On Tuesday, Morgan Stanley adjusted its stance on AU Optronics Corp (2409:TT) (NYSE:AUO), downgrading the stock from Overweight to Underweight. The firm also revised the price target to NT$13.50 from the previous NT$21.50. The adjustment reflects the firm's perspective on the near-term outlook for the display segment, particularly concerning TV panel prices.
The analyst from Morgan Stanley noted that while structural changes in the display segment are expected to lead to a more stable competitive landscape and consistent profitability among panel makers in the medium to long term, there are immediate concerns.
Specifically, the analyst indicated that the recent hike in TV panel prices is anticipated to level off as the second quarter of 2024 comes to a close and could potentially decline in the fourth quarter of 2024.
The rationale behind the downgrade is partly due to the earlier-than-expected panel shipments, which have been concentrated in the first half of 2024. This shift in the timing of shipments could impact the pricing dynamics later in the year.
Morgan Stanley has set its target multiple for AU Optronics at 0.6x the 2024 price-to-book (P/B) ratio. This valuation is aligned with the company's mid-cycle average and is considered appropriate given the expected pricing environment for the year 2024. The firm's analysis suggests a cautious approach to the stock, taking into account the potential downward trend in panel prices towards the end of the year.
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