TPV Technology - Cheap but lacks near-term catalysts (CIMB)

NEUTRAL Downgraded

S$0.54 Target: S$0.58

Mkt.Cap: S$1,255m/US$1,042m

Technology Components

• Below; downgrade to NEUTRAL from Outperform. 2Q11 net profit of US$28m (-36% yoy) is about 21% below consensus and our forecasts as higher-than-expected GP margins were pulled down by lower-than-expected sales and a higher opex ratio. 1H11 net profit of US$70m forms 40% consensus and 39% of our full-year forecasts. We cut our FY11-13 profit forecasts by 12-20% to assumer lower LCD-TV sales and margins. We also apply the low end of its P/BV valuations back in FY08 when its earnings slipped to derive our new target price of S$0.58 (down from S$0.95, 0.95x P/BV) in view of its near-term unexciting outlook. Although the stock is not expensive, we see little positive news flow for a re-rating, and hence our downgrade to Neutral.

• Sales dropped 15% yoy to US$2.6bn in 2Q11, falling below our estimate of US$3.0bn as higher-than-expected weighted ASPs were neutralised by lower-thanexpected shipments of PC monitors and LCD TVs. TPV shipped 14.2m PC monitors (+3% yoy) and 2.9m LCD TVs (-18% yoy) vs. our expectations of 15.2m and 3.7m, respectively.

• EBITDA margins slipped 63bp yoy to 1.3%, as better overall gross margins (+92bp yoy) were overwhelmed by a spike in opex ratio (+153bp) as a result of TPV’s aggressive expansion in LCD-TV operations. This resulted in operating losses for the LCD-TV business in 1H11. As a result of the lower margins, pretax and net profits declined 44% yoy and 36% yoy respectively.

• Net gearing remained low at 0.05x, despite a slight extension of the cash conversion cycle due to shorter payable days. It declared an interim dividend of 0.63 USct, down from 0.76 USct a year ago.

• Limited visibility. As expected, TPV painted a cautious outlook for 2H11 in view of fiscal problems in the US and Europe. It also highlighted that TV OEMs have become cautious about market demand in 2H11, and have cut their annual shipment targets. To cope with the uncertain times, TPV plans to integrate its two business units to improve cost structures and operating efficiencies. We believe a better time to revisit TPV is when panel prices start to recover.