panels used in mobile phones, laptop computers and global positioning devices.

The benchmark TAIEX index fell 0.58 percent pace yesterday.

"We are certainly positive about it [receiving touch panel orders], but the contribution will be minimal this year, or merely about 1 percent of AU Optronics' overall revenues," said Eric Lin (林宜正), a flat panel industry analyst with Yuanta Core Pacific Securities (元大京華證券).

The global touch panel market is expected to reach US$3 billion this year, up 7 percent from US$2.8 billion last year, as more handsets will be outfitted with touch screens following the sale of "iPhone" by Apple Inc, according to Taipei-based Topology Research Institute's (拓墣產業研究所) forecast.

AU Optronics told investors in January that it planned to start shipping touch panels late this quarter at the earliest. The size would be smaller than 10 inches, it said.

However, recent speculation about a drastic 30-percent monthly decline in sales last month because of a price drop and falling shipments stemming from the snow storm in China could be a major factor dragging down AU Optronics share prices, Lin said.

Lin was more optimistic in forecasting a 15 percent to 20 percent decline in sales last month, compared with NT$47 billion sales posted for January.

AU Optronics yesterday also said it is interested in buying a fifth-generation (5G) color filter plant from bankrupt Allied Material Technology Corp (展茂光電) to boost production of the key component in making LCD panels. AU Optronics said it has not signed any agreement with the Taoyuan-based company yet.

"Allied Material intends to sell its 5G plant, including facilities and equipment, to any electronics companies and it has reached an initial agreement with interested parties for sale," Allied Material said in a filing to the Taiwan Stock Exchange yesterday.

AU Optronics declined to comment on the report, which said the deal could be worth NT$4 billion (US$129 million).

"The NT$4 billion would be a bargain deal, compared with the NT$12 billion [Allied Material] spent on building the plant," Lin said.

AU Optronics, along with its five local peers, were recommended an "outperform" rating by Macquarie Research in a client note issued on Monday, citing six reasons including rebounding panel prices, limited global panel supplies in this year and the next, as well as the lean inventories industrywide.

The other three reasons were the six panel companies' low valuations compared to their global rivals, a rising demand in emerging markets and figures suggesting the firms were relatively oversold by the market, compared with other sectors.

Nicholas Teo (趙長順), a Macquarie analyst based in Taipei, reiterated a positive view on the thin film transistor-LCD industry and recommended that investors increase their exposure to the sector, the note said.

Teo recommended a 12-month target price of NT$82 for AU Optronics, which has seen share prices drop 4.41 percent this year.

But it was Innolux Display Corp (群創光電) that emerged as Macquarie's top pick among the six, according to the note. Teo offered a target price of NT$206 for Innolux, which saw shares close 19.55 percent lower since the beginning of this year at NT$88.5 yesterday.

The other four panel makers recommended by Macquarie were Chi Mei Optoelectronics Corp (奇美電子), Chunghwa Picture Tube Inc (中華映管), HannStar Display Corp (瀚宇彩晶) and Novatek Microelectronics Corp (聯詠).
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