Primasia Securities: Epistar to Gain from U.S. and Europe Market

Despite net losses during first quarter of 2014, financial analysts projected Epistar will benefit from U.S. and Europe lighting markets this year, and is expected to benefit from rising general LED lighting demands and stable demands in the display backlight market, according to a Taipei Times report.

The Taiwanese LED chip maker is one of the few chip manufacturers in the world to supply patented products with good cost-to-price ratios, said Primasia Securities Co. Analyst Filia Lin.

With incandescent bulb sales banned in the U.S. and EU, consumers will more likely purchase LED light bulbs, which will drive up LED chip demands and likely contribute to Epistar’s strong sales growth.

 “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.

With intensifying price competitions in the LED end-market sector, the company might also be seeing higher orders from global lighting brands that are increasing outsourcing to sustain profitability, Lin added. 

 “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.

Epistar recently posted a net loss of NT$841.7 million (US$27.89 million), or a net loss per share of NT$0.91 for 1Q14.

The 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.

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 also believes the company’s growth momentum will continue building up this quarter, and projected revenue to rise 24 percent QoQ or 28 percent YoY.

The company’s solid revenue growth, higher utilization rate, stable pricing and a better product portfolio, gross margin could further improve to 23.4 percentwhile 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.

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