Epistar Might Report Losses for 1H14

Major LED EPI-wafer and chip manufacturer Epistar’s revenue was up 30 percent to NT $ 8.13 billion (US $270 million) during second quarter of 2014. Growing backlight and lighting demands have benefited the company, but financial results for first half of 2014 might still be negative, due to huge losses incurred during first quarter, according to a Money DJ report. Third quarter 2014 financial results will be cushioned by the arrival of the peak season, and is estimated to assist the company in maintaining high profits throughout the season. As for the company’s benefits after absorbing FOREPI? It will depend on the company’s performance in 2015.

In recent years, Epistar has expanded its operations with consolidated revenue nearly quadrupling from NT $6.0 billion in 2006 to NT $22.2 billion in 2013. The company has expanded its revenue mostly from merges and strategic alliances. Back in 2007, the company first completed M&A with South Epitaxy Corp. and Highlink Technology Corp. By merging with the two companies, Epistars acquired a more comprehensive product line range for InGaN, AlInGaP, and green light. Shortly after Epistar became Tekcore’s largest stockholder after acquiring 20 percent stocks.

In 2012, Huga Optoelectronics became a fully owned subsidiary of Epistar. The two companies swapped shares at a rate of 4.85 Huga Optoelectronic shares per Epistar share. The acquisition increased Epistar’s MOCVD equipment from 220-230 to 300.

On June 30, 2014, Epistar announced another merger. This time Epistar acquired FOREPI by swapping shares at every share for 3.48 FOREPI shares. The two companies’ shareholders meeting is scheduled to take place on Sept. 1, 2014, while stock conversion date is temporarily scheduled to start on Dec. 31, 2014. In the future, FOREPI will become delisted from the stock market. Epistar’s MOCVD equipment is expected to increase from current 385 to 488 after absorbing FOREPI’s production capacity. Based on the global MOCVD equipment volume of 3,200, Epistar’s global market share is expected to reach 15 percent to 20 percent.

Although, the company has become much larger, Epistar’s recent financial performance has been plagued with issues. Lower than expected performances were mainly caused by LED manufacturers large volume expansions over the last few years leading to oversupply situations, which in turn dragged down prices. Moreover, the slowdown of LCD TV market growth momentum also contributed to Epistar’s revenue slump that lasted from 2011 till 2012. While LED industry production expansions eased, LED lighting application growth sped up, and by 2013 the company was able to turnaround losses. Yet, profits remained slim.

The company’s revenues continued to improve in first quarter of 2014, but suffered a blow when financial institutes’ evaluations highlighted potential losses. Epistar reported revenue losses after tax that quarter. As backlight and lighting application demands grow, the company’s 2Q14 utilization rates have increased, with revenue peaking to NT $8.13 billion. Revenue growth Quarter-on-Quarter (QoQ) was up 30 percent, while Year-on-Year (YoY) surpassed 30 percent to reach new record heights. Excluding external factors, Epistar is estimated to turnaround losses and bring Earnings Per Share (EPS) for 2Q14 to about NT $0. 5 to NT $0.6. However, accumulated revenue still might be negative for the first half of 2014 due to losses during the first quarter.

High order visibility has led to the company’s positive outlook for 3Q14, and potentially second half of 2014. The company estimated as backlight and lighting application orders grow, Epistar’s 2Q14 production utilization rates will rise, with revenue potentially breaching NT $8.0 billion. The company is expected to maintain profitability, and estimated total revenue to exceed NT $28 billion.

As for benefits from Epistar and FOREPI’s merge, cooperation details still need to be sorted at the September 2014 stockholder meeting. The stock swap start date is expected to start on Dec. 31, 2014, and although the two sides have already kicked off production capacity cooperation, the benefits will not become evident till after 2015.

Epistar was founded in 1996, and is currently the leading manufacturer in Taiwan’s EPI-wafer and LED chip industry. The company is also a major global player in the LED industry. The company’s headquarters is based in Hsinchu, Taiwan, and has factories scattered throughout Hsinchu, Miaoli, and Tainan provinces in Taiwan. In China, the company has set up factories in Changzhou, Shenzhen, Xiamen and other areas. Most of the company’s LED products are manufactured for backlight applications that includes smartphone screens, notebooks and TVs, lighting, LED display, automotive lighting and other niche markets.

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