Taiwan LED Neutral

(Unchanged)
Skye Chen
(886 2) 2175 7052 Technology/Semiconductors 12 June 2008

S O W H A T ? T H E B N P P A R I B A S A N G L E

„ Visiting the optoelectronics Our Rating

exhibition reinforced our
more conservative view of Bloomberg Share ——— P/E ——— –—— P/BV –—— Target
the LED illumination Company code Rating price 2008E 2009E 2008E 2009E price
market.
(TWD) (x) (x) (x) (x) (TWD)
„ The exhibition also
supports our positive view Epistar 2448 TT HOLD 80.0 26.2 20.5 4.2 3.8 73.00
of LED adoption rate in the Everlight 2393 TT BUY 100.00 16.8 15.3 3.5 3.2 128.00
small-and-medium sized Sources: Bloomberg; BNP Paribas estimates
panel segment.

Despite the bright outlook for the LED sector with many momentum drivers in the years to come, both Epistar and
Everlight are facing margin squeeze due to less favorable product mix. We maintain our cautious view on both counters
with potential downside risk. Retain sector Neutral.

LED – light source of the future

General lighting was in the spot light at the exhibition Skye Chen (886 2) 2175 7052
The International Optoelectronics Exposition 2008 held in Taiwan from BNP Paribas Securities (Taiwan) Co Ltd
skye.chen@asia.bnpparibas.com
11 to 13 June had over 480 suppliers, with LED being the center of
attraction. This year, the LED section attributed more importance to Chris Lin (886 2) 2175 7056
general lighting application compared with panel applications last BNP Paribas Securities (Taiwan) Co Ltd
chris.lin@asia.bnpparibas.com
year. We expect general lighting market will see 66% annual growth
and account for 21% of global LED demand in 2009. We believe (Full BNP Paribas technology research team list inside)

general lighting is the next key LED demand driver attracting many to
The 17th Optoelectronic Exposition
invest in this segment.

Huge demand for LED from Notebook in 2008

The major focus of panel application is still on solutions for 7-inch to 15-
inch panels used in Notebooks. Now, most LED backlight Notebooks are
still considered high-end, with retail pricing being at least USD1,600,
which is at a USD300, or 18% price premium to a similar CCFL model.
Sources: www.optotaiwan.com

Lighting market to kick off in 2010

We foresee general lighting becoming an important demand driver in the
LED sector and forecast annual growth of 94% and 66% in 2008 and
2009, respectively, and accounting for 17% and 21% of global LED
demand in 2008 and 2009, respectively. A large portion of it will be
decorative lighting (including supplementary lighting) rather than
illumination. Our channel checks indicate that the illumination market
should only kick off by early 2010 after many government standards and
a protocol are established, and after LED price reduces by 70-80%.

We are cautious on Epistar and Everlight in the near term

Though Epistar is a beneficiary of high LED adoption rate in mini-PC
through its foundry business (5-7% of 2008 sales) with Toyoda Gosei, its
low gross margin at 20-25% for mini-PC application and inferior product
mix should constrain its profitability in 2008. So we maintain our
conservative view with a target price of TWD73 and reiterate HOLD. In
the short term, Everlight’s share price should continue to be constrained
by disappointing LED shipment in the handset segment due to weaker
demand. We find its product mix in 2Q08 less favorable with more lower-
margin products such as Christmas lights squeezing margin leading to
more downside risk.

Please see the important notice on the back page.

