Tue, Oct 22, 2013 - Page 14 News List

UBS slashes TPK shares guidance on future risks

By Kevin Chen  /  Staff reporter

UBS Securities yesterday gave a “sell” rating for TPK Holding Co (宸鴻) shares and cut its target price for the stock to NT$180 from the NT$315 it had estimated previously to reflect the downside risks facing the touch-panel maker in the near term.

The company, a major touch-panel supplier for Apple Inc, is expected to report weaker-than-expected sales and earnings this quarter as it adjusts its product mix, the brokerage said in a note to clients.

TPK could still have to weather continued pressure on its margins next quarter before sales and earnings improve in the second half of next year, UBS said.

TPK shares closed down by the maximum daily limit at NT$232 yesterday, as investors took note of the brokerage’s bearish outlook.

UBS’ guidance on the stock stood in contrast to Credit Suisse Securities’ “outperform” rating and target price of NT$380, as well as JPMorgan Securities’ “neutral” rating at NT$274 and HSBC Securities’ “underweight” rating at NT$247.

TPK’s stock has corrected by 63.5 percent since reaching this year’s high of NT$635 on April 12, reflecting market concerns over weak demand for touchscreen notebook computers and branded clients’ shifting to lower-priced panels — including embedded touch panel solutions provided by AU Optronics Corp (友達光電) — according to brokerages.

In addition, TPK may receive less of a boost from supplying touch panels for Apple’s iPad 5 this year than it did from its iPad 4 business last year, UBS Securities analyst Arthur Hsieh (謝宗文) said.

“We only expect TPK to deliver 20 percent quarter-on-quarter sales growth [this quarter], which is much lower than the market consensus estimate of 42 percent,” Hsieh said in the note.

“We expect TPK’s fourth-quarter earnings per share to be NT$4.32 and this is less than half of the NT$8.83 consensus estimate,” he added.

Next quarter could prove to deliver more downside risks to TPK since the company may see a sharper decline in shipments of higher-margin non-Apple tablets than lower-margin iPads, UBS said.

The company’s earnings may reach just NT$1.57 per share next quarter, missing the market consensus estimate of NT$6.67, the brokerage added.

TPK may be banking on its recently struck alliance with Japan’s Nissha Printing Co on codeveloping touch films using silver nanowire (SNW) technology for the smartphone market to make more of a contribution next year.

SNW technology is considered a cost-competitive replacement for the current indium-tin-oxide technology and the company plans to begin mass production of SNW films in April next year.

Nonetheless, analysts have said that the execution risk remains high, given that it will take time for TPK to secure customers and improve margins for SNW films, and smartphones account for less than 20 percent of TPK’s revenue, meaning there is limited room for the firm to improve its margin outlook in the short term.

Additional reporting by Lisa Wang

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