AU Optronics Corp (AUO, 友達光電) and Chi Mei Optoelectronics Corp (CMO, 奇美電子), the nation’s two largest flat-panel makers, may burn up their cash by the third quarter if they cannot roll over short-term debt, Citigroup said yesterday.
“After conducting a gross free cash flow analysis, we estimate CMO will burn out its cash by the second quarter of 2009 and AUO by the third quarter if they cannot renew their one-year due debt,” Citigroup analyst Andrew Lu (陸行之) wrote in a client note.
The two firms’ cash levels could also cause concern for investors if both “don’t cut their planned 2009 estimated capex [capital expenditures] further,” Lu added.
In contrast, Citigroup believes that South Korea’s two panel makers — Samsung Electronics Co and LG Display Co — will perform better during the industry trough. It maintained Samsung on its top buy list and predicted a relatively stable cash situation at LG Display.
The Citigroup warning on the nation’s thin-film-transfer liquid-crystal-display (TFT-LCD) sector comes as local manufacturers of dynamic random access memory (DRAM) chips find themselves on the brink of bankruptcy. The top four DRAM makers are heavily in debt, with mounting losses.
Powerchip Semiconductor Corp (力晶半導體), Nanya Technology Corp (南亞科技), Inotera Memories Inc (華亞科技) and ProMOS Technologies Inc (茂德科技) have borrowed an aggregate NT$420 billion (US$12.7 billion) from local banks in recent years. But in a negative industry environment they posted combined losses of NT$90.83 billion in the first nine months of the year, according to data compiled by various banks and companies.
Based on Citigroup Global Markets’ statistics, AU Optronics is likely to have NT$47 billion in one-year due debt, while the figure for Chi Mei is NT$42 billion.
On Oct. 23, AU Optronics told an investors conference that it planned to cut its capital spending for this year and next by a combined 20 percent to less than NT$200 billion. Chi Mei followed suit a day later, saying it would halve its spending to around NT$50 billion next year.
But Lu did not think that the proposed cuts are sufficient to keep the two panel makers afloat, saying that AU Optronics needs to cut capex next year to NT$100 billion. Chi Mei would need to cut to a figure below NT$50 billion, he said.
“Our analysis also suggests AUO needs to raise US$3 billion in equity/debt and US$2.3 billion for CMO to keep cash at the third quarter 2008 levels by the fourth quarter,” the note showed.
Against this backdrop, Citigroup decided to remove the stock of AU Optronics from its top TFT-LCD picks and lower its target price for AU Optronics to NT$24 from its previous estimate of NT$35, with a net loss of NT$0.7 per share next year.
The equity researcher also cut its target price on Chi Mei to NT$7.5 from NT$12 for the next 12-month period, with a net loss of NT$5.24 per share next year, the note showed.
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