TPK’s shares cool despite orders

AN APPLE TODAY::A contract to make iPad products for Apple has boosted TPK, however, the deal does not ensure long-term prosperity for the touch-panel maker

By Kevin Chen  /  Staff reporter

Mon, Sep 30, 2013 - Page 14

Touch-panel maker TPK Holding Co (宸鴻) is likely to meet the low-end of its sales guidance for this quarter and should strengthen next quarter after it ramped up production for Apple Inc’s new iPad products last month, analysts said last week.

However, the company’s shares, which have corrected nearly 45 percent since June, have not yet seen the light at the end of the tunnel, they said.

That is because investors remain wary about the company’s sales outlook in the face of the weak demand for touchscreen notebooks, the intensifying price competition among touch panel suppliers and TPK’s limited exposure to the low-cost device market in China, they added.

Shares of TPK fell 3.91 percent to close at NT$270 on Friday. Prices have declined 12.76 percent over the past month and 47.37 percent so far this year, Taiwan Stock Exchange’s data showed.

“We think its ability to resume long-term growth through new businesses will be the key for its share price performance” in the near term, Deutsche Bank analyst Jessica Chang (張幸宜) said in a note on Friday.

“Despite a 45 percent share price correction in three months, we believe it is still too early to bottom fish,” Citigroup Global Markets analyst Arthur Lai (賴昱璋) said in another note on Monday last week.

TPK, the world’s largest touch panel vendor in terms of revenue and capacity, has about 60 percent allocation of Apple’s total orders. The orders are an indicator of its strength in providing a one-stop solution; from the front-end touch sensor and cover glass to back-end lamination. It also supplies touch panels to vendors apart from Apple, including Inc, Google Inc and Microsoft Corp.

Deutsche Bank forecast the company to report sales of between NT$12 billion (US$406 million) and NT$13 billion this month, likely pushing the cumulative sales to fall within the company’s guidance of between NT$30.63 billion and NT$32.54 billion this quarter.

The company could see its revenue peak next month or in November on orders placed this month, but Chang said Apple’s new iPads would just be a short-term boost for TPK and the company needs to come up with competitive lower-cost products to regain its market share.

Citigroup said TPK’s share in the touch notebook market could drop to 35 percent this quarter from 47 percent in the second quarter amid worse-than-expected touchscreen notebook demand and intensifying competition.

The company might also lose some market share in the touch tablet market as General Interface Solution Ltd (英特盛), a touch panel manufacturing subsidiary of Hon Hai Group (鴻海集團), has been qualified by Apple and Wintek Corp (勝華) has been qualified by Amazon for the two US brands’ new product lineups, Citigroup said.

Citigroup revised downward its target price of TPK to NT$235 from NT$280 and cut its earnings per share (EPS) forecasts by 7 percent to NT$32.42 this year and 9 percent to NT$29.46 next year. TPK reported EPS of NT$44.31 last year.

Meanwhile, Deutsche Bank slashed its target price to NT$273 from NT$329, and reduced its EPS forecasts by 1.6 percent to NT$33.16 this year and 14.9 percent to NT$27.26 next year.

However, at least one analyst said the market concern about how the fierce competition would affect TPK seems overblown.

“Competition has existed from day one and to date second-tier makers still have not been able to ramp up volumes or become remotely profitable,” Yuanta Securities Co (元大證券) analyst George Chang (張家麒) said. “After all, we still see touch panels as more like a semiconductor foundry rather than TFT LCD, and we believe TPK’s competitive edge will pay off when market demand recovers.”

Yuanta forecast TPK’s EPS to reach NT$34.32 this year and NT$36.04 next year.