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   Feb.16, 2015

  •  Taiwan Property & Asset Plays Weekly Briefing

  Taiwan Mobile Co., Ltd. (台灣大 3045 TT, NR, NT$107.5)  Jan.30, 2015
Sluggish mobile revenue; earning decline in 2015 is foreseeable
  • Taiwan Mobile's mobile services revenue remained sluggish in 4Q14.
  • Despite moderating competition from new entrants, earnings erosion from LTE deployment continues in 2015.
  • TWM guides capex to peak in 2015, but the upcoming 2.6GHz auction cost is not included in this assumption.
  • We hold a neutral stance on TWM on its demanding valuation and lack of long-term growth catalysts.

  EVERLIGHT (2393 )    Nov. 19, 2014
3Q14 earnings exceeded our forecasts but more margin pressure ahead
  • Everlight exceeded our 3Q14 earnings forecasts by 26%. It reaped a sales figure that was 2.8% higher than our estimation, at NT$8.5bn, while operating expenses were 1.2% lower than projections due to strict controls. In addition, the company enjoyed an exchange gain of NT$84m due to the depreciation of the NT dollar.
  • Margin pressure will continue in 4Q14 and 2015. Everlight's 3Q14 GM of 24.4% marked a decline of 0.4 ppt q-q, due to a lower-than-expected contribution of NT$700m-NT$800m from WOFI as well as an 8% increase in depreciation expenses resulting from the pilot run of new capacity. We expect GM to drop further in 4Q14 to 22.7%, on three factors: (1) an expected 9% q-q decline in sales; (2) weaker demand for backlight LEDs (27% of 3Q14 sales, GM > 25%); and (3) rising sales exposure to lighting components (~10% of 3Q14 sales, GM < 20%). Furthermore, 2015 GM may be further dragged by higher depreciation expenses, product mix changes, and possible pricing competition from Japanese LED players (especially Nichia). We therefore lower next year's GM forecast by 1.5 ppt to 23.0% (-1.3 ppt y-y).
  • As usual, Everlight will mitigate margin pressure with strict controls on labor and other operating expenses. The company has a good track record in this regard, as reflected in last quarter's results. Lower operating expenses led 3Q14 OM to be 0.5 ppt above our forecast at 9.6%, and Everlight also reduced the COGS-related direct-labor costs by 9% q-q as it added more automation systems to offset rises in non-labor costs. We expect the company will continue to apply the same methods next year, and we cut our 2015 operating expense forecast by 9.8%. Over the long term, however, low investment in R&D and personnel leads us to worry about its product development and other capabilities in the fast-changing lighting market.
  • We sustain our LT rating at Hold and our 12-month target price at NT$72.8. The target PE multiple represents 14.3x forecast 2015E EPS of NT$5.08. We consider this fairly justified in view of the company's margin pressure and limited profitability improvements next year. We therefore suggest long-term investors may stay on the sidelines. On the other hand, the LED sector tends to react 1-1.5 quarters ahead of the second quarter peak season and thus short-term investors may engage in late 2014 in anticipation of a rebound in 2Q15. So, we raise our short-term rating to Buy.

Stock Info

 TAIEX 9529.51 
 Electronics Index 381.72 
 Financials Index 1099.63 

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