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   Out.Standing Mess.Age English | Chinese  

   Oct.28, 2014

  •  Samsung's halt in overseas LED lighting business to have limited
      impact on Taiwan's LED players

  Far EasTone Telecom. Co. (遠傳 4904 TT, NR, NT$62.7)  Oct.29, 2014
Lacking catalysts to improve ARPU or profitability in the near term
  • Far EasTone (FET) posted the greatest EBITDA decline among peers of 5.3% y-y in 3Q14.
  • The increase in ARPU from 4G is too small to cover the rising costs of LTE deployment.
  • TW telco. players are slow in upgrading connectivity speed and providing value-added services to boost ARPU.
  • We have a neutral stance on FET, reflecting a lack of near-term catalysts.

  EPISTAR (2448 )    Oct. 17, 2014
ECB valuation gains offset 2H14 weakness; LT growth remains intact
  • Despite an 11% weaker-than-expected sales in 3Q14, the expected NT$1.3bn reversal gains on ECB valuation may boost profitability. Factors behind the 6% q-q revenue drop include 70-80% UTR for GaN LEDs, the sudden slowdown in Korean clients' demand for TV LEDs, the cancellation of clients' double-bookings made in late 2Q14, and lighting clients’ adjustments in inventory in anticipation of weak seasonality ahead. Based on these factors, we cut our GM forecasts down by 3.7 ppts to 19.4%. Despite this downward adjustment, we expect Epistar to deliver a strong earnings performance with an EPS of NT$1.86 (+130% q-q) on the back of an estimated NT$1.3bn in reversal gains on mark-to-market ECB valuation as its share price slid by 23% in 3Q14.
  • The 21% share price correction since mid-August already reflects the 2H14 seasonal weakness. We cut our 4Q14 sales/margin/EPS projections down by 21%/5.6ppts/69% to NT$6.5bn/14.6%/NT$0.25, respectively, to reflect 1) the UTR of 60%-70% for GaN LEDs and 70-80% for four-element LEDs, 2) ASP pressure from the discount on LEDs with old specifications, and 3) a poor product mix. However in our view, the 21% share price correction since mid-August has fully reflected this weakness. The current valuation of 0.9x 2015E PB is at the low-end of the past 1Q12-3Q14 range of 0.8x-1.6x, and further downside is limited.
  • A stronger 2015 is still expected due to its solid fundamentals despite recent market noise. Epistar benefits from the upward demand trends for LED lighting and the increasing adoption of mid-power LEDs. Having the world's largest production capacity and strongest expertise with mid-power chips, it can significantly increase its penetration into the supply chains of lighting brands. Synergies from the acquisition of ForEpi will emerge when the peak season starts next March. The potential drawback for the predicted strong 2015 overall performance is the still-poorly performing Teckore. Taking all of this into consideration, we cut our 2015 EPS forecast down by 5.9% to NT$3.6.
  • We sustain our Long-term/Short-term ratings as a "Buy," but cut our TP down to NT$69.0, 1.2x 2015E PBR, due to the recently weak Taiex. Our view that Epistar will deliver strong growth in 2015 is unchanged as its fundamentals are still solid. The 2010-2013 share price performance shows that Epistar shares tend to react 1-1.5 quarters ahead of the second quarter peak season. So, we suggest investors can consider the company during its downturn and reap the rewards when the peak season arrives.

Stock Info

 TAIEX 8903.68 
 Electronics Index 349.21 
 Financials Index 1101.28 

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