Trading at 11.3 times next year's estimated earnings, Harvatek Corp (宏齊) is relatively cheap compared with the average price-to-earnings ratio of 12.3 for Taiwanese LED downstream companies, but Primasia Securities Co (犇亞證券) is still cautious about the stock.
The brokerage says the figure indicates that the stock does not look attractive, while others suggest the current valuation does not justify Harvatek’s industry position and its improvements this year.
In the first eight months of the year, Harvatek’s consolidated revenue expanded 35.82 percent year-on-year to NT$3.85 billion. The company’s latest earnings report showed it made a net profit of NT$203.94 million (or NT$1.01 per share) for the first half of the year, compared with a net loss of NT$139.7 million (or NT$0.69 loss per share) recorded a year ago.
Shares of Harvatek, an LED company specializing in surface-mount packaging, have risen 14.02 percent since the beginning of the year, outperforming the broader market’s 7.26 percent increase over the period.
“In addition to a lawsuit with Cree, the weak seasonality in the backlight market in the second half of 2014 and a possible double-digit quarter-on-quarter sales decline in the third quarter will cap the company’s share price performance in the near term,” Primasia analyst Filia Lin said in a client note yesterday.
Lin’s advice for the stock is that investors should stay on the sidelines, at least for now.
Harvatek shares plunged by 4.35 percent to close at NT$18.70 on the Taiwan Stock Exchange yesterday, after the company said on Wednesday it is facing a patent-infringement lawsuit filed by Cree Inc of the US.
Along with another Taiwanese LED company, Kingbright Corp (今台), the company is being charged with patent violations in a US district court in Wisconsin, a Cree statement issued on Tuesday said.
Harvatek is one of Cree’s customers and has sourced various LED components from the US company in the past two years or so, as the Taiwanese firm has been increasing its sales exposure in general lighting, backlight units, indoor display chips and display modules on a contract basis.
Primasia said the US market directly accounted for only 1 percent of Harvatek sales last year, but many of the company’s products have entered the US through its contract lighting business in China and Taiwan.
“We believe Cree not only targets products shipped directly to the US from Harvatek, but also those sold via lighting OEMs [original equipment manufacturers] in Asia,” Lin said. “Therefore, the impact on Harvatek will be huge if it loses the lawsuits.”
The best scenario for Harvatek would be for the company to reach a settlement with Cree and obtain licensing authorization from the US company to help strengthen its global market position in the supply chain.
In recent years, major global brands have tended to use litigation practices to fend off increasingly competitive Taiwanese and Chinese makers amid an LED market that is growing thanks to falling LED general lighting prices
In July, Harvatek said it had obtained licensing for silicate phosphor technology from Toyoda Gosei Co to produce white LEDs, which are mainly used in small to mid-sized backlight modules, such as handsets and notebook computers.
The company is the fourth Taiwanese LED packager to obtain licensing from the Japanese firm, after Everlight Electronics Co (億光), Lite-On Technology Corp (光寶) and Unity Opto Technology Co (東貝).
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