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   Aug.19, 2015

  •  China Airlines and Cathay Pacific: Passenger load factor rises; cargo slowdown continues for July 2015.
  •  Transit flight issues not settled but still under discussion.
  •  The authorities to raise daily limit from 4,000 to 5,000 for Chinese independent tourists.

  Chunghwa Telecom Co., Ltd. (中華電 2412 TT, NR, NT$99.0)  May.04, 2015
Valuation is justified to relatively faster development in 4G business
  • CHT beat its guidance with an EPS of NT$1.35 in 1Q15.
  • CHT can capture more shares in 4G market on two strong tools.
  • CHT has witnessed rising pressure on broadband and MOD business from TWM’s cable division.
  • We have a neutral stance on CHT's fairly justified valuation and lack of catalysts in the near future.

  Taiwan Mobile Co., Ltd. (台灣大 3045 TT, NR, NT$108.5)  May.04, 2015
Sluggish mobile service revenue; high churn rate implies loyalty issue
  • TWM posted the greatest among peers earnings decline at 6% y-y in 1Q15.
  • TWM has had low subscriber loyalty with highest among peers churn rate at 2%-3%.
  • Stable revenue growth in cable and Momo is insufficient to offset the decline seen in mobile division.
  • We hold a negative stance on TWM on sluggish mobile service revenue and low subscribers’ loyalty.

  EPISTAR (2448 )    Aug. 11, 2015
Epistar sees gloomy 2H15; awaits for the dawn
  • Epistar posted a surprisingly poor 2Q15 net loss of NT$122.4mn vs. our forecast of earnings of NT$358mn. GM and OM slid to 9.2% and -4.8%, respectively, vs. 11.8% and 0.3% in 1Q15. The company suffered from: 1) a low UTR of 70% on weak demand for backlight (30% of sales) and display (15% of sales) LEDs; 2) a 10% q-q ASP drop on price disturbance caused by Chinese peers; 3) a NT$300mn inventory valuation loss; and 4) slow improvement in ForEpi. If the ECB valuation gain of NT$285mn were excluded, the pretax loss would have been more than double, at NT$407mn.
  • No evident demand recovery in 3Q15. We have cut our 3Q15 sales /GM/OM forecasts by 28.9%/10.7ppts/13.3ppts, respectively, to NT$6.9bn/ 9.1%/-3.9%. Factors include: 1) no recovery in IT LED demand (10%-15% of sales); 2) limited demand growth in TV LEDs (30% of sales) due to Korean TV clients favoring in-house LED chips; 3) low installations of outdoor displays in China; and 4) higher pricing pressure from lighting brands. There should be no inventory valuation losses in 3Q15 as ASP has stabilized. We expect Epistar to make small net loss at NT$27mn in 3Q15, mainly due to the estimated ECB valuation gain at over NT$200mn from 29% share price drop since July.
  • Progress on improving ForEpi has been slower than expected. With a less-than-70% UTR, unsatisfied yield rate, and high ASP pressure, ForEpi will stay in the red in 2H15. Poor performance at ForEpi is also a drag on Epistar’s GM down. The subsidiary needs a 90%+ UTR to turn profitable, said Epistar.
  • Despite the current weakness, Epistar's long-term growth prospects remain intact on account of its solid financial structure, patents, and capacity. It has over 4,000 patents on hand and cross-licensing arrangements with Cree (US), Toyoda Gosei (JP), and Philips/Lumileds (CN/NL). These strengths allow it to penetrate deeply into the supply chains of lighting market. To win more orders, Epistar must strengthen its cooperation with packaging houses and lighting designers so as to provide more total solutions to the lighting brands.
  • We’ve sustained our ST rating at Hold due to a weak 2H15 and cut our TP to NT$42.0 (0.8x of 2015E PBR) to reflect our earnings adjustments for 2015. Upside is 47.6%. Epistar is undervalued at 0.5x 2015E PBR, a 10-year low. An improvement is justified by its solid market position as the best OEM for lighting brands in the long run. Hence, we maintain our LT rating at Buy and view the current valuation as a good entry point for long-term investors.

Stock Info

 TAIEX 8029.81 
 Electronics Index 307.25 
 Financials Index 1020.98 

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