Brokerages paint brighter outlook for St Shine Optical due to Japan demand

By Camaron Kao  /  Staff reporter

Mon, Jul 08, 2013 - Page 13

Two brokerages revised their annual earnings forecast for contact lens manufacturer St Shine Optical Co Ltd (精華光學) due to the strong demand for the company’s products as reflected by its larger-than-expected planned capital expenditure.

The company plans to spend NT$465 million (US$15.43 million) to build 14 new production lines, which will become operational in the first quarter of next year, St Shine Optical said last month. The expenditure is expected to boost capacity by 31.81 percent, the company said.

JihSun Securities Investment Consulting (日盛投顧) said the capital expenditure exceeded its expectations, leading it to upgrade its earnings forecast of St Shine Optical this year to NT$31.05 per share, from the NT$30.32 per share it previously forecast.

The brokerage projected revenue in the second half of the year to rise 40.9 percent year-on-year to NT$482 million a month, according to a report it released on Monday.

Demand “for St Shine Optical’s contact lenses in Japan [the company’s largest market] has been robust enough to prompt the company to make plans to add 14 production lines to the four new lines that will become operational this quarter,” JihSun Securities analyst Chang Li-chun (張立群) said.

However, JihSun Securities retained its “neutral” rating on St Shine Optical shares because the stock has already risen 11.1 percent in the two days after it announced its capital expenditure plans.

Taishin Securities Investment Advisory Co (台新投顧) upgraded its profit forecast for the company for this year and next year to NT$1.56 billion, or NT$30.99 per share, and NT$1.77 billion, or NT$35.06 per share, respectively on the back of rising client orders, the brokerage said in a report on Tuesday.

Equipment utilization is expected to fall to 100 percent from 130 percent after the four new production lines begin to function, Taishin Securities analyst Chen Ching-fang (陳靚舫) said in the report.

Chen forecast that St Shine Optical’s revenue would post month-by-month growth in the third and fourth quarters because of its enhanced production capacity.

According to Chen, sales in Japan account for 50 percent of the company’s overall revenue, while sales in Taiwan make up 28 percent.

Taishin Securities raised its target price for St Shine Optical stock to NT$912, which is 24 times the earnings per share that it has forecast the company to post next year.

The figure implies a 6.29 percent upside based on the stock’s closing price of NT$858 on Friday on the local bourse.