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September 20, 2017

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Tight TV panel supply to benefit Innolux in H2: Morgan Stanley

TAIPEI--Morgan Stanley has raised its price target for shares of Taiwan's Innolux Corp. (群創光電) to NT$13.80 (US$0.46) from NT$12.02, on expectations that the world's No.3 flat panel maker will benefit from a tight supply of TV panels in the second half of this year.

The U.S. brokerage firm also lifted its estimates for Innolux's earnings per share (EPS) in 2014 by 4 percent to NT$0.86, in 2015 by 5 percent to NT$0.92 and in 2016 by 5 percent to NT$1.02, reflecting a faster industry recovery and a greater magnitude of demand rebound.

Given that TV panel supply is indicated to be tight in the second half, Innolux could benefit from an uptrend in its average selling price, despite its forecast of flattish on-quarter shipments for the third quarter, said Sharon Shih, a Morgan Stanley analyst in Taipei.

"Despite increasing peer pressure, Innolux manages to mitigate this with cost reduction efforts and product differentiation," she wrote in a note to clients dated July 29.

However, the analyst maintained her "equal-weight" rating on the stock, over concerns about Innolux's financial restructuring plans and its limited capacity expansion for advanced technology.

Innolux told investors in a conference call July 28 that it will not increase production capacity in the third quarter but predicted that the average selling price will grow from the second quarter's US$459 per square meter.

In the April-June quarter, Innolux posted about NT$3 billion in net profit, a jump from the NT$153 million net profit seen in the first quarter. Its second-quarter EPS stood at NT$0.33, compared with NT$0.02 registered in the previous quarter.

Shares in Innolux had fallen 1.04 percent to NT$14.3 Thursday in Taipei trading.

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