Epistar Corp (晶元光電), the nation’s biggest LED chipmaker, stands to benefit from its greater involvement in the US and Europe lighting markets, even though the company reported a net loss in the first quarter of the year, industry observers said.
The company is also to take advantage of the end of three years of oversupply in the industry, with conditions now driven by rising demand for general LED lighting and stable demand for display backlight units, they said.
Primasia Securities Co (犇亞證券) analyst Filia Lin said Epistar is one of the few LED chipmakers in the world that can supply patent-protected products that have good cost-to-price ratios.
Additionally, as the US and the EU have banned the sale of incandescent bulbs, consumers there will soon replace their light bulbs with LEDs, and Epistar is likely to see strong sales growth driven by demand of chips used in LED lighting products this year.
“These markets show more prominent growth, greater government support and fewer price disturbances caused by inferior goods,” Lin said in a client note on Friday.
In addition, Epistar may see higher order allocation from global lighting brands, which hope an increased outsourcing would help sustain their profitability as price competition is getting fierce in the end-market, Lin said.
“Also, we believe that the company’s position is solid in the long-run as lighting brands do not easily switch component suppliers for the sake of product stability,” she said.
Earlier in the week, Epistar posted a net loss of NT$841.7 million (US$27.89 million), or a net loss per share of NT$0.91.
The first-quarter loss included a large European convertible bond (ECB)-related non-operating charge of NT$1.32 billion due to accounting issues, as the company needs to accrue unrealized losses for its ECB when its share price moves up.
That offset the impact of the better margin improvement and sales growth that the company recorded for the quarter. The company’s data showed that revenue for last quarter increased 2.3 percent quarter-on-quarter and 44.33 percent year-on-year to NT$6.24 billion, while gross margin improved to 15.2 percent from 13.1 percent the previous quarter and 6.3 percent a year ago.
Operating margin reached 5.1 percent last quarter, compared with 2.5 percent in the prior quarter and the minus 7.1 percent one year ago.
Excluding the ECB-related charges, the company would have reported a net income of NT$478 million for last quarter, the highest level in 10 quarters and 110 percent higher than UBS Securities’ forecast of NT$228 million.
UBS Securities’ Taipei-based analyst Samson Hung (洪希民) said the company’s growth momentum would continue this quarter, expecting revenue to increase 24 percent quarter-on-quarter and 28 percent year-on-year.
Last month alone, Epistar’s consolidated sales rose 30.81 percent from a year earlier to NT$2.51 billion, with cumulative sales for the first four months growing 40.17 percent to NT$8.75 billion from a year ago.
With solid revenue growth, higher utilization rate, stable pricing and a better product mix, gross margin could further improve to 23.4 percent and operating margin could increase to 14.3 percent, with earnings per share of NT$1.37 for this quarter, UBS forecast.
“We believe demand for LED chips will remain strong into the second quarter and industry capacity expansion remains disciplined, so we expect tight LED chip supply for 2014 to benefit Epistar,” Hung said.
Epistar shares, which have outpaced the broader market by almost 16 percent so far this year, fell 1.87 percent to NT$68.3 in Taipei trading on Friday.
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