SKYE CHEN TAIW AN LED 12 JUNE 2008

General lighting was in the spot light at the exhibition

The International Optoelectronics Exposition 2008 held in Taiwan from 11 to 13 June
had over 480 suppliers; the exhibition showcases all the latest technologies and
products in LED, display, laser, optics, optoelectronics, fiber communications, and
solar energy. We found that LED was the main focus of most visitors. This year, the
LED section put more weight on general lighting applications compared with panel
applications last year; the reason being that LED backlight solutions for panels are
very concrete and many patents have been applied and/or established by LED
suppliers. Everlight (2393 TT), Lite-on-Tech (2301 TT), Lighthouse (Unlisted), and
AOT (3437 TT) are able to supply qualified LED to panel makers in Taiwan. We expect
the general lighting market could see 66% annual growth and account for 21% of
global LED demand in 2009. We believe general lighting is the next key LED demand
driver attracting many to invest in this segment. As for the automobile market, LED
suppliers and visitors were less interested in it compared with last year’s rage. That,
we believe, was mainly due to the fact that the auto industry, is a very closed market,
as it takes two to three years to get certified by an auto maker and some time before it
can be in mass production. Various high-end European auto makers have adopted
LED lighting, mostly for decorative/fashionable purpose and/or directional lighting, not
for headlight as the cost for heat dissipation is still high. (Exhibit 12).

Exhibit 1: Global LED Demand Forecast By Application

——————— Market size ——————— ——— Market distribution ——— ———— Growth ————
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2006 2007 2008 2009
(USD m) (USD m) (USD m) (USD m) (USD m) (%) (%) (%) (%) (%) (%) (%) (%) (%)
Handset 2,000 2,100 2,200 2,266 2,289 56 53 45 33 25 5 5 3 1
Automobile 510 670 760 870 957 14 17 16 13 11 31 13 14 10
Display-Billboard 552 628 747 1000 1250 16 16 15 15 14 14 19 34 25
LCD backlight 60 120 501 1472 2453 2 3 10 21 27 100 318 194 67
General lighting 350 400 600 1163 1934 10 10 12 17 21 44 50 94 66
Illumination 45.5 60 108 450 900 1 2 2 7 10 32 80 317 100
Decoration 304.5 340 492 713.4 1034 9 9 10 10 11 12 45 45 45
Traffic sign 68 72 83 100 120 2 2 2 1 1 6 15 20 20
Total 3540 3990 4891 6872 9003 100 100 100 100 100 13 23 40 31
Sources: PIDA; BNP Paribas

Huge demand for LED from Notebook in 2008

Everlight and Lite-On Tech are two major LED players offering LED solutions for panel
applications (as both companies were already licensed by Toyoda Gosei for combining
yellow phosphor with blue LED, key material for making white-light LED). Major focus
in panel application still lies on solutions for 7-inch to 15-inch panels used in Notebook.
Though Lite-On Tech has demonstrated solutions for 32-inch and 46-inch, cost (40-
45% more than CCFL system-wise) remains the major roadblock in taking it into mass
production in 2009. For panels smaller than 13.3-inch, LED brightness is required at
1300-1800mcd compared with 1800-2000mcd for bigger panel sizes. We were told by
LED makers, backlight solutions for panels could extend to 17-inch and 22-inch in
2009.

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SKYE CHEN TAIW AN LED 12 JUNE 2008

Exhibit 2: LED Specification Requirement For Various Resolution Panel

————————————————————— Panel size —————————————————————
Resolution 7-inch 11.1-inch 13.3-inch 15.4-inch 17-inch 20-inch 32-inch
WVGA 640*480 1200-1300mcd
WSVGA 800*600 (Blue+Y Phospher)
WXGA 1024*768 1200-1300mcd
WSXGA 1280*800 (Blue+Y Phospher)
WX+ 1440*900 1200-1300mcd
WSXGA 1680*1200 (Blue+Y Phospher)
WU 1920*1200 1200-1300mcd 1800-2000mcd (Blue >2000 mcd
(Blue+Y chip+ R/G Phospher or (RGB)
Phospher) Yellow Phospher)
Source: BNP Paribas

We estimate mini-PC (7-inch/8.9-inch screen size) to reach 90-100% of LED adoption

rate this year, while LED adoption rate will increase from 13-14% to 22% in Notebook
in 2008 and 2009, respectively. Mini-PC has high LED adoption rate mainly due to
LED cost being 5-10% lower than that of traditional CCFL. We estimate mini PC
shipments to reach approximately 12m and 25m in 2008 and 2009, respectively;
contributing 6-7% of global LED demand (Exhibit 11). For the notebook segment, we
find Asus, Acer, Dell, HP, Sony, and Apple all have LED backlight Notebooks launched
or to be launch this year (Exhibit 10). Among them, Asus, Dell and Apple are the most
aggressive brand names in promoting LED notebook. Currently, most LED backlight
notebooks are still considered high-end models, retail priced at USD1,600-2,600,
which is at a USD300 or at least 18% price premium to a similar CCFL backlight
source model. But LED adoption does provide the advantage of thinner and longer
battery hours (six to eight hours compared with traditional CCFL backlight of three to
five hours).

