Record sales brighten Epistar margin outlook: experts

By Kevin Chen  /  Staff reporter

Fri, Jun 14, 2013 - Page 14

Epistar Corp (晶元光電), the nation’s largest LED chipmaker, is likely to see its gross margin improve further in the coming months after reporting record sales for last month, HSBC Securities Taiwan Ltd said yesterday.

The company last week said its consolidated revenue reached NT$2.22 billion (US$73.7 million) last month, up 15.9 percent month-on-month and 19.42 percent year-on-year.

Analysts have forecast that the company is likely to see its revenue increase this quarter from last quarter’s NT$4.32 billion.

SinoPac Securities Investment Service (永豐金投顧) last week forecast Epistar’s revenue to rise by 30 percent this quarter, while HSBC yesterday predicted a quarterly sales increase of 45 percent.

However, “the more exciting story is its margin, which could expand by high-single digits [sequentially] in both the second quarter and third quarter,” HSBC analyst Jerry Tsai said in a note yesterday.

In addition, Epistar’s once-struggling subsidiary, the unlisted Huga Optotech Inc (廣鎵光電), may also see its gross margin turn positive next quarter, Tsai said.

In the January-to-March period, Epistar’s gross margin was 6.26 percent and Huga’s was between minus-50 percent and minus-60 percent, the companies’ financial data showed.

HSBC said the increase in demand for lighting products and a continual decline in LED lightbulb prices could create upside potential for Epistar’s business outlook this year.

However, Chinese LED epitaxy maker Sanan Optoelectronics Co (三安光電) has reportedly planned to resume expansion in the final quarter of this year, which has raised market concerns about oversupply in the industry.

Yet Tsai plays down such worries.

“The move signals that market conditions are indeed improving,” he wrote in the note. “The technology gap between Sanan and Epistar is widening, thus price competition should be limited, if [there is] any.”

HSBC forecast Epistar to report earnings per share (EPS) of NT$2.03 this year and NT$3.19 for next year. The Hsinchu-based company reported a net loss per share of NT$1.2 last year.

The brokerage reiterated its “overweight” rating on Epistar’s shares, with a target price of NT$75.

Shares of Epistar fell 3.57 percent to NT$56.7 yesterday amid a broader sell-off on the Taiwan Stock Exchange. So far this year, Epistar has risen 7.59 percent, outperforming the TAIEX’s 3.28 percent increase.

Separately, Epistar is scheduled to hold its annual general meeting today, with the company’s shareholders likely to vote on the management’s plan to sell 250 million common shares via a private placement in an effort to seek strategic investors.