 May.21, 2013 |  |
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- Retail LED light bulb price war intensifies on top brand price cuts
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May.20, 2013
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Steady in 1Q13; growth comes with uncertainty ahead
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- 1Q13 EPS NT$4.69, +15.2% y-y.
- Taiwan segment will see growth in 2Q13 on value brands.
- China market surging on high-end Wang Steak; however,
risk comes with return.
- We expect to see 20% growth in both revenue and EPS in 2013 and
double-digits ahead.
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May.20, 2013
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Expects to see significant EPS growth in 3Q13
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- Held IPO and listed on TWSE on May 7.
- China market will be main growth contributor.
- Yen depreciation and quantitative easing exacerbate nonwoven fabric
shortages in Japan.
- Utilization of spunlace nonwoven fabric is full already; capacity will
rise by 60% in 3Q13.
- Lower material costs and new products to add fuel to growth ahead.
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May. 16, 2013
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Despite worse-than-expected 1Q13, 2-3Q13 growth should be solid
- 1Q13 results fall behind our expectations. Epistar posted a net loss of NT$248m or NT$0.27 per share, exceeding our expectation of -NT$0.20/shr. GM and OM of 6.3%/-7.1% each fell 3.0 ppt short of our forecasts. Several factors contributed to these shortfalls, including: (1) greater-than-expected ASP declines of 5-8%; (2) slower-than-expected recovery at Huga Optotech and subsidiaries in China; (3) greater-than-expected exposure to new TV LEDs, for which the company suffered below-average margins on clients' tight specifications; and (4) a lower-than-expected utilization rate of 70%+ for four-element LEDs, reflecting weak demand for billboard LEDs in China.
- Solid growth prospects for 2Q13 on seasonality and better product mix. Thanks to backlight clients' restocking plus moderate demand growth in lighting, Epistar is delivering strong sales growth in 2Q13, as evidenced by 12% m-m growth in April sales. Utilization rates for GaN/four-element LEDs reached 90%+/80%+ vs. 1Q13’s 70-75%. The sequential ASP decline also narrows to 0-5% in 2Q13 and order visibility extends to 1.5 months or longer for some niche products. With a high loading rate, the company is allocating more capacity to high ASP/margin HV, UHB and IR LEDs to reduce pressure from declining ASPs for backlight LEDs. We thus raise our sales growth forecast for 2Q13 to 38% q-q from 21% q-q, and for 2013 to 15.0% y-y from 10.7% y-y.
- More time needed to improve subsidiaries, but pace accelerating. Because improvements at Epistar's subsidiaries are slower than expected, we cut our 2013 GM estimation to 15.8% from 18.8%. Huga has 80-90% utilization rates for epitaxial wafers (which are made only for Epistar) but only for 40-50% chip processing. This indicates that low chip yields are still forestalling orders, and Huga must rebuild its reputation in the market. We expect improvements at subsidiaries to accelerate now. Management guides that Huga has a good chance to break even in3Q13, and two China subsidiaries (United LED Sang Dong and Epicrystal) are near their break-even points now.
- We reiterate ST/LT Buy rating on Epistar on 2013 prospects and solid position in the lighting supply chain. We reduce our 2013E EPS forecast by 13.0% to NT$1.19 in consideration of lower-than-expected 1Q13 results and GM; but we sustain our 12-month TP at NT$68.5, equal to 1.3x 2013 BVPS of NT$51.9. We are also confident in Epistar's execution and R&D ability, which will turn Huga into a profitable entity.
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May. 16, 2013
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1Q13 beat forecast, ST growth solid; but LT brand concerns linger
- 1Q13 beat forecast on surprisingly low expenses. Everlight reported 1Q13 net income of NT$222m or NT$0.53/share, beating our forecast of NT$0.44/share. We were surprised by operating expenses that were 12% lower than our projection, bringing its opex rate to 15.8% vs. 17.7% in 4Q12. The company thus appears to have improved its operating leverage, especially in marketing, on the back of the brand recognition it has built in Taiwan.
