Epistar Corp (晶元光電), the nation’s largest LED chipmaker, yesterday saw its stock rating cut to “sell” from “hold” by Samsung Securities (Asia) Ltd, over concerns regarding its growth momentum in the second half of this year.
“The recent average selling price declines of LEDs for LCD TV applications, a weaker-than-expected hot-demand season in the second half and a potential oversupply in 2012 could create a downside risk to Epistar’s 2011-2012 earnings,” Samsung Securities analyst Skye Chen said in a report.
The brokerage cut its forecast for Epistar’s earnings per share (EPS) for this year by 15 percent to NT$4.5 from the previous forecast of NT$5.3. It also slashed the forecast for next year’s EPS by 18 percent to NT$4.6 from the previous NT$5.58.
The Hsinchu-based company reported NT$7.16 in EPS last year.
Epistar chairman Lee Biing-jye (李秉傑) told an interview with the Liberty Times (the Taipei Times’ sister newspaper) on Monday that he was now less upbeat about the penetration rate of LED backlights in LCD TVs than he was earlier this year.
“The average penetration rate is expected to stay at about 40 percent to 45 percent this year. It is a bit difficult to see the rate increase to 50 percent [this year],” Lee was quoted as saying by the Liberty Times.
The industry is also expected to face continued downward price pressure as weak LED demand has led to a reduction in the utilization rate among companies, Lee said.
In the interview, Lee said the company would step up the process of shifting its focus from TV backlights, to lighting applications in a bid to sustain its earnings growth. He also expected that a lower average selling price (ASP) for LED lighting applications would help expand the overall market.
However, Samsung Securities cast doubt on the near-term market demand.
“The third quarter is traditionally the high-demand season for LED lighting and panels, which account for 35 percent and 20 percent of total LED demand. However, until recently, LED demand visibility in both markets has remained low,” Chen said in the report.
The risk of LED oversupply caused by increased production by companies in both China and South Korea is poised to rise next year, the report said, which would further place a downward risk on Epistar’s utilization rate and ASP, leading Samsung Securities to cut its target price for Epistar to NT$64 from NT$90.
Shares of Epistar edged up 0.34 percent to NT$88.3 yesterday on the Taiwan Stock Exchange. So far this year, the stock has dropped 17.09 percent, underperforming the TAIEX’s 4.18 percent decline.
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