BOE Predicts Loss in Q3

BEIJING, Aug 29, 2008 (SinoCast China IT Watch via COMTEX) -- BTEGF | Quote | Chart | News | PowerRating -- China's LCD panel industry seems being on the verge of losses. Although BOE Technology Group Co., Ltd. (SZSE: 000725) issued a satisfying interim report on August 27, 2008, its prediction of possible operating losses in the third quarter cast a damp over everybody.

Zhang Yu, BOE's director of pubic relations, analyzes that the market demands for LCD panels have been reduced by subprime mortgage crisis and worldwide inflations since June 2008, and the company's sales prices sunk more than expectations in July and August. Though BOE forecasts operating losses in the third quarter, its profit target for the 2008 full year will not change.

The interim report shows the TFT-LCD manufacturer got operating revenues of round about CNY 5.506 billion, rising 17% from a year earlier, including CNY 4.62 billion from TFT-LCD business. The operating profit from the business amounted to CNY 610 million. BOE's net profit attributable to shareholders reached CNY 505 million, swelling 392%.

The performance was really satisfying to investors. However, BOE's monthly net profit in the first half of 2008 was only a little more than CNY 80 million, much less than CNY 140 million of monthly after-tax profit since May 2007.

The company's announcement opens out by saying that the Chinese TFT-LCD has been readjusting since June 2008, after more than half a year of robust growth. Meanwhile, large-screen LCD TVs have not swelled as expected. As a result, large-sized products erode the profit of low-generation production lines.

The latest data from DisplaySearch, a research and consulting firm specialized in the flat panel display market, show that the domestic LCD panels, particularly, mainstream sizes such as 17-inch and 19-inch, have seen prices go down 10% to 15% since late June 2008. The prices continued dropping 8% to 10% in August, astonishing all LCD panel producers.

So, Taiwan's Chi Mei Optoelectronics, AU Optronics Corporation (AUO), and Chunghwa Picture Tubes Ltd. (CPT) chose to reduce production by 10% to 15%. But the flat panel prices still fell because Samsung Electronics Co. Ltd. inputted additional investments and insiders are worrying about the release of new production capacity.

Markdown for consecutive two months has lessened LCD panel makers' quarterly profits from tens of billions of Chinese Yuan to almost zero within three months.

An analyst of DisplaySearch points out that if China's flat panel producers are unable to overturn the situations in traditional midseason of September and October, the prices are likely to maintain a momentum of dive in dead season of November and December, even the early 2009, when potential production capacity of Samsung, LGD, and AUO are to be released.

Clearly, a severe winter for the LCD panel industry has come. The fifth-generation production line owned by SVA (Group) Co., Ltd., which was to be injected into SVA Electron Co., Ltd. (SHSE: 600602) as planned, has suffered losses in June 2008.

(USD 1 = CNY 6.83)

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