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MacqTech Express
TFT-LCD – cycle bottom approaching
Event
We retain our positive view on the LCD sector. There are usually three factors
to watch for in an LCD cyclical recovery: 1) panel price stabilisation, 2)
inventory levels and 3) pickup in orders/demand. In our view, 1Q11 is slow in
the absence of a pickup in orders as the TV cycle reverts to the normal
pattern compared to the past 2-3 years.
However, panel pricing has stabilised and TV inventory is healthy as per our
checks, and thus two of three pre-conditions are in place. We expect demand
to pick up into 2Q as TV brands launch new models and incorporate lower
panel prices into their cost structure. Thus, while sentiment is negative, we
see the LCD cycle bottoming out and recovering into 2Q; our preferred picks
are AUO, NEG, Asahi Glass, Coretronic, Radiant, Novatek and Chipbond.
Impact
Three factors to look for a cyclical recovery. The three factors to watch for
in any TFT-LCD cyclical recovery are 1) panel price stabilisation, 2) inventory
levels and 3) pickup in orders/end demand, in our view. In 1Q, end
demand/order pickup is absent as the TV cycle reverts to normal patterns (1Q
is slow). However, panel pricing has almost stabilised, and we think that the
inventory situation is healthy and under control in the supply chain. So two of
the three factors needed for a cycle recovery are in place in our view.
Inventory levels healthy. While there has been chatter of excess inventory in
the LCD supply chain, our checks indicate that inventory is generally healthy
across the supply chain. Sony’s TV inventory was worked down in Jan and
Panasonic was healthy at <2 weeks. China’s CNY TV sell-through was +28%
YoY and TCL/Skyworth both indicate their channel inventory is healthy and far
lower compared to one year ago, which is consistent with our checks.
Panel pricing bottoming out. 1H March monitor ASP rose +2% HoH, TV fell
-1% and NB is stable. Most panel prices are at or below the cash cost level;
thus we believe further downside is limited and prices could see a recovery
into 2Q11, with monitor ASPs moving first, followed by NBs and then TV
panel ASPs.
Order recovery into 2Q. While 1Q TV sales are slow, we expect a pickup
into 2Q as global TV brands launch new models while China’s TV brands
prepare for the May 1 holiday – TV brands can incorporate the sharply fallen
TV panel ASPs (20–30%+ QoQ in 4Q10) into their cost structure, allowing for
a "re-setting" of the TV cost structure basis. Thus, while 1Q11 is weaker, we
believe that recovering end demand coupled with stabilising panel pricing and
a generally healthy inventory situation in the LCD supply chain will lead to
fundamental recovery in 2Q11, in our view.
Outlook
Investor sentiment is cautious/unloved on LCD, and for AUO (which is on our
list of MarQuee top conviction Buy ideas), QFII and local holdings are at
multiyear lows; the stock is trading at 0.8x P/BV with low industry expectations
on TV demand. We thus believe that downside risk is limited and that it is a
good time to revisit. In the LCD component food chain, we also like Coretronic
(5371 TT, OP), Radiant (6176 TT, OP), Chipbond (6147 TT, OP), Asahi Glass
(5201 JP, OP), NEG (5214 JP, OP) and Novatek (3034 TT, OP).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MacqTech Express
TFT-LCD – cycle bottom approaching
Event
We retain our positive view on the LCD sector. There are usually three factors
to watch for in an LCD cyclical recovery: 1) panel price stabilisation, 2)
inventory levels and 3) pickup in orders/demand. In our view, 1Q11 is slow in
the absence of a pickup in orders as the TV cycle reverts to the normal
pattern compared to the past 2-3 years.
However, panel pricing has stabilised and TV inventory is healthy as per our
checks, and thus two of three pre-conditions are in place. We expect demand
to pick up into 2Q as TV brands launch new models and incorporate lower
panel prices into their cost structure. Thus, while sentiment is negative, we
see the LCD cycle bottoming out and recovering into 2Q; our preferred picks
are AUO, NEG, Asahi Glass, Coretronic, Radiant, Novatek and Chipbond.
Impact
Three factors to look for a cyclical recovery. The three factors to watch for
in any TFT-LCD cyclical recovery are 1) panel price stabilisation, 2) inventory
levels and 3) pickup in orders/end demand, in our view. In 1Q, end
demand/order pickup is absent as the TV cycle reverts to normal patterns (1Q
is slow). However, panel pricing has almost stabilised, and we think that the
inventory situation is healthy and under control in the supply chain. So two of
the three factors needed for a cycle recovery are in place in our view.
Inventory levels healthy. While there has been chatter of excess inventory in
the LCD supply chain, our checks indicate that inventory is generally healthy
across the supply chain. Sony’s TV inventory was worked down in Jan and
Panasonic was healthy at <2 weeks. China’s CNY TV sell-through was +28%
YoY and TCL/Skyworth both indicate their channel inventory is healthy and far
lower compared to one year ago, which is consistent with our checks.
Panel pricing bottoming out. 1H March monitor ASP rose +2% HoH, TV fell
-1% and NB is stable. Most panel prices are at or below the cash cost level;
thus we believe further downside is limited and prices could see a recovery
into 2Q11, with monitor ASPs moving first, followed by NBs and then TV
panel ASPs.
Order recovery into 2Q. While 1Q TV sales are slow, we expect a pickup
into 2Q as global TV brands launch new models while China’s TV brands
prepare for the May 1 holiday – TV brands can incorporate the sharply fallen
TV panel ASPs (20–30%+ QoQ in 4Q10) into their cost structure, allowing for
a "re-setting" of the TV cost structure basis. Thus, while 1Q11 is weaker, we
believe that recovering end demand coupled with stabilising panel pricing and
a generally healthy inventory situation in the LCD supply chain will lead to
fundamental recovery in 2Q11, in our view.
Outlook
Investor sentiment is cautious/unloved on LCD, and for AUO (which is on our
list of MarQuee top conviction Buy ideas), QFII and local holdings are at
multiyear lows; the stock is trading at 0.8x P/BV with low industry expectations
on TV demand. We thus believe that downside risk is limited and that it is a
good time to revisit. In the LCD component food chain, we also like Coretronic
(5371 TT, OP), Radiant (6176 TT, OP), Chipbond (6147 TT, OP), Asahi Glass
(5201 JP, OP), NEG (5214 JP, OP) and Novatek (3034 TT, OP).
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