MLS Saw 9% YoY Growth in 1Q Revenue Following Slowing Gross Margin Drop

MLS released  its 1Q16 earnings last week, reporting the company’s revenue rose to 9.15% year on year (YoY) growth at RMB 819 million (US $125.8 million).

(Unit: RMB 100 million)

Though MLS saw a mere 9.15% YoY growth in 1Q revenue, gross margin decline slowed and has since recovered. Similarly, the LED package industry experienced stagnating demand back in the second half of 2015 is expected that the gross margin will recover and ranges from 20% to 25% as MLS being the first to facilitate price increase to LEDs.

Declining gross margin is common among LED companies in the industry. According to data collected by LEDinside, up to 13 listed LED manufacturers saw a certain degree of decline in gross margin in 1Q16. The drop is mainly triggered by the following two causes.

First, the market is impacted by the fluctuating currency. Chinese LED lighting exportation started to slow down at the end of 2014. In 2015, the market was affected by the recession of global economic and the sluggish Chinese lighting demand, oversupply and market share competition led to 30% to 50% price drop in the LED industry chain though the demand saw slight increase from May to July. Meanwhile, some global leading manufacturers also suffered from more than 20% drop in product prices.

Second, price war and intensive competition among similar products forced countless SMEs to exit the industry. Some bankrupt manufacturers’ consecutively stock sale at extremely low price impinged on the market and therefore led to vicious circle.

Following the boost of production capacity from 2010 to 2012 and continuing price drop from 2012 to 2015, LED package industry has basically completed a thorough shakeout, said Founder Securities. The deployment and framework of the industry are fixed as leading companies emerged. Take the production capacity of LED package for instance, MLS reached 360 billion pieces of LED packages, followed by Nation Star’s 48 billion pieces and 15 billion pieces from Honglitronic. Apparently no other manufacturer can replace the leading position of MLS.

This can also be observed from the global package components manufacturer ranking order in 2015 released by LEDinside, which MLS ranked the ninth.

Polarized trend is especially evident among manufacturers in LED industry. Large manufacturers take advantage of scale to expand while small companies struggle for survival and end up exiting the industry. Working toward scale expansion, MLS will surely be increasingly competitive in the future.

What’s worth mentioned is the “Made in China 2025” plan released by Chinese State Council in May, 2015. The plan outlines the directions of future manufacturing, including green, energy-saving, eco-friendly, digitization and standardization. This too indicates that MLS’s scaling up strategies has promising outlook.

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