AU Optronics: Ridiculously Cheap

AU Optronics' (AUO) valuation is bordering on the absurd. A company growing strongly in a great market shouldn't be trading at less than 6x earnings. Estimates have increased 19 cents over the past month. Two of the five covering analysts have raised their numbers.

Full Analysis

AU Optronics Corp. engages in the design, development, manufacture, assembly, and marketing of thin film transistor liquid crystal display (TFT-LCD) panels and other flat panel displays.

The company's TFT-LCD panels are used in computer products, such as notebook computers and desktop monitors; consumer electronics products comprising mobile devices, digital cameras, digital camcorder, car television, car navigation systems, portable televisions, multiple function machines, printer displays, portable game consoles, and portable digital versatile disk players; and LCD televisions.

AUO recently announced a plan to set up a T$1.5 billion ($50 million) company making light emitting diode [LED] backlights for displays. The move aims to help the company secure supplies of LED backlights, a key component for thin liquid crystal displays, the company said in a statement to the Taiwan Stock Exchange.

The company blew the doors off of its first-quarter earnings report. It came in with earnings of $1.12 per share, 133% above the estimate of 48 cents. Strong demand for flat-screen TVs lifted prices for its displays.

Mr. Max Cheng, Chief Financial Officer and Spokesperson of AUO noted that while Q1 is low season, AUO was able to hit the 2nd record high in its quarterly profitability, bringing net income to nearly NT 27 billion, which represented 18.5% sequential decline but a remarkable improvement from a net loss of NT 5.1 billion in 1Q2007.

Unbelievably Cheap

The valuation on AUO is ridiculously cheap. It is currently selling for 5.8x current-year estimates of $3.38 per share. Those estimates have increased 19 cents over the past month. Two of the five covering analysts have raised their numbers.

Comments

[Jack Yetiv:]

Any negatives to consider?

Why so little love from the market for this name?

Jack Yetiv

2008 May 18 11:13 AM

[JREB777:]

A free PUMP. I work for AUO and we are seeing a dramatic drop in BTO. We expect a sequential drop of another 15 to 20% in the next quarter.
Wait until the stock is below $15 before you buy any. We have had a good last 12mo. Due to the olimpics and some Dig. TV perps in the US.
US weakness and the start of what seems to be weakness in Asia is what is driving our sales down at this point.
ZACKS apparently seem to be trying to offload some positions that it aquired earlier in the year.
Be careful out there.
Tamen she heng bai ch.

2008 May 19 04:51 AM

[Camden:]

JREB,

That's a very strange post. Zacks doesn't have positions to offload. They're in the business of selling information about stocks – not a broker.

You may work for AUO but that doesn't make you knowledgeable about when to buy and sell. Zacks an excellent track record.

Clearly your company's had a good year due to the proliferation of new devices, the HD television transition, and the new production line. All of those factors are still a force but will be offset by seasonal factors and some economic weakness.

Any way one looks at it, even with the expected revenue drop, AUO's valuation is extraordinarily low relative to other tech firms with similar growth histories and potential over the past 20 years.

2008 May 19 10:47 PM

[Informed In...:]

AUO may look great on paper, but we should also consider that it manufactures a commoditized product, and is unable to build market share from its brand name. This makes it susceptible to market conditions, meaning it will have to adjust prices to stay afloat with the competition.

2008 Jun 19 09:38 AM