Compared to a year ago however, net profit was down 67% while sales was down 42% reflecting severe price erosion (PC monitor which accounts for 72% of sales saw prices fall 37% yoy while LCD TV prices fell 45%). If not for the price declines, 1Q ‘09 sales would have been US$2.2bln versus last year’s US$2.38bln and last quarter’s US$1.99bln.
Looking ahead, prices for large screen panels have started to increase and this generally signals a positive market development while both monitor and TV panel prices are expected to rise steadily with some supply tightness in popular screen sizes in the near term. However, management cautioned that there is growing concern over surplus supply if the end market demand fails to materialize during the peak selling season in 2H ‘09.
China is the largest market for the company, accounting for 32% of sales, above US’s 28% and management expects to continue to benefit from the government’s subsidy program to accelerate the replacement of CRT TVs with flat panel TVs.
Admist the tough operating environment, management will continue to improve their overall cost structure as well as management inventory levels, especially in Brazil. The assembly plant in Poland has been getting new orders and is expected to be fully loaded during the peak season. As part of management’s long term growth strategy, they are targetting to increase their market presence in India.
Financial position has improved with net gearing having been reduced from 31% to only 10%, reflecting the reduction in borrowings from US$603mln to US$450mln versus cash of US$310mln.
While fundamentals continue to improve, the stock has risen a robust 220% from its Oct ’08 low and is currently trading at 8-9x PE which is in line with its 7-8 year historical trading range. This suggests fair valuations for now, hence we are recommending investors to “Take Profit”.
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