Chi Mei Optoelectronics Corp (奇美電子) said yesterday it would cut 10 percent from the payroll earmarked for the company’s senior executives, while Citigroup Global Markets decided to downgrade the nation’s second-largest liquid-crystal-display (LCD) maker’s shares to “sell” from “buy.”
“We decided to cut executives’ pay by 10 percent to help save costs during the industry’s downturn,” Chi Mei spokesman Denis Chen (陳世賢) said by phone, confirming a report carried by the Taipei-based Digitimes.com earlier yesterday.
Some 100 senior managers will be affected by the salary adjustment starting this month, he said, adding that the salary cuts will not affect other employees and the company has no plans to cut jobs at the moment.
As market demand for television and monitor panels is likely to be affected by the current financial crisis and the global macroeconomic slowdown, analysts have recently cast doubt on the prospects of Taiwanese flat-panel makers, which have seen their share prices dumped by investors by more than 50 percent this year.
“Investors booted TFT-LCD [shares] on worries that panel makers could suffer large operating losses as weakening demand and oversupply continue to pressure panel prices,” SinoPac Securities Corp (永豐金證券) said in a client note yesterday.
Shares of flat-panel display makers led by AU Optronics Corp (AUO, 友達光電) and Chi Mei dropped on average 3 percent yesterday, compared to a 0.22-percent rise on the benchmark TAIEX, the stock exchange’s data showed.
Both AUO and Chi Mei shares dropped by nearly 3.5 percent or the down-limit to NT$27.5 and NT$16.35 respectively yesterday. The government on Sunday said it would extend the halved share price down-limit measure for another week to help curb market volatility.
So far this year, shares of AUO have declined 56.7 percent and Chi Mei, 64 percent, stock exchange tallies show.
In a research note sent to clients yesterday, Citigroup analyst Andrew Lu (陸行之) downgraded shares of Chi Mei and lowered the target price on the stock to NT$15 from the NT$45.5 previously estimated.
On Friday, UBS slashed its target price on Chi Mei to NT$26 from NT$33, citing a bleak outlook for the sector over the next three quarters.
“We believe the company will bring larger downside risks to investors by carrying a higher gearing ratio, weaker free-cash flow yield, and larger book value contraction,” Lu wrote in the note.
Lu said a “re-rating” for Chi Mei is possible, if the company can improve its free-cash flow position and capital management to improve its long-term return-on-equity back to the 10 percent to 12 percent level.
Citigroup’s rating downgrade on Chi Mei came ahead of the company’s quarterly investors conference on Friday, after larger rival AU Optronics’ on Thursday.
According to Citigroup’s forecast, Chi Mei may see a decline of 10 percent to 15 percent in fourth-quarter sales from the previous quarter, and a contraction of 10 percent in sales year-on-year next year, from an earlier estimate of 12 percent growth.
Lu expects AU Optronics to report a quarterly decline of 10 percent in sales in the fourth quarter from the third quarter and to see a 10 percent to 15 percent decline in year-on-year sales next year, from a decline of 2 percent predicted earlier.
The Citigroup analyst yesterday reiterated its “buy” rating on the stock of AU Optronics, but cut the target price to NT$40 from NT$66.5 estimated earlier, citing concerns of extended losses and slowing demand during the following two to three quarters.
Last week, both South Korea's LG Display Co and Taiwan's Innolux Display Corp (群創光電) announced to cut their capital expenditure for next year to reflect slower demand.
Lu said AU Optronics and Chi Mei may follow suit by a cut of at least 35 percent in capital expenditure next year from this year, the note showed.
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