Epistar Reported Record-High Operating Margin

Taiwanese LED chip maker Epistar Tuesday reported financial results for both the fourth quarter and the year ended December 31, 2016. Although net loss for the year widened, operating profit margin for the last quarter jump to 6.7%, the highest in nine quarters. The gain is significant considering the number was -33.14% in 4Q15.
Epistar’s revenues for 2016 totaled NT$ 25.5 billion, and net loss after tax was NT$ 3.54 billion, the highest ever in the company’s history.
However, gross margin and operating profit margin for 4Q16 increased to 18.4% and 6.7% respectively, suggesting net loss has narrowed since the second half of 2016. Investors estimate revenue has hit a bottom and is set to rebound. Shares of Epistar surged to a 20-month high during the session on Wednesday, which also led to a rally in LED stocks.
For the fourth quarter, AlGaInP LEDs contributed to 25% to 30% of the company’s overall revenue. Currently, the sector is still growing due to demands from small pitch displays, automotive lighting and security monitors. Epistar thus estimates the share of AlGaInP LEDs in its overall revenue for 2017 will remain the same or even higher.  
In addition, starting from March or April, demand for TV LED backlight will rise as TV vendors start to place orders, which will also drive revenue growth for the company. 
After Epistar announced better-than-expected results, foreign security companies raised Epistar’s price target from NT$ 31.6 to NT$ 38.5.
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