Taiwan’s two leading companies in the light-emitting diodes (LEDs) sector are expected to maintain growth momentum in the second half of this year on steady global demand for LED lighting products, analysts said last week.
Analysts said that is because the growing demand for general lighting products and mobile device backlighting applications is strong enough to offset the potential pullback in TV backlighting shipments, allowing both Epistar Corp (晶元光電) and Everlight Electronics Co (億光電子) to continue their growth through next year.
“Our thesis of two-engine growth [general lighting and backlight] remains unchanged, despite recent uncertainty in LCD TV demand,” HSBC Securities Taiwan Ltd analyst Jerry Tsai said in a note on Friday.
The increasing use of LEDs in general lighting applications and a steady demand of power-saving LED backlight units in computers and LCD TVs have been seen as the most important drivers for the Taiwanese LED sector in recent years.
As demand for backlights, and especially those used in TVs, has slowed down due to the expiration of subsidies in China and weakness in end demand for notebook computers and monitors, companies have responded with product mix adjustments, Tsai said.
He said growth in global large-sized LCD panel demand in terms of square meters, known as area demand, remained larger than the pace of decline in TV shipments in terms of units and hence could give support to overall LED demand.
“We expect the two companies [Epistar and Everlight] to play a larger role in global LED backlight in 2014, due to innovative designs that offer competitive cost savings to customers,” he said.
Tsai’s remarks came after Epistar, the nation’s largest LED chipmaker, last week said it swung into profit in the second quarter with earnings per share (EPS) of NT$0.38, compared with net losses per share of NT$0.27 in the previous quarter. Meanwhile, Epistar’s once-struggling subsidiary, the unlisted Huga Optotech Inc (廣鎵光電), also saw it break even last quarter following three consecutive quarters of losses.
In the April-to-June period, Epistar’s gross margin increased 9.6 percentage points to 15.9 percent from the previous quarter, while operating margin rose to 6.4 percent from minus-7.1 percent in the January-to-March period.
Everlight, the nation’s top LED chip packager, said on Thursday its EPS reached NT$0.92 last quarter, up from NT$0.53 in the previous quarter, with gross margin rising to 26.37 percent from 22.49 percent and operating margin improving to 9.77 percent from 6.69 percent over the same period.
In the first seven months of the year, Epistar’s consolidated revenue increased 5.08 percent to NT$12.31 billion (US$411 million) and Everlight’s cumulative revenue rose 24.11 percent to NT$13.11 billion, the companies said in their filings to the Taiwan Stock Exchange.
Analysts forecast the two companies would see revenues stay flat or increase slightly this quarter from last quarter due to tepid backlight demand. However, their profit margins could see continued sequential improvement on rising utilization rates and cost controls, they said.
For the whole of this year, HSBC forecast Epistar to report EPS of NT$1.76 this year and NT$3.13 for next year, while Everlight is forecast to see EPS of NT$3.17 this year and NT$3.67 next year.
JPMorgan Securities Taiwan Ltd is also upbeat about the outlook for the two companies, expecting Epistar to post EPS of NT$0.8 this year and NT$2.75 next year, while NT$3 and NT$3.7 for Everlight in these two years.
In particular, Epistar’s flattish sales last month from June made it stand out from most display supply-chain companies, which posted revenue declines last month, JPMorgan analyst Narci Chang (張恆) said in a report on Friday.
“We expect such divergence to continue as general lighting demand has grown large enough to offset the shortfall in backlight business,” Chang said.
Nevertheless, Taishin Securities Investment Advisory Co (台新投顧) on Friday took a relatively cautious stance toward Epistar, with EPS forecast of NT$0.66 for this year.
“The lighting demand remains stable this quarter but the company is expected to see sequential sales decline during the traditionally slow season next quarter,” said Taishin analyst Huang Chang-en (黃常恩).
Huang predicted the company to see EPS reach NT$1.05 next year, thanks to its solid technology base and leading market status.
Shares of Epistar rose 4.19 percent to NT$49.75 on Friday, while those of Everlight increased 3.45 percent to NT$46.45. So far this year, Epistar has fallen 5.6 percent but Everlight has risen 21.92 percent, compared with a 2.03 percent hike in the TAIEX over that period.
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