AU Optronics reports strong December results
Fig 1 - AUO Monthly Revenue - Source: SCMR LLC, Company Data AU Optronics (AUO) reported strong December results with revenue of NT$ 31.16b, up 3% m/m and 21% y/y. Large panel shipments were 9.76m, up 6.6% m/m and 9.8% y/y while small panel shipments were 12.61m, up 9.3% m/m, but down 1.3% y/y. 4Q results were NT$ 91.84b, up 6.8% q/q and up 10.1% y/y. Quarterly large panel shipments were 28.32m, down 3.2% q/q but up 2.6% y/y, while small panel shipments were 35.74m, down 5.9% q/q but up 7.0% y/y. These results put the full 2016 year at NT$ 329.1b, down 8.7% y/y, with full year consensus of NT$ 324.3b, which the company beat by 1.5%.
Consensus estimates for 4Q were NT$ 87.06b, as we noted last month, so AUO beat consensus by 5.5%, particularly significant in that December typically sees a 2.8% increase in sales at AUO, which the company handily beat, especially as the currency adjusted ASP was down 4.7%. For the full year, AUO generated NT$ 329.1b, down 8.7%, as 1H results were quite weak while 2H results were strong.
All in, AUO completed the year on a strong note, as pricing for TV panels remained strong. Consensus estimates for 1Q 2017 are NT$ 78.84b, which would be up 10.8% over last years’ weak 1st quarter. Much of this number will be built on continuing strength in TV panel prices and small panel shipments in March, after Mobile World Congress. 1Q TV pricing should remain strong in the 42” and 47” sizes regardless of overall demand, as capacity remains light for these size panels, but we expect much of that demand to be filled by suppliers by 2Q, when we believe the industry will move toward a more normalize pricing mode.
The issue that caused the price gains seen in 2H, which began with production problems at Samsung Display (pvt), will begin to be mitigated by suppliers filling the size gaps in 1H 2017, but of more concern is the demand side, where TV brands, who have been seeing declining margins for a number of years, saw increasing margin pressure from panel price increases in the 2nd half of 2016. While panel producers benefitted, CE brands had little room for the discounting that consumers have become used to, and as can be seen from Fig.2, prices of 40” to 43” panels are now higher than in 2014. This tends to push panel producers toward increasing production of such sizes, as they give the producer leverage in price/volume negotiations with brands, but eventually balances out supply with demand. Brands, who are now designing new TV set lines for the 2017 holiday season, will have the opportunity to propose sets using panel sizes that have less premium, which will help margins going forward and relieve some price and margin pressure. On a longer-term basis, as can be seen from Fig.3, capacity growth continues across the industry after a well anticipated drop in early 2017, as Samsung closes older fabs and converts to small panel OLED production at others. Recent announcements and ground-breaking for new ultra-large format LCD fabs will push TV panel capacity through 2020 and beyond, which should give TV brands a bit more breathing room as to margins, as new large panel fabs compete for business.
Consensus estimates for 4Q were NT$ 87.06b, as we noted last month, so AUO beat consensus by 5.5%, particularly significant in that December typically sees a 2.8% increase in sales at AUO, which the company handily beat, especially as the currency adjusted ASP was down 4.7%. For the full year, AUO generated NT$ 329.1b, down 8.7%, as 1H results were quite weak while 2H results were strong.
All in, AUO completed the year on a strong note, as pricing for TV panels remained strong. Consensus estimates for 1Q 2017 are NT$ 78.84b, which would be up 10.8% over last years’ weak 1st quarter. Much of this number will be built on continuing strength in TV panel prices and small panel shipments in March, after Mobile World Congress. 1Q TV pricing should remain strong in the 42” and 47” sizes regardless of overall demand, as capacity remains light for these size panels, but we expect much of that demand to be filled by suppliers by 2Q, when we believe the industry will move toward a more normalize pricing mode.
The issue that caused the price gains seen in 2H, which began with production problems at Samsung Display (pvt), will begin to be mitigated by suppliers filling the size gaps in 1H 2017, but of more concern is the demand side, where TV brands, who have been seeing declining margins for a number of years, saw increasing margin pressure from panel price increases in the 2nd half of 2016. While panel producers benefitted, CE brands had little room for the discounting that consumers have become used to, and as can be seen from Fig.2, prices of 40” to 43” panels are now higher than in 2014. This tends to push panel producers toward increasing production of such sizes, as they give the producer leverage in price/volume negotiations with brands, but eventually balances out supply with demand. Brands, who are now designing new TV set lines for the 2017 holiday season, will have the opportunity to propose sets using panel sizes that have less premium, which will help margins going forward and relieve some price and margin pressure. On a longer-term basis, as can be seen from Fig.3, capacity growth continues across the industry after a well anticipated drop in early 2017, as Samsung closes older fabs and converts to small panel OLED production at others. Recent announcements and ground-breaking for new ultra-large format LCD fabs will push TV panel capacity through 2020 and beyond, which should give TV brands a bit more breathing room as to margins, as new large panel fabs compete for business.
Fig 2 - TV panel pricing & ROC - Source: SCMR LLC, Displaysearch, Witsview
Fig 3 - Raw Display Capacity - Source: SCMR LLC, OLED-A, Company Data
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