UBS Downgrades Everlight and Epistar Ratings

UBS forecasted oversupply situation in the LED industry will continue into 2016, while sliding LED prices will nullify growing shipment volume advantages, according to a Chinese-language Commercial Times report.

These projected market developments led to UBS decision to downgrade Everlight and Epistar ratings to respectively hold and sell.

Hong lowered Everlight’s investment ratings to hold and estimated share value down to NT $49 (US $1.45). He cited declining panel module demands could impact the company’s long term growth momentum and intensify market competition. Hence, the company’s projected Earning Per Share (EPS) from 2015 to 2017 was pushed down to NT $3.3, NT$ 3.43 and NT $3.62.

Hong further lowered Epistar’s ratings to sell, and the company’s estimated share value was pushed down to NT $21. He outlined four structural issues Epistar faced. The company was losing market share to Chinese manufacturers, and lighting clients negotiated lower prices. Competing Chinese manufacturers have been able to easily acquire key LED patents recently through acquisitions. Lastly, the company is still coping with merger costs of acquiring FOREPI. He projected Epistar loss per share for 2015 and 2016 would be NT$ 0.15 and NT $0.27 respectively, but expected Earning per Share (EPS) to rebound NT $0.02 by 2017.

After the LED market rebounded briefly in 2014, it entered a new glut situation in 2015, said UBS technology industry analyst Hsi-Min Hong. According to UBS high brightness LED chip model projections indicate the industry is still in oversupply situation, and the projected rates are expected to climb up 4% compared to the same period last year from 10% to 12%.

LEDinside research analysts projected in September the LED chip supply-demand ratio would reach 22% this year, due to China’s growing MOCVD production capacity. Chinese MOCVD capacity totaled 1,473 chambers in 2015 alone.

Hong explained the LED oversupply situation was mostly caused by waning backlight demands from TV, tablet, and smartphone market sectors. Lower demands from these sectors has cancelled out growth from the general lighting market.

Secondly, Chinese LED manufacturers continual production expansion raised oversupply risks, and international manufacturers aside from China will be pressured to lower prices. Only manufacturers with large market shares and shipment volumes will be able to succeed, he added.

Benefiting from declining LED bulb retail prices, LED general lighting market penetration will respectively reach 17% and 24% for 2015 and 2016, said Hong. For instance when Philips promoted its two-bulb packed 60W LED bulbs for US $2.5 each in May this year, LED prices closely matched CFL. However, rising backlight demands and improving LED chip efficiency have affected LED demands, and in 2015 high brightness LED chip size demands were down 6%.

Related articles for further reading:

LEDinside:LED Chip Market Oversupply Situation Triggered by China’s Expanding MOCVD Capacity 

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