Foreign brokerages raise target prices on AUO after Q3 results

Several foreign brokerages have raised their target prices for Taiwan-based AU Optronics Corp. (AUO, ??) after the flat panel maker turned a profit in the third quarter.

In a research note, a brokerage in Asia said AUO benefited from a rebound in flat screen prices on the back of rising demand to end a streak of three money-losing quarters.

AUO reported on Thursday a net profit of NT$4.62 billion (US$146 million), compared with a net loss of NT$804 million in the second quarter, after its average selling price (ASP) rose to US$372 per square meter from US$340 the previous quarter.

Its third quarter net profit was also 36.6 percent higher than the same period last year.

AUO had earnings per share of NT$0.51 for the July-September period, up from a loss per share of NT$0.06 in the second quarter.

The third quarter EPS beat an earlier market estimate of NT$0.43, according to the Asian brokerage.

The flat panel maker's gross margin for the July-September period grew from 6.9 percent in the second quarter to 13.1 percent in the third quarter, and operating margin rose from 0.1 percent to 6.7 percent.

As a result, the brokerage raised its target price on AUO shares to NT$14.1 from NT$13.7, while leaving its "hold" recommendation unchanged.

CNA cannot identify the brokerage because media outlets in Taiwan are not allowed to report the name of a foreign brokerage when it gives price forecasts for specific stocks.

On Friday, shares of AUO fell 3.89 percent despite the strong results to close at NT$12.35 on the Taiwan Stock Exchange, underperforming the weighted index, which ended up 0.08 percent.

Analysts said the improving bottom line in the third quarter had been widely anticipated and boosted the stock in recent sessions, leaving investors to simply lock in their gains once the quarterly results were announced.

AUO said tight demand is expected to continue into the fourth quarter, which could lead to another quarterly net profit.

As a result, the Asian brokerage has raised its forecast for AUO's fourth quarter EPS to NT$0.77 from NT$0.55.

The brokerage indicated, however, that the current tight supply will ease in the not-too-distant future when increases in capacity by Chinese flat panel suppliers come on line.

A brokerage from the United States said flat screen ASP should continue to rise into the fourth quarter, and prices for 40-43 inch screens could rise into the first half of next year.

Prices for 35-inch and 55-inch screens, however, could begin falling off in December.

The U.S. brokerage raised its target price for AUO shares to NT$15 from NT$14.5, while maintaining a "neutral" rating on the stock.

Meanwhile, Innolux Corp. (??), another major flat panel maker in Taiwan, reported on Friday EPS of NT$0.31 for the third quarter, compared with NT$0.35 in loss per share in the second quarter, as it also broke a three-quarter money-losing streak.

Innolux's gross margin for the third quarter was 11.8 percent, well above the 2.33 percent recorded in the second quarter, and its operating margin was 5.2 percent, compared with minus 4.5 percent in the previous quarter.

Source: Focus Taiwan News Channel