Shares of General Interface Solution (GIS) Holding Ltd (業成控股) have plunged more than 51 percent since its last high of NT$367 on Aug. 30 last year in a correction that reflects the market’s bearish assumptions that the company is likely to see revenue decline and margin contract significantly this year, as 80 to 90 percent of its revenue is correlated with Apple Inc’s new product cycles.
A touch and LCD display module manufacturing unit of Hon Hai Precision Industry Co (鴻海精密), GIS is not immune to muted high-end smartphone demand and continued inventory digestion in the near term due to overstocking of components, analysts said.
In the first quarter, GIS’ consolidated revenue decreased 52.55 percent from the previous quarter to NT$21.93 billion (US$745.7 million), with analysts expecting first-quarter margin and profit to also come out softer on reduced factory utilization rates and weaker average sales prices for the company’s products.
However, revenue is forecast to recover this quarter and momentum could be sustained into the second half of this year, driven by the out-cell lamination touch display module project for Apple’s new 6.1-inch LCD iPhone in the third quarter and pent-up demand for old iPhone models, which are to be marked down significantly at the end of this year, they said.
The company’s capacity expansion plans, including a NT$3 billion investment in LCD display modules and NT$4.85 billion investment in liquid crystal modules for notebook computers, would enable it to recover faster in the second half than other firms in Apple’s supply chain, they said.
“The new LCD out-cell lamination project will generate gross profit dollar amounts at least similar to those from AMOLED 3D touch, thanks to the increased optical requirement, driving business recovery in the second half of 2018,” Morgan Stanley analysts said in a recent note. “The stocking demand for the new [iPad] tablet model and the ramping progress of the new [MacBook] notebook LCM order are the two key factors to gauge momentum in the second quarter and beyond.”
Shares in GIS rose 6.95 percent to close at NT$177 on Friday, compared with the broader market’s 1.75 percent decline, after the company’s board on Thursday proposed to distribute a better-than-expected cash dividend of NT$9 per share, based on last year’s record-high earnings per share of NT$21.46.
To fund its capacity expansion plans, GIS’ board also approved the issuance of up to 40 million new common shares or global depositary receipts this year.
Analysts have predicted that the firm could raise between NT$6 billion and NT$7 billion in capital.
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