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CPT Files for Bankruptcy Protection
December 17, 2018

CPT posted revenues of NT$1.356 billion for November, down 10.7% sequentially and 55.5% Y/Y, as shipments of small- to medium-size panels declined 6.9% sequentially to 9.37 million units, and large-size panels dropped 39.8% to 80,000 units, sequentially. The poor performance apparently led to reports by the Taiwan Market Observation Post System that the company has filed a preliminary reorganization request with the Taiwan Taoyuan District Court.  The document, which was filed by the CPT BOD, creates two escrow operating funds, each with a maximum of NT$600m ($19.5m each) for operating expenses, salaries, and other expenses, in order to keep the company in operation during the reorganization.  The company will not be able to make payments against bank loans, forcing breach of contract and an immediate call of all of the loans, causing the company to cease operations, and while the Board believes the company can be saved, the application for reorganization and an emergency injunction was requested. CPT’s small panel shipments dropped off substantially after July, although September saw a large bump, which looks like the end of a long-running contract. If CPT did lose a substantial smartphone customer in September, the obvious outcome would be reduced cash flow and an inability to repay debt, but more importantly getting the filing out before vendor balances hit more than 60 days in arrears, and materials stopped flowing would also be key.  As the filing should at least allow the company to purchase materials for cash, it would keep the company in business, at least at some level, until the courts work out a plan with creditors. CPT has been producing LCDs since 2003, and while not a large panel producer in terms of capacity, still generated 6.36% of total small panel revenue last year, and as late as June of this year held an almost 8% share of the small panel LCD panel market (by revenue).  Aside from the potential vendor write-offs, a shutdown of small panel LCD capacity at CPT would cause buyers to scramble to tighten up small panel sources, which could cause prices to rise in the short-term.  There is also the potential for another panel producer to purchase CPT. The larger Taiwanese panel makers, AUO and Innolux are each looking at new business models so CPT could be looking to PRC, but whether the government of Taiwan would let a Chinese company or panel producer buy CPT or its assets is questionable. CPT’s has older assets, including a Gen 4.5 built in 2003 and Gen 6 built in 2007, so they are not very attractive.