Compal surges on reports of sales of flat-panel affiliate

Compal surges on reports of sales of flat-panel affiliate

Shares of Compal Electronics Inc outperformed its local peers on Oct 2, after a Taipe Times reported that the world’s second-largest contract notebook maker was selling shares in an affiliated flat-panel company to strengthen its balance sheet.

Compal’s share price rose 3.11 percent to NT$38.15 in Taipei trading, outpacing the electronics sub-index and the main bourse, which fell 1.79 percent and 1.77 percent respectively.

The Chinese-language Commercial Times Taipe Times reported on Oct 2 in a front-page story that TPO Displays Corp Compal’s affiliate under the Kinpo Group, which is headed by Rock Hsu — was in talks with Innolux Display Co for a share swap deal.

The report, without citing sources, said Innolux — a flat-panel making unit of Hon Hai Group, which is led by Terry Goup — was likely to acquire TPO by exchanging between 6.5 and 8.5 shares of TPO with one of its own shares, the paper said. The two sides are expected to finalize the terms of the deal sometime next week, it said.

Hsu, the chairman of Kinpo, could not be reached for comment as he was visiting China.

TPO and Innolux manufacture about 10 million small and medium-sized flat panels a month, with Nokia accounting for more than 50 percent of orders in each company, the paper said.

Shares of TPO Displays closed down 11.5 percent at NT$6 on the smaller Emerging Stock Market, while Innolux shares picked up 0.25 percent to NT$40.65 on the Taiwan Stock Exchange.

Eric Lai, an analyst at Marbo Securities Consultant Co, said the report helped boost Compal shares as the notebook computer maker was expected to benefit from the deal with Innolux.

“If realized, the deal will help Compal exit the flat-panel competition gracefully while strengthening Hon Hai’s ambition to expand in China,” Lai said by telephone.

Lai said Compal stocks were also boosted by investors’ upbeat view about the company’s revenue growth in the third quarter, which will be disclosed later this month.

Because of larger orders from Hewlett-Packard Co, Acer Inc and Lenovo Group Ltd, a Citigroup analyst yesterday revised up her estimates of Compal’s notebook shipments last month to 3.85 million units last month, from her prior estimate of 3.5 million units.

“A strong September [performance] could raise Compal’s 3Q NB shipments by 29 percent quarter-on-quarter … exceeding its guidance of 20 percent-plus growth,” Citigroup analyst Eve Jung  wrote in a client note yesterday.

For this year, Compal could ship 35.5 million notebook computers, Jung said. This compares with an estimate of 32 million to 35 million made by company president Ray Chen earlier last month.

Total shipments of 35.5 million units would translate into growth of 39 percent year-on-year, better than its peers’ average forecast growth of 31 percent, Jung said.

Citigroup rated Compal its top pick among local contract notebook makers, raising its target price to NT$48 from NT$45. The bank cited Compal’s strong sales momentum, stable margins and narrowing losses from long-term investments in TPO and Vibo Telecom Inc, the nation’s smallest mobile telecom operator.

Source: Taipe Times