 Dec.09, 2013 |  |
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- Taiwan Financials Weekly Briefing
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Dec.06, 2013
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A bearish 4Q13 and lacking solid positive catalysts for 2014
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- A disappointing 3Q13.
- Bearish outlook for 4Q13.
- Little growth in backlights; margin erosion from rising lighting sales mix in 2014.
- We're neutral on Lextar as it reflects ST weakness but LT upside is lacking.
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Nov. 15, 2013
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Upbeat 3Q13, but expecting a weak 4Q13 and margin pressure in 2014
- Everlight posted an upbeat 3Q13 with sales/earnings beating our forecast by 16%/40%. Factors behind the surprises are (1) large sales contribution of NT$560m from WOFI (GR); (2) booking of higher-than-expected streetlight project sales of ~NT$300m; and (3) NT$142m income from acquisition of WOFI offsetting investment losses at Epistar and Tekcore. Despite these factors, GM/OM of 24.8%/9.1% were close to our forecast. We raise 2013E EPS 20% to NT$3.24 to reflect an upbeat 3Q13 and WOFI performance.
- The company faces an inevitable decline in 4Q13. We forecast Everlight’s sales to drop 9% q-q and GM down 0.8 ppt q-q to 24% on weak seasonality for both backlight and lighting. Also, only 30% of street light project sales are left, about NT$100-200m, to be booked in 4Q13. Moreover, WOFI enters weak its season with 40%-50% q-q sales decline as the installation is low on weather issues. Our 53% upward adjustment in EPS of NT$0.61 is to reflect the greater-than-expected contribution from WOFI.
- GM may slide in 2014 on rising lighting OEM sales and ASP pressure on TV LEDs from China. Though higher ASPs will boost revenues from lighting modules, this contribution's lower margins will drag blended GM. Everlight also faces greater threats from Chinese peers, which have been gaining share in supply chains for Chinese TV vendors due to C/P ratio improvements. The 25%+ GM for handset/IT LEDs (30% of 4Q13 sales) can only mitigate part of the pressure from TV/lighting LEDs (45-50% of 4Q13 sales). So, we expect GM to slide to 24.1% in 2014 from 2013’s 24.5%.
- Price war in residential lighting will soon heat up in 2014. Philips (NL) is selling 60W-equivalent LED light bulbs for US$10.97. Cree (US) is selling for US$7.97 after a US$5 rebate. Everlight, which has no strong brand image, is selling for US$22 (Walmart), and should have aggressive price cuts in 2014. Though necessary, this move will be negative to margins next year.
- We sustain our LT rating at Hold and ST rating at Buy, but raise TP to NT$58.2 on upward earnings adjustments. We think the upbeat 3Q13/WOFI results are positive to Everlight’s share price in the short-term but declining margins next year will pressure its long-term performance. We raise our TP to NT$58.2, or 1.5x 2014E BVPS of NT$38.8, to reflect our 2013/14 upward adjustments. Upside potential is 9.6%.
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| TAIEX |
8367.72 |
| Electronics Index |
299.38 |
| Financials Index |
1012.82 |
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