Fri, Jul 03, 2009 - Page 12 News List

Fitch downgrades AUO, Citi says panel prices rising

By Kevin Chen  /  STAFF REPORTER

Although the share prices of major flat-panel display makers advanced yesterday on signs of rising panel prices, Fitch Ratings downgraded AU Optronics Corp’s (AUO, 友達) credit ratings to reflect concerns about the company’s declining profitability.

Fitch adjusted downward AUO’s long-term foreign and local currency ratings to “B+” from “BB-” and its national long-term rating to “BBB-(twn)” from “BBB(twn).”

The ratings agency maintained a “negative” outlook for the nation’s largest flat-panel display maker, it said in a statement.

The rating actions reflected Fitch’s view that AUO’s profitability and financial leverage would “weaken in 2009 in light of the global economic recession ... and will not be comparable to its peers in the ‘BB’ category,” the statement said.

Fitch said that with the global economy recovering, AUO would see slower sales contraction for the remainder of the year. The company saw sales plummet 62.9 percent year-on-year, or 15 percent quarter-on-quarter, in the first three months of this year to NT$50.73 billion (US$1.5 billion).

But the ratings agency warned that the Hsinchu-based company could still face pricing pressure because of weak demand from downstream vendors.

“The whole year sales are likely to plunge significantly more than 2008’s 11.7 percent decline,” Fitch said in the statement.

Fitch’s statement was issued after the local market closed on a day that saw the share prices of major flat-panel display makers rise 3.27 percent on average on reports that demand and prices were on the rise because of tight supply. That compared with an increase of 1.35 percent on the benchmark TAIEX.

On the main bourse, AUO’s share price climbed 3.5 percent to close at NT$34.05, its highest since June 12, while rival Chi Mei Optoelectronics Corp (奇美) gained 2.77 percent to close at NT$18.55, which is also its highest since June 12, Taiwan Stock Exchange data showed.

Based on a report issued by Citigroup’s global TFT-LCD research team, because of glass shortages, the flat-panel sector has seen across-the-board price hikes since last month, including a 3 percent to 5 percent month-on-month rise on various models of LCD TVs, monitors and notebooks.

Citigroup said the trend was likely to continue into this month with prices rising another 5 percent month-on-month, while the blended panel prices this quarter would increase by between 5 percent and 10 percent from the second quarter, it said in several client notes yesterday.

“As glass shortages might last at least through July, we expect price hikes to continue and vendors might push some orders into the fourth quarter. But we forecast orders and price hike month-on-month momentum to slow once glass shortages ease, likely by the end of third quarter,” Citigroup analyst Andrew Lu (陸行之) said in one of the client notes.

With the recovery looking to be a short-lived restocking cycle in the flat-panel display sector, Citigroup maintained its neutral outlook on the sector, while sticking with its “buy” ratings on AUO, LG Display Co and Samsung Electronics Co and “sell” ratings on Chi Mei and Sharp Corp.

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