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UBS Securities upgrades rating on AUO shares to 'buy'

2012/04/14 20:50:46

Taipei, April 14 (CNA) UBS Securities has upgraded its recommendation on shares of AU Optronics Corp. (AUO), one of Taiwan's leading flat panel makers, to "buy" from "neutral" on expectations that its bottom line will improve from the second quarter of this year.

In a recent research note, UBS Securities said it has left its 12-month target price of NT$17.50 (US$0.59) for the stock unchanged.

AUO shares closed up 4.11 percent at NT$15.20 on the Taiwan Stock Exchange Friday after recent strong interest from foreign institutional investors on improving sentiment toward the global flat panel industry led many retail investors to chase prices.

Citing a study released by market advisory firm DisplaySearch, UBS Securities said prices of large flat screens mostly used to make television sets have rebounded 1-3 percent recently.

The brokerage said that after intensive inventory adjustments by flat panel makers, the supply of large screens is expected to balance out with demand in the second quarter and stabilize product prices.

According to AUO, TV panels accounted for 42 percent of the company's total sales in the fourth quarter of last year.

In addition to getting help from more stable prices, AUO is also expected to benefit from falling depreciation costs, and its continued efforts to lower production costs should further contribute to a recovery in its profit margin, UBS Securities said.

"We currently forecast AUO to return to a positive gross margin in the third quarter of 2012 and to a break-even operating margin in the second quarter of 2013," UBS Securities said in the research note.

In 2011, AUO posted a net loss of NT$61.45 billion, or a loss per share of NT$6.94, compared with a net profit of NT$7.41 billion recorded a year earlier.

The company had a negative gross margin of 11.5 percent and a negative operating margin of 19.5 percent in the fourth quarter of 2011.

UBS Securities said AUO shares have faced a major correction since February due to lower-than-expected TV sales in China during the Lunar New Year holiday, but the sell-off has provided a good buying opportunity to investors.

The brokerage said it expects AUO's earnings per share for 2012, 2013 and 2014 to be negative NT$3.70, positive NT$1.09 and positive NT$4.58, respectively.

(By Lo Hsiu-wen and Frances Huang)
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