Morgan Stanley has cut its target price on shares of touchpanel maker TPK Holding Co (宸鴻) by more than half on expectations that the company will report a net loss for the fourth quarter.
In a research note released on Friday, Morgan Stanley said it has lowered its target price for TPK shares to NT$125.50 (US$4.27) from NT$275 on expectations that the touch panel supplier will report a loss per share of NT$3.9 for the October-to-December period.
Morgan Stanley’s target price for TPK shares was the lowest among foreign brokerages that track the stock.
In line with the cut in its target price, Morgan Stanley also downgraded its recommendation on the stock to “underweight” from “equalweight.”
Shares of TPK fell 7 percent, the maximum allowed daily decline, to close at NT$192.50 on the Taiwan Stock Exchange on Friday after reporting on Thursday a 67.7 percent sequential drop in third quarter net profit, largely due to escalating price competition.
In the July-to-September period, TPK’s earnings per share stood at NT$3.06, down from NT$9.02 recorded in the previous quarter and the lowest quarterly EPS since TPK went public on Oct. 29, 2010.
TPK’s operating margin in the third quarter fell to 4 percent from 6.7 percent in the second quarter, while its gross margin dropped to 12.4 percent from 14.3 percent.
The touch panel supplier said its profitability will be further eroded in the fourth quarter by falling product prices, and it expected its operating margin for the quarter to fall to 2 or 3 percent.
Morgan Stanley said that because TPK is expected to book a large asset impairment charge in its fourth-quarter results, the touch panel maker is very likely to report a net loss in the quarter.
The brokerage lowered its forecasts for TPK’s EPS for this year, next year and 2015 by between 34 and 53 percent to NT$22.88, NT$16.25 and NT$14.86 respectively.