AUO looks good to me: a tech company on the NYSE (ADR); low debt; net profit margin nearly 15%; analysts expect 68% annual growth next five years; ROE of 19%; will take advantage of low cost labor in China.
Yahoo shows forecasted EPS of $2.13 for next year, up from $1.35 just 7 days ago and nearly doubling from $1.08 a year ago. This gives it a PEG of only .12!
finance.yahoo.com
Using much more conservative estimates than the 68% consensus I get a compelling valuation:
Company: AUO
Date: 3/30/04
Next year's expected earnings: $2.13
EPS growth rate used for estimate: 15
P/E maximum used for estimate: 15
Graham Fair Value: $67.48
Current Price: $20.57
$ difference: $46.91
Percent Growth to Fair Value: 228.04%
All said, I added today.
News snips:
Worldwide sales of LCD TVs -- the biggest driver of LCD demand-- may hit nearly 20 million units by 2006 from 3.6 million last year, iSuppli estimates.
"There will always be shortages, [but] the momentum to LCD is unstoppable," says O'Donnell.
AU Optronics, the Taiwan-based maker and assembler of LCD panels of all sizes, is boosting production to ride that wave.
AU sells mostly large panels to other manufacturers, like BenQ and Sony, which then put them in televisions, cell phones and other electronics devices.
Since 2000, AU has doubled its share of the large LCD panel market, to about 12% last year. During that time, number-two Samsung lost some share (to about 19%) and market leader LG Philips LCD (a joint venture between Royal Philips and LG Electronics) gained six points, to 20%, according to iSuppli.
In the past year, AU Optronics' gross margins climbed five percentage points to 22%. Margins could rise by another percentage point this year as AU makes production more efficient and customers migrate to ever-larger, more profitable panels, says Ali Irani, an analyst at CIBC World Markets.
O'Donnell expects prices of components used to make panels like color filters and chips to fall, too, as AU's suppliers become more efficient.
AU itself is boosting production in China, to benefit from its skilled, low-cost workforce.
Still, amid booming demand for LCDs, valuations of AU Optronics looks reasonable.
Analysts have been raising AU's earnings estimates over the past 90 days, and the stock has sold off because of concerns about the Taiwanese elections. That has shrunk AU's multiple to only eight times next year's estimated earnings, a steep discount to its projected long-term annual earnings growth rate. |
