BOE Technology Group Co’s (京東方科技) stock market reversal is dramatic even by China’s outsized standards.
It took less than a year for the Apple Inc supplier to go from one of the nation’s best-performing stocks to among its worst — a precipitous selloff that might not be over.
China’s largest maker of screens for TVs and smartphones shed more than 32 percent of its value this year, the steepest decline among the 50 biggest companies listed in Shanghai and Shenzhen.
That was prompted by ballooning supply and plunging prices for the large screens that comprise most of its business.
Even earning a coveted spot on Apple’s list of top 200 suppliers could not overcome fears that supply-demand imbalances will persist, analysts have said.
That is a far cry from last year, when its shares more than doubled, net income quadrupled and executives talked up their prospects of getting into lucrative smartphone screens.
It ranked fifth in terms of gains among China’s 50 largest publicly traded stocks.
And the company sketched bold plans to get into next-generation OLED screens and of supplying iPhones.
Valuation is part of the challenge.
Despite its recent slide, BOE shares trade at more than 15 times current-year earnings, a higher multiple than industry leader Samsung Electronics Co.
The Chinese company is now ramping up capacity to goose sales, while developing OLED screens in hopes of catching a wave of longer-term business.
It completed and brought online a massive production plant for 65-inch-plus screens and began construction on another this year — just as demand globally waned and prices fell.
That influx of capacity is not good news for an already depressed market. Prices for benchmark 65-inch panels this month dived 39 percent from last year’s peak to about US$250, according to Trendforce estimates compiled by Bloomberg Intelligence.
However, demand typically peaks in the third quarter ahead of the all-important holidays, which could prop up prices.
And the soccer World Cup could provide a boost as consumers replace aging TVs.
Stock-wise, BOE is still a tad cheaper than fellow Chinese display maker Tianma Microelectronics Co (天馬微電子), which is hovering about 18 times current-year earnings.
However, with capacity fundamentally continuing to outstrip demand, any gains might prove short-lived.
In OLED, rivals Samsung and LG Display Co have had a head start — the former is the sole supplier of the screens to Apple’s iPhone X.
The cost of ramping up its screen capacity would also weigh on BOE’s margins in the near term.
BOE might thus never replicate last year’s achievement — it is expected to average annual profit growth of 22 to 33 percent from this year to 2020, according to estimates compiled by Bloomberg.
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