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Morgan Stanley suggests stocks for third quarter

TAIPEI -- Morgan Stanley has recommended four Taiwan-listed stocks in the display supply chain in the third quarter of 2014 due to increasing demand for ultra-HD televisions and inventory build-ups for the iPhone 6.

With better utilization of capacity, favorable product mixes and enhanced operating efficiency, most display suppliers are forecast to improve their margins in the second quarter, Morgan Stanley said in a research note last week.

The U.S. brokerage expects LED maker Epistar Corp., as well as flat-panel makers Innolux Corp. and AU Optronics Corp. (AUO), to have the best performance and show a margin gain of 3-8 percentage points in the April-June period.

Looking to the third quarter, Morgan Stanley suggested that investors stick with beneficiaries of ultra-HD4K TVs such as AUO and display driver IC supplier Novatek Microelectronics Corp., iPhone display IC suppliers like Chipbond Technology Corp. and LED lighting foundries such as Epistar.

“Thanks to ongoing size migration and resolution upgrade, TV panel supply is likely to stay tight through the third quarter,” said Sharon Shih, a Morgan Stanley analyst in Taipei.

“Thus, we note that new TV model stocks for the October holiday in China and Christmas will kick off in July, one to two months ahead of the historical trend,” she noted.

Shih said her optimism is also based on expectations that the suppliers of Apple Inc.'s upcoming iPhone 6 should build their inventories to a high level in the third quarter, while notebook panel prices have stabilized after display suppliers reallocated their capacities.

Tablet panel orders, however, will likely decline in the third quarter because of lukewarm market demand so far this year, the analyst added.

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