- Posting solid growth in 2Q13. Everlight has utilization of 80%+ and 1.5-2.0 months of order visibility now. Sales momentum has found support in strong demand growth for TV/monitor/tablet LEDs from China, peak seasonality on IR LEDs, and steady growth in lighting LEDs. Strict expense controls have offset margin erosion from a greater sales concentration in low-margin lighting modules, thereby improving 2Q13 profitability. Accordingly, we raise our 2Q13 EPS forecast by 21% to NT$0.53 to reflect upward adjustments of 2.5% in sales and 2.1 ppt in operating margin projection.
- Lighting sales growth is accelerating. Everlight guides its lighting sales weighting to reach 15-20% this year vs. 10% in 2012, as it expands distribution of lighting products in Taiwan. We expect lighting sales growth to accelerate in 2H13 in response to Taiwan's mandatory electricity rate increases in October. In addition, it will start booking sales of about NT$400m-500m from replacing over 60,000 LED streetlights in Taiwan in late 2Q13. Though minimally profitable the latter project improves Everlight's chances of winning more such projects.
- Challenges in overseas lighting markets limit LT growth potential. Despite smooth growth in the domestic lighting market, Everlight faces challenges abroad given its lack of brand recognition and marketing scale (as attested by continued losses by its Zenaro brand). Everlight is now shifting focus to China from Europe; however, the mainland's residential segment is growing slowly due to high prices, and the government favors local firms in the outdoor/commercial segments. Also, top global lighting brands like Philips (NL) are very aggressive in China. We reiterate our LT Hold, ST Buy rating and raise our TP to NT$57. Though we foresee solid growth in 2-3Q13, in the long run we still harbor doubts over Everlight's room for growth in global retail lighting. We raise TP to NT$57, 1.5x 2013E BVPS of NT$38.0 for upward earnings adjustment.
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May. 16, 2013
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Share disposal boosts 1Q13 profit; China operations improve
- Share disposal contributes half of 20% y-y rise in 1Q13 net income to NT$769m or NT$0.56 per share. Out of this total, NT$380m (NT$0.28/shr) originated from a one-time profit from January's investment sale of Asia Cement (1102 TT/NR/NT$37.90). Excluding the gain, EPS of NT$0.28 would have narrowly beat our estimate of NT$0.26, but still was down 40% y-y. Consolidated sales meanwhile continued to decline 1.5% y-y to NT$11.5bn, impacted by weak economic growth and tepid consumer sentiment.
- New stores fail to arrest steep revenue declines. FEDS brand operations posted NT$9.3bn in revenues in 1Q13, down 9.5% y-y. Two new megastores initially lifted sales in 1H12, but sales faltered in 3Q12 as annual sales growth rates dropped sharply from the high fifties in 1H12 to 8% of decline in December. Since then, the company has continued to struggle to revitalize its growth momentum as cumulative sales through April 2013 declined 8.2% y-y. To stem the decline, FEDS launched an aggressive campaign for the Mother's Day sales season, for which period revenues grew 8% y-y to NT$5.9bn.
- China operations finally show signs of life. Pacific China saw losses drastically reduced in 1Q13 to RMB 9m, after accumulating RMB 97m in operating losses during the prior three quarters. Although 1Q13 sales fell 2.7% y-y to RMB 868m, gross margin rebounded to 21.1% from 19.3% in 4Q12. This much stronger result is also attributable to various cost cutting initiatives undertaken by the company. Meanwhile, despite lower sales, FEDS China also saw GM jump 2.9 ppt q-q to 21.7%, reflecting stronger profitability. As a result, associated operating income increased by 7.1% y-y to RMB 15m in 1Q13.
- After winning legal battle, FEDS lacks short-term catalysts. Its shares rallied after the Taiwan Supreme Administrative Court's May 9 decision. However, the decisive legal victory does not mitigate weakness in core operations and revenues continue to decline. Although we expect consumer spending to improve modestly in 2H13, as evidenced by the company's strong Mother's Day sales season results, we do not believe it will generate enough momentum for a sustainable rally. We reiterate our Long Term Buy, Short-Term Hold ratings and maintain target price at NT$30. Tepid economies and sluggish consumer spending continue to weigh on FEDS's top and bottom lines in the near term, but we are still upbeat on its turnaround efforts and long-term growth potential.
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| TAIEX |
8377.05 |
| Electronics Index |
316.79 |
| Financials Index |
967.16 |
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