Touchpanel maker TPK Holdings Co (宸鴻) has lost its shine as a slew of analysts slashed their earnings forecasts after the one-time darling of investors posted disappointing second-quarter net profit and gave a lackluster business outlook for the current quarter.
The company last week blamed intensifying price competition and delays of new product launches including wearable devices and tablets by clients, with most analysts believing Apple Inc was one of those customers.
“The company’s weak third-quarter guidance supported our previous expectation of lowered iWatch shipments,” JPMorgan analyst JJ Park said in a report last week.
At an investors’ conference on Thursday, TPK said it did not secure any new orders from Apple to supply touchpanels for the US consumer giant’s latest iPhone 6. Speculation has swirled lately that Apple might consider replacing suppliers due to unresolved flaws in the existing in-cell touchpanels.
“We cut our 2014 and 2015 earnings estimates to reflect zero iPhone exposure,” Park said in the report, adding that a touchpanel supply order form Apple for its new iPad would boost TPK’s operating profit margin only slightly.
Park cut 52 percent of his earnings projection for TPK to NT$1.8 billion (US$60 million) this year from his previous estimate of NT$3.8 billion.
Next year, TPK is expected to see its net profit grow to NT$4.7 billion, a downward revision from NT$5.5 billion, Park forecast.
JPMorgan lowered its target price for TPK to NT$200, from NT$240 set earlier, and retained its “neutral” rating on TPK shares.
The new target price implied that a 9 percent downside from TPK’s closing price of NT$222 on Friday.
Foreign institutional investors sold a net 1.39 million TPK shares on Friday, making the stock tumble 6.92 percent, after the company said on Thursday that operating profit shrank to NT$98 million last quarter from NT$290 million in the first quarter.
Operating profit margin would fall to break-even level this quarter from 0.3 percent last quarter, due to higher cost and low factory utilization, TPK said. That raised the likelihood that TPK may swing back to quarterly loss again this quarter, Park said.
Daiwa Capital Markets analyst Kylie Huang (黃奎毓) said TPK’s forecast of a break-even operating margin this quarter was “worse than the consensus forecast for a strong quarter-on-quarter recovery to 4 percent to 5 percent.”
Huang also trimmed by nearly 15 percent her earnings forecast for the touchpanel maker this year to NT$3.35 billion, from her previous estimate of NT$3.93 billion. She also cut by about 11 percent her forecast of TPK’s net profit next year to NT$4.06 billion from NT$4.54 billion.
Daiwa retained its rating of “sell” on TPK and target price of NT$155.
In his report, titled Growth in the Red Ocean, CIMB analyst Eric Lin lowered his forecasts about TPK’s net profit this year and next year by 47 percent and 21 percent respectively, given margin erosion and intensifying competition and rising fixed costs.
Reflecting these unfavorable business prospects, CIMB reduced its target price of TPK to NT$160 from NT$240, as well as downgraded TPK to “reduce” from “hold.”
However, Yuanta Securities Co (元大證券) analyst George Chang (張家麒) disagreed with other analysts, sticking to his “buy” rating on TPK.
“The iWatch delay is mainly due to difficulties with the technology, which we believe helps set a high entry barrier in this new product cycle. This is indeed a positive factor for TPK,” Chang said in a report.
Chang also believes that the third-quarter will be a short-term setback for TPK and that the company’s performance would pick up in the next quarter and see significant growth early next year.
Factoring the short-term slowdown, Yuanta cut its target price for TPK to NT$355 from its previous estimate of NT$375.
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