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   May.18, 2015

  •  Taiwan Property & Asset Plays Weekly Briefing
  •  Taiwan Financials Weekly Briefing
  •  Taiwan Airlines Weekly Briefing
  •  China Airlines beats estimates for Q1 EPS despite one-off expense
  •  EVA Airways' earnings also exceed estimates in spite of fuel hedging loss and legal settlement loss
  •  TransAsia Airways' bottom line back in the red

  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 )    May. 12, 2015
Epistar is climbing out of a trough on moderate recovery for backlight led in 2Q15
  • Epistar posted a disappointing result on operational level at GM/OM of 11.8%/0.3% in 1Q15 despite of a 133% earnings surprise from NT$670m ECB valuation gain. The poor margins was attributed to (1) -20% to -40% GM and low UTR at 50% at ForEpi, which was in adjustment period, (2) 4% miss on sales due to weaker-than-expected demand recovery for backlight LED chips in March, and (3) unfavorable product mix due to low UTR (parent-only) at 60%-70%. If the impact of ECB valuation is excluded, the company's pretax income would be NT$240m, 42% behind our forecast.
  • Impact of softer-than-usual backlight LED demand is wearing off in 2Q15, as evidenced by 9.2% m-m increase in Epistar's April sales. Riding on the wave of moderate recovery seen in backlight LEDs, Epistar's UTR (parent only) has improved to ~75% in May. This increase has been driven by enlarged panel area and increased adoption of 4K2K panels, as well as from steadily growing demand for lighting LEDs, mainly from local packaging houses. Due to slower-than-expected seasonal recovery for TV LEDs, we have cut our 2Q15 sales estimates by 15.7% to NT$8.2bn (+23% q-q, +1% y-y).
  • ForEpi will deliver positive GM in 2Q15 as the transformation process is about 70%-80% complete, guided by Epistar. The parent company may start to see synergies in 3Q15, the high season. Taking the longer-than-expected transition period into consideration, we have cut our 2015 sales/GM forecasts by 4.0% and 3.9ppts to NT$32.6bn and 16.7% respectively. The 2015 adjusted-EPS is NT$2.01. Furthermore, the company is collaborating with its newly acquired company, TSMC SSL, for silicon-based LED technologies, and expects to start manufacturing lighting LEDs with such expertise in 2H16.
  • We are sustaining our LT ratings at "Buy" but have cut our TP to NT$60.6 to reflect the adjustment on 2015 earnings forecast. Upside is 27.6%. Additionally, investors' concern over the impact of the sales of Lumileds to GO Scale Capital (CN) to Epistar is overdone. First, such cross-cultural merger is extremely challenging. Second, Epistar has already built very completed patent coverage over the years. It has been undervalued at 0.8x 2015E PBR (2012-2014 PBR: 0.8x - 1.2x) and should be justified to its ongoing improvement. Hence, we suggest investors to accumulate on current weakness. However, we have cut our ST rating to “Hold” to reflect the soft demand for backlight LEDs in 2Q15.

Stock Info

 TAIEX 9716.77 
 Electronics Index 377.34 
 Financials Index 1222.08 

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