LCD makers see delayed bounce on price recovery

TAIPEI, TAIWAN:Makers of liquid crystal displays (LCDs) face a slower recovery in product prices than expected as demand remains low due to a cloudy global economic outlook, meaning that it may take a while for their battered shares to recover.

Companies including Korea's Samsung Electrics and LG Display and Taiwan's Chimei Innolux and AU Optronics have underperformed broader markets in the first half of 2011 amid falling demand and declining panel prices.

"Share prices will have to wait for a rise in panel prices in order to rebound, which is now expected to happen later in September-October" said Bevan Yeh, a senior fund manager of Prudential Financial Securities Investment Trust.

Japan's Sharp Corp , which suspended production at two plants from mid-March until early May after facing slumping domestic demand for televisions and a shortage of a gas used in panel production , has also lagged the main share index , falling 10 percent year to date.

"We think the share prices have factored in full-year financial losses at the LCD makers, so the downsides are limited," said Credit Suisse analyst Jimmy Huang, who maintains an "outperform" on Chimei.

He said in a report that the industry had bottomed out in the first quarter and panel prices are recovering, though the recovery and end-demand are weaker than expected.

According to research company DisplaySearch, TV panel prices rebounded in May, after dropping 26-30 percent compared to the beginning of last year, but prices in June were flat given the soft U.S. and European TV markets and are seeing staying around the same levels for the rest of this year.

Shares of Chimei and AU, the world's No.3 and No.4 LCD makers, have plunged 53 percent and 23 percent respectively since the beginning of the year and hover around their lowest levels since November 2008.

An investment downgrade and target price cut by Goldman Sachs triggered another dip in the two Taiwanese companies on Tuesday.

Goldman Sachs analyst Michael Bang said in a report that LCD TV demand is weaker than expected, especially in developed markets, and added that checks indicate that inventory restocking may remain muted in the second half.

Bang expected AU and Chimei post losses in 2011 and 2012, due to high break-even plant utilization rates at about 80 percent.

A Taiwanese newspaper reported last month that the island's top LCD makers had seen their utilisation rates fall 10 percent and had forced employees to take annual leave. Both Chimei and AU denied the report.

Compared to the Taiwanese, Korean makers have done better, even though their shre prices have also declined. LG Display , the world's No.2 LCD maker, is trading around its lowest since the fourth quarter of 2009 and is down 26 percent year-to-date.

CS' Huang said Korean makers are better positioned than Taiwanese peers because they have in-house consumption, and they also benefit from economies of scale.

Samsung Electronics , the world's top LCD maker, is likely to report sharply lower second-quarter earnings this week, hit by a losses at its LCD display unit and as weak demand for computers hit sales of its semiconductors.

In a move widely seen as aimed at overhauling the LCD unit, the company named the head of its chip business last Friday to lead a newly created division encompassing the firm's semiconductor and flat-screen operations