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   Apr.22, 2014

  •  Cathay FHC cash dividend set at five-year high of NT$1.5 per share

  Primasia Perspectives: Global Macro Economic Outlook  Apr.08, 2014
Global Macro Economic Outlook and Strategy – 1st Quarter Update
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  Primasia Perspectives: Taiwan Review and Outlook  Apr.08, 2014
Taiwan Review and Outlook – 1st Quarter Update
  • update weekly

  EVERLIGHT (2393 )    Apr. 01, 2014
Valuation demanding as GM target poses a challenge
  • 4Q13 EPS of NT$0.88 was 6% above our forecast and GM of 26.0% also outperformed by 1.4 ppt. This came on several factors, including (1) higher sales contribution of WOFI at 11% vs. 3Q13's 8%; (2) higher-than-expected GM of nearly 30% for WOFI vs. a forecasted 25-30%; and (3) 1-2 ppt margin improvements for IR and consumer electronic LEDs (GM at 25-30% each). These factors outweighed the margin erosion impact from 26% q-q growth in sales of lighting components/modules (16% of 4Q13 sales, GM<20%). OM of 6.7% was 1.8 ppt below our forecast, on higher-than-expected advertising expenses for Everlight's own brands.
  • An unusually upbeat first quarter has already been priced in as Everlight's shares have risen 9.6% over the past three months. An overall demand improvement in the industry brought seasonally rare demand levels, propelling the firm's UTR to 90%+ for TV and lighting LEDs in March. We have raised our 1Q14 GM estimate by 1.2 ppt to 24.7%, on the back of ~30% GM contributions by WOFI and by IR LEDs. However, an offsetting increase marketing expenses leads us to cut our 1Q14 OM estimate by 1.5 ppt to 5.5%. It also booked a gain of NT$72.8m from disposing 1.02% stakes in Epistar. Net, we raise 1Q14 EPS to NT$0.82 from NT$0.73.
  • Higher focus on China may cause lighting components to outgrow other products and limit margin improvement. We still expect the company to face challenges in achieving its GM target of 27% in 2014, despite our 1.2 ppt upward adjustment to 2014E GM of 25.8% to reflect the better-than-expected GM at WOFI. Lighting products sold in China have GMs below 20%. Also, China's LED lighting market growth is still sluggish compared to Europe and the US, because of unattractive prices and a lack of subsidies. We also cut 2014E OM by 1.5 ppt to 6.4%, as the firm is expanding its marketing activities.
  • We sustain our LT rating at Hold and TP of NT$87.3. Everlight's current valuation of 1.9x 2014E PBR and 18.8x PER is the highest in the downstream sector and fairly justified to the industry upcycle and its growth for 2014. It faces limited upside, margin pressure from a higher mix of lighting (excluding WOFI), and limited access to global lighting market. As a result, we sustain our ST and LT ratings of Hold and keep our TP at NT$87.3, reflecting the average of price levels based on 2.1x PBR and 21.0x PER. Upside is 11.9%.

Stock Info

 TAIEX 8951.19 
 Electronics Index 342.83 
 Financials Index 994.38 

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