Industry observers have mixed views about TPK Holding Co’s (宸鴻) business outlook, but they generally agree that the company’s good old days have gone.
Data compiled by the Taiwan Stock Exchange shows clearly the change in investor sentiment towards the company, as TPK shares have risen 15.34 percent since the beginning of the year — outperforming the broader market’s 9.58 percent increase over the period.
However, that is 36.16 percent lower than they were a year earlier and 46.58 percent less than two years ago.
“While we view TPK’s strategy of expanding its business to non-Apple Inc and PC-related markets as positive, the pricing environment in those markets is intensifying compared to the good old days when TPK was the major supplier for iPhone touch panels,” CIMB Securities Ltd said in a research note on Wednesday.
TPK is a touchpanel maker, with a core competitiveness in lamination.
Though the company has stopped supplying touch screens for iPhones since 2012, when Apple adopted “in-cell” technology in panels rather than TPK’s proprietary “touch-on-lens” products, the Taiwanese firm is still a major touchpanel supplier for Apple’s iPads and provides touch screens for non-Apple notebook vendors and some Chinese handset makers.
However, TPK is “at the crossroads,” CIMB Securities said in the note, referring to uncertainties facing the whole touchpanel industry in terms of intensifying competition, rapid price erosion, emerging technologies and the slow adoption of touch screens for notebook computers.
Based on the brokerage’s analysis, average selling prices of touch modules for smartphones, tablets and notebook computers have fallen by between 50 percent and 65 percent from 2011 levels, leaving many touch vendors in the red.
CIMB said the touch panel industry would continue to stay in the red on an operating basis.
“Even the leaders such as TPK can hardly make a profit from technology innovation and capacity expansion,” it said.
Last month, research firm NPD DisplaySearch also said that the global touch module market is growing at a slower pace this year than last year because of weak demand for notebook computers and all-in-one PCs.
Global shipments of touch modules are forecast to increase 14 percent year-on-year to 1.72 billion units this year, compared with 17 percent growth posted last year, DisplaySearch said in a report on Aug. 19.
“The market is expecting TPK’s business to turn around from late third quarter thanks to the [upcoming] launch of iWatch and iPad refresher models as well as contribution from the mass production of its silver nanowire technology and touch-on-lens yield improvement,” CIMB said.
“However, we believe that expectations are too high as the bottom line contribution from providing lamination for iWatch and iPad is likely to be minimal. In the meantime, new technology deployments are unlikely to alter the deteriorating industry structure,” CIMB added.
CIMB retained its “reduce” rating on TPK shares with a price target of NT$160, citing the declining technology barriers for rivals, increasing operating leverage and its deteriorating earnings outlook. TPK shares closed at NT$203 on Friday in Taipei trading.
However, in the face of growing concerns about low penetration rates of touch notebooks and high competition from new entrants, Citigroup believes there will likely be a gradual pickup of demand for touch notebooks and Chromebooks going forward and expects TPK to regain earnings momentum in the next two years by tapping into Internet of Things (IoT) opportunities, especially iWatch and connected car services.
In a note issued on Aug. 18, Citigroup Global Markets Inc forecast TPK would grab a majority touch screen order for iWatch — 5 million panels next quarter and 15 million panels next year — to contribute about 6 percent to its revenue.
In addition, Citigroup said automotive touchpanels could account for 5 to 6 percent of TPK’s total revenue by 2016, with potential clients such as Tesla Motors Inc and PSA Peugeot Citroen.
The brokerage has a “buy” rating on TPK shares, with a price target of NT$215.
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