亚洲LED行业研究报告2011年12月.ppt

ANCHORREPORTAsiaLEDlightingEQUITYRESEARCHStilltrappedinthedarkStaybearish:backlightingisunprofitableandgenerallightingatoughmarketWeretainourBearishviewontheLEDindustry,andrecommendcautioninanyshort-termralliestriggeredbypositivenewsflow.Nearterm,weexpectLEDbacklightingtoremainunprofitablein2012FinthefaceofcontinuedpricingpressurefrompanelmakersandsevereLEDoversupply(55%oversupply).Furtherout,wethinkgenerallightingwillbeanothertoughmarketforLEDmakers.TherulesofthegameintheLEDindustryhavechanged,withthecorevalueofthesupplychainlikelytoshiftfromLEDcomponentstoLEDlightingsolutions.WedonotrecommendbuyinganyLEDmakers.Keyanalysisinthisanchorreportincludes:LEDbacklightingmarketlookssettopeakin2012F.Supply-demandanalysisforLEDindustrysuggestscontinuedsevereoversupplyin2012F.TheactualaddressablemarketofLEDlightingforLEDmakersissmallerthanthemarketexpected.TheLEDindustrysprofitabilityduringthepeakLEDlightingcyclewillnotbeashighasthatduringthepeakLEDTVcycle.December15,2011ResearchanalystsAsiaTechnologyAnneLee,CFA-NITB+886221769966RegionalHeadofTechnologyJamesKim-NFIK+85222526203GregKang-NFIK+82237832336EasonHung-NITB+886221769965KyoichiroYokoyama-NSC+81367031113SeeAppendixA-1foranalystcertification,importantdisclosuresandthestatusofnon-USanalysts.AsiaLEDlightingTECHNOLOGYANCHORREPORT:StilltrappedinthedarkStaybearish:backlightingisunprofitableandgenerallightingatoughmarketWearecautiousofanyrally,givenourbearishviewonfundamentalsWeretainourbearishviewontheLEDindustryforboththeshortandthelongterms.WebelievethatdeterioratingprofitabilityforLEDbacklightingwillcontinuein2012Fandonward,andthatgenerallightingwillbeanothertoughmarketforLEDmakersinthelongerterm.Assuch,werecommendthatinvestorsbecautiousofanybear-marketrallywhichcouldbetriggeredbyareboundinLEDTVdemandin2Q12ForpositivenewsflowonLEDlightingdemand.Intheshortterm,wearebearishonbacklightingapplicationsIntheshortterm,weestimatethattheLEDmarketforbacklightingwillremainunprofitablein2012F.WeestimatethattheLEDpackagedpriceforbacklightingwilldropatleast15-20%y-yin2012F,asLEDmakerswillcontinuetofacepricingpressurefromdownstreamamidweakLEDTVdemand.Meanwhile,weestimatethatin2012FtheLEDindustrywillbeoversuppliedby55%,resultinginlowutilizationat45-50%.Lastly,weestimatetheoverallLEDmarketsizeforbacklightingwillpeakatUSD4.2bnin2012F.Inthelongerterm,generallightinglookstobeanothertoughmarketInthelongterm,wethinkthatthegenerallightingmarketwillbeanothertoughmarketforLEDmakers.1)TheactualaddressableLEDmarketsizeforlightingissmallerthanthemarketexpected；weestimatethatin2015Fthemarketsizewillbeonly1.2timesthatofour2012Fpeakmarketforbacklighting,and2)wethinkthatindustryprofitabilityduringthepeaklightingcyclewillnotbeashighasthatduringthepeakLEDTVcycle,andthattheLEDlightingmarketwillbecommoditizedaslatecomerscatchupwiththetechnology,thusweighingdowntheindustrysprofitability.WedonotrecommendbuyinganyLEDnamesWereaffirmReduceonEverlight,aswethinkitsintentiontohaveown-brandLEDlightingwillcauseittoloseopportunitiestocooperatewithlightingcompanies.Givenourlong-termbearishviewontheindustry,weareNeutralonSeoulSemi,LGInnotekandEpistaralthoughvaluationsarecloseto2008financial-crisislows.OurrelativepreferenceisSEMCO,givenitsstrongcommitmenttothelightingbusinessandown-brandLEDlightingproducts.However,wemaintainNeutralonSEMCOasitmayspinoffitsLEDbusinessin2012Fandearningsinotherbusinessesareweak.Fig.1:StocksforactionEQUITYRESEARCHDecember15,2011AnchorthemesWearebearishontheLEDindustryinboththeshortandlongterms,aswebelievethatdeterioratingprofitabilityinbacklightingwillcontinuein2012F,andbecauseLEDlightingisanothertoughmarkettoaddressinthelongterm.NomuravsconsensusWearefirsttobebearishonLEDlighting.NotallLEDlightingrevenueisaddressable,andthepackagedLEDvalueby2015Fisonly1.2xofthebacklightingpeak.ResearchanalystsAsiaTechnologyAnneLee,CFA-NITB+886221769966RegionalHeadofTechnologyJamesKim-NFIK+85222526203GregKang-NFIK+82237832336EasonHung-NITB+886221769965KyoichiroYokoyama-NSC+81367031113PriceTargetNomuraP/EP/BROECodeCompany13-DecPriceRatingFY10FY11FY12FFY1FY11FY12FFY10FY11FY12F009150KSSEMCO90,00090,000NEUTRAL12.625.526.32.02.32.0011070KSLGI73,10074,000NEUTRAL7.5nm18.1046890KSSSC22,00022,000NEUTRAL13.631.031.02448TTEpistar60.071.0NEUTRAL8.445.223.52393TTEverlight47.844.0REDUCE8.613.412.9SourceUpgrade.Source:Bloomberg,Nomuraestimates1.01.31.02.017.914.015.6(4.7)9.5SeeAppendixA-1foranalystcertification,importantdisclosuresandthestatusofnon-USanalysts.Rating:SeereportendfordetailsofNomurasratingsystem.3711192127294454Nomura|AsiaLEDlightingContentsInvestmentsummaryGloomyoutlookforbacklightingLEDlightinganothertoughmarketSupply-demandanalysisOversupplyriskremainsin2012FandonwardPaybackperiodanalysisIndustryconsolidationisnecessary,inourviewEarnings,valuation,andstockactionDecember15,20113238SEMCOLGInnotekSeoulSemiconductor49EpistarCorpEverlightElectronics59AppendixA-12Nomura|AsiaLEDlightingDecember15,2011InvestmentsummaryWeretainourbearishviewontheLEDindustry.Intheshortterm,whiledemandforLEDlightingseemstoustobeunlikelytobereadytotakeoffuntil2013Fduetohighinitialcostsandmacrouncertainties,weestimatethattheLEDmarketforbacklightingwillremainunprofitablein2012FandonwardduemainlytoweakLEDTVdemandandcontinuedpricingpressure.Moreover,weestimatethattheLEDindustrywillbeoversuppliedby55%in2012F.Inthelongterm,webelievethatthegenerallightingmarketwillprovetobeanothertoughmarketforLEDmakers.1)TheactualaddressablemarketsizeofpackagedLEDforlightingissmallerthanthemarketexpected；weestimatethatin2015Fthesizeofthemarketwillbeonly1.2timesourestimatedpeaksizeforpackagedLEDforbacklightingin2012F,and2)wethinkthattheindustrysprofitabilityduringthepeaklightingcyclewillnotbeashighasthatduringthepeakLEDTVcycle,andthattheLEDlightingmarketwillbecommoditizedaslatecomerscatchupwithtechnology,thusweighingontheindustrysprofitability.Asaresult,weretainournegativeviewonLEDcompaniesandmaintainourNeutralratingsonSEMCO,LGI,andEpistar,andourReduceratingonEverlight.However,weupgradeSSCtoNeutral.DeterioratingprofitabilityforLEDbacklightingtocontinuein2012FandbeyondLEDmakersprofitabilityforbacklightingwillcontinuetodeterioratein2012F,inourview,duemainlytoweakLEDTVdemandandcontinuedpricingpressureonLEDs.WeestimatethatLEDpenetrationintoLCDTVswillincreaseto73%in2012Ffrom45%in2011F,indicating79%y-ydemandgrowthforLEDTVs.However,wethinkthattheoverallshipmentsforLEDswillgrowbyonly18%y-yin2012Fduetocontinuedimprovementsintechnology,loweringtheaveragenumberofLEDsequippedby35%y-y,andbecauseoftheincreasedpenetrationoflow-enddirect-typeLEDTVs.Meanwhile,wethinkthatLEDpricesforbacklightingwilldropatleast15-20%y-yin2012F.Webelievethat,becauseoftheslowdemandtrendandbecausemostofthepanelmakersaremakingoperatinglosses,TVsetandpanelmakersareunlikelytoincreasesetandpanelprices.Assuch,inourview,componentmakerswilllikelyfacecontinuedpricingpressurefromdownstream.Furthermore,weestimatethattheLEDindustrywillbesignificantlyoversuppliedby55%in2012F,resultinginlowutilization,weakpricingpower,andweakprofitability.Inresults,weestimateLEDsegmentoperatingmarginsof-2.8%forSEMCO,-4.5%forLGI,5.3%forSSC,13.2%forEpistarand9.9%forEverlightin2012F.Moreover,weforecastthatthemarketsizeforLEDbacklightingwillpeakoutatUSD4.2bnin2012F,andthusbelievedeterioratedprofitabilityforLEDbacklightingwillcontinuein2012Fandonward.GenerallightingisalsoatoughmarketforLEDmakersWebelievethedemandforLEDlightingisunlikelytotakeoffin2012F,asstill-highinitialreplacementcostswill,inourview,remainaburdenonindividualusersandinvestmentinLEDlightingproductswillnottakeoffamidmacroweakness.LEDlightingpricesarelikelytoneedanotheryeartoreachtippingpoints,andweseeindustrystandardsbecomingmoreunifiedby2013Fwithmacroheadwindslikelytoeasebythen.However,webelievethegenerallightingmarketisalsoatoughmarketforLEDmakers.TheLEDmarketforlightingwillnotgrowsignificantlylargerthanthatforbacklighting,inourview.WeforecastthatthetotalLEDlightingmarketwillgrow56%y-ytoUSD20bnin2013F,butthepackagedLEDmarketforlightingwillgrowtoonlyUSD3.1bnin2013F,vs.USD4.0bnforLEDbacklighting.LEDlightingincludesfixturesandlamp/moduleassembly(lightsource),withlightsourceaccountingfor40-50%oftotalvalueandpackageaccount,andpackagedLEDvaluearound35%ofthelightsourcevalue,onourestimates.Assuch,wethinkLEDlightingcannotoffersizeablegrowthopportunityforthepackagedLEDmarket；weestimatethatin2015Fthesizeofthe3Nomura|AsiaLEDlightingDecember15,2011packagedLEDmarketforlightingwillgrowonly1.2timesourestimatedpeaksizeforpackagedLEDforbacklightingin2012F.Moreover,industryprofitabilityduringthepeakcycleoflightingisnotashighasthatofLEDTVs,giventheformersfragmentedmarket,norushtobringtheproductstomarkets(comparedtoITproducts),andcontinuedpricecutstostimulatedemand.Inourview,LEDmakersinthelightingmarketarelikelytoexperiencemarginsqueezeeventually,whenthird-tiermakerscatchupwithtechnology.Whileweexpectfirst-tierLEDmakerstoenjoyameaningfulmarginrecoveryifdemandforLEDlightingpicksup,webelievesuchwilllikelybeshort-lived.Asaresult,wearebearishontheLEDindustryintheshortandlongterms.Inouropinion,LEDlightingiscausingstructuralchangesintheLEDindustry.Webelieveconsolidationisnecessaryinthisindustryandsee2012Fthebesttimetoundergosuchachange.Inthisreport,weidentifyfourdirections:1)LEDmakersmovetowardsdownstreamlamps,fixtures,etc；2)LEDchipmakersworktowardshorizontalintegrationandbuilddirectrelationshipswithlightingcompanies；3)globallightinggiantsfurtherenhancetheirtechnologyandchannelnetworksbyM&As；and4)small/mid-sizelightingcompanies/channelscooperatewithLEDmakers.OversupplyisstillthemajordownsideriskTheindustrymaycontinuetofacetheriskofoversupply,inourview.Weestimatethatthelead-timefornewcapacityramp-upis3-6months.WebelieveLEDlightingsupplyfromtheupstreamisnowmuchmoreflexiblethanduringthegoldenperiodofLEDTVsduring3Q09-2Q10.Theindustryiscurrentlysufferingfromasevereoversupplyofover50%,onourestimates,resultinginsignificantprofitdeterioration.WebelieveLEDmakerswillcontinuetosufferlowutilizationsin2012FduetosignificantLEDcapacity,slowLEDTVdemandandimmatureLEDlightingdemand.Webelievecapexdisciplineisnecessarytopreventtheoversupplyconditionfromgettingworse.Paybackperiodanalysiscommercialdemandtocomefirstfollowedbyresidentialdemand；streetlightingtobesubsidy-drivenWebelievepaybackperiodsareareasonablemeasurethanpricedifferencestoevaluatecompetitivenessofLEDlighting,givenLEDlightingslowerpowerconsumptionandlongerlifespancomparedtoincandescents.WeanalysethatsomecommercialLEDlighting(eg.MR16usedindisplaywindow)willbecompetitivein2012F,asthepaybackperiodisalreadyataround0.6years.Forresidentiallighting,thepaybackperiodofLEDvs.incandescentwillreachourestimated1.3yearsin2012F.However,webelieveLEDpenetrationwillbeslowduetocompetitionfromcompactfluorescentlamp(CFL)whichoffersacomparativepriceandhighluminousefficiency(thepaybackperiodofLEDforCFLwillbearound5.8yearsby2013F,onourestimates).WebelieveCFLwillcontinuetobethemajorchallengeforLEDlighting.Lastly,webelievegovernmentssubsidyprogrammesarenecessarytopromoteLEDstreetlighting,duetothelongpaybackperiodandhighreplacementcosts.WeestimatethatthepaybackperiodofLEDagainstconventionalstreetlightswillremainlongat11.9yearsand7.4yearsin2011Fand2012Frespectively.Stockaction-Prefervertically-integratedplayersWearemorepositiveonvertically-integratedLEDmakerswithgoodtechnologyindevelopingLEDlightingincludinglamps,fixturesandsystems,andhaveagoodrelationshipwithdistributionchannelsandcustomers.WebelievethegameruleintheLEDindustryhaschangedfrombacklightingtogenerallighting,asweexpectthecorevalueofthesupplychaininLEDlightingmarkettograduallyshiftfromLEDcomponentstoLEDlightingsolutions.Weestimate:4Nomura|AsiaLEDlightingDecember15,2011ThemarketsizeofLEDfixturesandsystemswillreachUSD21.2bnin2015Fvs.USD4.8bnforthemarketsizeofpackagedLEDforlightingLEDmakerswilleventuallyseeamarginsqueezeinthelightingmarketasthird-tiermakerscatchupwithtechnologyinamarketwithlimitedgrowthopportunity.Meanwhile,webelieveitisdifficultforLEDchipandpackagemakerstomovetodownstreammakersduetopotentialconflictswithexistingcustomers.Nevertheless,webelievethatinvestorsarelookingtorevisitLEDplayers.ThesharepricesofLEDmakersarecurrentlytradingatornearhistoricallowvaluations,onourestimates.Assuch,weexpectashort-termbear-marketrallyon:1)apotentialreboundinLEDTVdemandin2Q12F；and2)positivenewsflowregardingLEDlightingdemand.However,weremainbearishontheLEDindustryintheshortandlongtermsandwewouldrecommendinvestorsbecautiousonanyshort-termrally.WebelievesomeinvestorscontinuetoholdapositiveviewontheLEDlightingmarket,expectingdemandtorisesignificantly.Inthisreport,wehighlightthatnotallLEDlightingmarketsegmentsareaddressablemarketsforLEDmakersandcautionthatLEDmakerswillcontinuetofacepricecompetition.Ofthestocksinourcoverage,wearepositiveonSEMCOinviewofitsstrongcommitmenttothelightingbusinessandown-brandLEDlightingproducts.However,wemaintainourNeutralratingonSEMCOduetopossibilityofaspin-offofitsLEDbusinessin2012Fandweakearningscontributionsfromotherbusinesses.WehaveNeutralratingsonSeoulSemiconductor(SSC),LGInnotek(LGI)andEpistar,consideringourshort-andlong-termbearishviewontheindustry.WemaintainourReduceratingonEverlight,aswethinkitsintentioninhavingitsown-brandLEDlightingislikelytocauseittolosecooperativeopportunitywithlightingcompanies.Moreover,webelieveitsown-brandproductslackcompetitivenessvs.thoseofleadinglightingcompanies.SEMCO(009150KS,Neutral):Inourview,SEMCOsbusinessmomentumhasdeterioratedduetohighrevenueexposuretoTVandPC-relatedcomponents.Webelieveitsbusinessmomentumwillreachabottomin1Q12F,asthePCindustrywilllikelyfaceHDDsupplyissuesin1Q12F,negativelyimpactingotherPC-relatedcomponentsandTVdemand,whichwebelievewillbottomin1Q12F.AsfortheLEDbusiness,wethinkitsbusinessmomentumwillbebetterthanpeersgivenitsintentiontobuildown-brandlightingproducts,butweseelowprofitabilityinevitablein2012F.LGI(011070KS,Neutral):WemaintainourNeutralratingonLGI,aswebelievevisibilityofearningsmomentumrecoveryislowintheshorttermduemainlytoitsstructuralweakness.WhileITdemandpolarizationofsmartphoneswilllikelycontinuein2012F,weestimateitsrevenueexposuretoTV-andPC-relatedcomponentswillbe52%in2012F,leadingtocontinuedweaknessintheoverallearningstrend.Moreover,weestimatetheproportionofLEDrevenueinlightingwillonlybe13%in2012Fand,thuswebelieveitsLEDbusinessprofitabilitywillcontinuetobeunderpressure.SSC(046890KS,UpgradetoNeutral)-WeupgradeourratingonSSCtoNeutralfromReduce,aswebelieveitistradingatitsfairvalueafterasignificantcorrectionoverthelastoneyear.However,webelieveitsearningsmomentumwillremainweakintheshortandlongterms,inlinewiththeindustrytrend.Epistar(2448TT,Neutral):Asapurechipmaker,Epistarfacesseriousrisk-rewardimbalancechallengesinthelightingbusiness,bearingheavycapexbutonlyearningchiplevelrevenues.Italsofacesoversupplyrisks,inourview.AlthoughEpistarsearningsmayhitashort-termtroughin4Q11-1Q12F,weexpectits2012-13Fearningstoremainlow,givencontinuedoversupplyandseverecompetitioninLEDlighting.WemayturnmorepositiveifEpistarisabletosecuremorelong-termordersfromLEDlightingcompanieswitheasingindustryover-supply.Everlight(2393TT,Reduce):WemaintainourReduceratingonEverlight,inviewofitsweakeningindustrypositioninLEDlightingandbacklightingbusiness.ForLEDlighting,Everlightsown-brandbusinessfacesdirectcompetitionfromleadinglightingcompanies,anditsmarginsaremuchlowerthanthecorporateaverage,draggedbyloweconomiesofscaleandlow-pricedstrategy.Forbacklighting,Everlightsseveralstructuralissuesremain:shrinkingaddressablemarket,whichissqueezedbypanelmakersincreasedin-houseproduction,competitionfromChinesemakers,andweakcustomerbaseinTVandtabletPCapplications.5Nomura|AsiaLEDlightingFig.2:PeervaluationDecember15,2011PriceNomuraP/EP/BROEEPSgrowth(%)CodeCompany13-DecRatingFY10FY11FFY12FFY10FY11FFY12FFY10FY11FFY12FFY10FY11FFY12FEquipmentmakerAIXAGRVECOUSAixtronVeeco8.7822.22NotratedNotrated6.215.01.035.943.718.6351.7nm(40.1)(37.2)(47.1)(45.6)Equipmentaverage39.821.58.6351.7(38.6)(46.4)LEDchip/packagemaker2448TT3061TT2393TTCREEUSEpistarForepiEverlightCree60.0015.9547.8022.39NEUTRALNotratedREDUCENotrated15.745.260.613.416.723.5124.612.91.1na1.21.014.018.4(0.9)176.2395.312.1352.7(81.5)(91.4)(35.7)(6.0)92.5(51.3)4.2(46.6)7282JPToyodaGose1,279.00NEUTRAL9.713.07.920.0(25.8)41.0046890KS009150KS011070KSSeoulSemiSEMCOLGInnotek22,00090,00073,100NEUTRALNEUTRALNEUTRAL13.612.67.531.025.5nm31.026.31.02.02.01.017.918.4(4.7)229.795.4191.0(56.1)(50.6)nm0.0(3.2)nmChip/packageaverageTotalaverage10.29.029.424.434.61.314.86.16.6184.0202.7(49.6)(47.1)5.2(6.2)Note:Upgrade.Source:Companydata,Bloomberg,Nomuraestimates6Nomura|AsiaLEDlightingDecember15,2011GloomyoutlookforbacklightingWeexpectLEDprofitabilityforbacklightingtoremainweakin2012F.Forbacklightingdemand,LCDTVsarethemajorapplicationforLEDdemandastheyaccountfor39-40%ofthetotalbacklightingmarketvalue,accordingtoourestimates.However,wenotethat:Despitetheincreasedpenetrationfrom45%in2011Fto73%in2012F,theoverallshipmentforLEDswillgrowonlybyourestimated18%y-yin2012Fduetocontinuedimprovementintechnology,andincreasedpenetrationoflow-enddirect-typeLEDTVs.Meanwhile,LCDTVsetandpanelmakersaresufferingsignificantlossesduetoveryweakLCD(andLED)TVdemand,leadingtocontinuedpricecuts.However,webelieveTVsetandpanelmakersareunlikelytoincreasepricesuntildemandrecovers.Assuch,webelieveLEDmakerswillcontinuetofacepricingpressurefromthedownstream.WebelieveITdemandpolarizationwillcontinuein2012Fand,thusweexpectthedemandforsmartphonestoremainstrongwhilethedemandforLCDTVsandPCstoremainweak.For2012F,weestimatedemandgrowthforsmartphonesandtabletPCswillbeat36%and80%y-y,respectively,whilethatforLCDTVandPCswillbeat10%and6%y-y,respectively.Lastly,weestimatethattheLEDindustrywillbeoversuppliedby55%in2012Fonsignificantlyovergrowncapacity,andthiswillresultinlowutilizationsof45-50%in2012F,onournumbers.Meanwhile,weforecastthetabletLEDmarketvaluewillgrow161%y-ytoreachUSD669mnin2012F,buoyedbytabletPCdemandgrowthandincreasedLED