Foreign Investment: Oversupply of LCD Panels | AUO Large Panel Shipments Will Decrease by 2% a Year

Asian Department of Foreign Investment expects that the LCD panel will continue to supply surplus over the long-term trend, and prices will gradually decline. It will erode the panel plant's gross profit margin and cash flow.

The Asian Department of Foreign Investment estimates that AUO's full-year revenue will be reduced by 12% in 2018. Gross profit margin and operating profit rate will fall by 6.4 percentage points and 7.3 percentage points respectively. Large-size panel shipments are expected to decrease by 2% annually. The price will be reduced by 12% annually.

Looking forward to 2019, Asian Department of Foreign Investment projects AUO's revenue will be reduced by 9% annually, gross margin and operating profit rate will decline by 2.6 percentage points, 3.3 percentage points, while large-size panel shipments will be reduced by 2% annually. The price will be reduced by 11% annually.

The Asian Department of Foreign Investment believes that panel makers will start new production capacity from the second half of 2017, leading to oversupply of LCD panels and entering a downturn cycle, which may erode AUO's gross margin and cash flow, and AUO's share price may fluctuate in the coming months. Maintain the rating of 'Bad Than Market' and target price of RMB 10.