Analysts at Barclays Capital Securities Taiwan Ltd yesterday said they had raised their stock rating on touchpanel supplier TPK Holding Co (宸鴻), citing their upbeat outlook for the firm’s sales and operating margin in the near term as well as further positive catalysts in the long term.
The brokerage raised its rating on TPK’s shares to “outweight” from “underweight,” while increasing its stock price target to NT$220 from NT$153.
TPK was the worst performing stock in Taiwan last year, falling 65.69 percent for the year, followed by Mutto Optronics Corp (牧東光電), which dropped 64.01 percent last year, and Genome International Biomedical Co (基因國際), with a 59.3 percent decline, the Taiwan Stock Exchange’s data showed.
Yesterday TPK shares closed 2.84 percent higher at NT$181 on the first day of trading in Taipei this year.
Barclays analysts Jamie Yeh (葉婉屏), Sebastian Hou (侯明孝) and Andrew Lu (陸行之) said in a client note that they believed the company’s near-term outlook would be better than previously predicted.
The analysts said that TPK’s fourth-quarter sales are likely to beat the company’s sequential growth guidance of up to 20 percent, while its operating margin could reach 4 percent, above the firm’s own guidance of between 2 percent and 3 percent.
TPK reported a profit of NT$1.01 billion (US$33.7 million), or earnings per share of NT$3.08, in the third quarter of last year, but the company is expected to report a net loss for the final quarter of last year due to the one-time impairment loss of NT$2 billion stemming from Cando Corp (達鴻), its touchpanel subsidiary.
The analysts believe higher sales and improving margins could help pare the quarterly losses.
“We expect TPK to narrow its losses to NT$1.5 per share versus the current [market] consensus estimate of a loss of NT$3.12,” they said in the note.
In the long term, the brokerage forecast several catalysts that would help TPK resume year-on-year growth momentum, beginning in the second half of this year.
That includes an anticipated contribution from an upcoming 12.9-inch iPad and other tablets that use TPK’s touchpanel products. It also factors in the possible return of iPhone business from Apple Inc, which could lamination and sapphire cover glass, Barclays said.
Moreover, the industry’s move toward focusing on thinner bodies and unbreakable screens could lead Apple and non-Apple customers to use more of TPK’s proprietary touch-on-lens products, the brokerage said.
Nevertheless, TPK is still under margin pressure driven by the aggressive pricing strategy and fast ramp-up production yield rate from peers, especially General Interface Solution Ltd (GIS, 英特盛), which is a touchpanel manufacturing subsidiary of Hon Hai Group (鴻海集團).
Yuanta Securities Co (元大證券) yesterday retained its “hold” rating on TPK shares, citing its forecast losses for last quarter.
Yuanta analyst George Chang (張家麒) said in a separate note that he still holds a cautious view on the company’s near-term outlook, as the company’s shipments of tablet touchpanels tend to show a significant decline in the traditionally slow season this quarter.