Two foreign brokerage firms have downgraded their stock ratings on TPK Holding Co (宸鴻), one of Taiwan’s leading touch panel makers, in light of weakening demand for touch-enabled notebook computers and Apple Inc’s iPad.
In a note to clients dated on Friday, US-based Morgan Stanley downgraded TPK shares to “underweight” from “equal-weight” and cut its target price to NT$320 from NT$555, citing lukewarm demand for touch products.
“We think a prolonged iPad model transition and delayed touch notebook project rollouts on top of severe pricing cut pressure will overshadow TPK’s third-quarter revenue strength, hence the further profit dip,” Morgan Stanley analyst Sharon Shih (施曉娟) said in Taipei.
While TPK remains a leader in technology and execution, capability for premium touch module designs and the ongoing tablet cannibalization of notebooks is viewed as a long-term structural negative for TPK, given inevitable pricing erosion and intensifying competition, she said.
Shih projected that TPK’s revenue would fall 7 percent sequentially in the third quarter, compared with the market consensus of 12 percent growth.
She estimated that TPK’s earnings would drop by 12 percent next year and by 8 percent in 2015.
Shares of TPK closed down 4.16 percent at NT$391.5 on Friday in Taipei.
Germany’s Deutsche Bank AG research analyst Jessica Chang (張幸宜) downgraded TPK’s stock rating to “hold” from “buy,” while lowering its target price to NT$436 from NT$809.
Meanwhile, competition in the notebook touch panel sector continues to increase, with over 20 players entering the market in the past six months, she said.
“We still see TPK Holding as the leader in the touch panel industry. However, we also believe that it needs to find a good way to address low-cost product demand, as this is the market trend,” Chang said.