Exhibit 3: LED Market Share In Notebook Exhibit 4: LED Supplier In Mini-PC

Nichia Toyoda Gosei Osram TW players

100%
Chip supplier Package house
90%
80% EpiStar (2448 TT) Everlight (2393 TT)
70% Lite-on-Tech (2301 TT)
60%
AOT (3362 TT)
50% Toyoda Gosei (7283 JP)
Lighthouse (Unlisted)
40%
30% Nichia (Unlisted)

20% Nichia (Unlisted) Toyoda Gosei (7283 JP)

10%
0%
2007 2008 2009

Sources: TEJ; BNP Paribas Sources: TEJ; BNP Paribas

In the mini-PC market, key LED suppliers are Everlight, Lite-On Tech, AOT,
Lighthouse, Nichia, and Toyoda Gosei. But, the key suppliers are only Nichia, Toyoda
Gosei and OSRAM in the Notebook segment given it is more patent sensitive and
patent aware.

Lighting market to kick off in 2010

General lighting application was in the spot light in this LED exhibition. Many
participants illustrated solutions for street light, decorative light, supplementary lighting
and some special applications such as plant-growing light. Mainstream in LED general
lighting application is measured at 60-80lm/watt, product lifetime is around 30,000-

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SKYE CHEN TAIW AN LED 12 JUNE 2008

50,000 hours much better than traditional lighting’s 1,000-10,000 hours. We foresee
general lighting becoming an important demand driver in the LED sector, and forecast
annual growth of 94% and 66% in 2008 and 2009, respectively; accounting for 17%
and 21% of global LED demand in 2008 and 2009, respectively. A big portion of it will
be decorative lighting (include supplementary lighting) rather than illumination. Our
channel checks indicate that illumination market should only kick-off by the end of
2009 or early 2010 after many government standards and protocols are established
and LED price reduces another 70-80% (annual price reduction rate is at 30-35%).

In the exhibition, LED street light solution, equipped mostly with brightness measured
at 4000-8000lm, were for side walks or two-lane roads. As the heat dissipation issue
gets gradually resolved, cost of USD400 and above per LED street light is the
threshold to higher adoption rate (traditional sodium light only costs USD27-30). We
estimate the LED return period is shorter at around 25 months in high-electricity cost
nations such as Japan and North European countries. For lower electricity cost nations,
it would take over 40 months.

Apart from LED street light, we also find many applications in decorative lighting such
as garden lighting for mimicking sunlight and moonlight. Another interesting application
is adopting LED light bars in a refrigerator to save electricity.

Exhibit 5: Plant-growing light Exhibit 6: Refrigerator lighting

Sources: International Optoelectronic Exposition Sources: International Optoelectronic Exposition

Globally, key LED suppliers are OSRAM, Cree, Lumiled, and Nichia. In Taiwan, we
foresee Edison Opto being an outstanding player in the LED packaging space.

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Exhibit 7: Global Street Light Supply Chain

Chip supplier Package house Lighting system

Nichia (Unlisted) TW :
Lumiled (PHIA NA) Foxsemicon (3413 TT)
Osram (SIE GR) Brightled (3031 TT)
ATDI (Unlisted)
EpiStar (2448 TT) Edison Opto (3591 TT) AOC (6289 TT)
Cree (CREE US) HPLighting (Unlisted) Harvatek (6168 TT)
Wei-Tien (Unlisted) Leotek (Unlisted)
AOT (6289 TT)
Wu-Tai (Unlisted)
Brightled (3031 TT)
Hsin-Lung (Unlisted)

LED driver IC JP:

Macroblock (3527 TT) Mino Denshi (Unlisted)
Fitipower (Unlisted) Koito (6747 JP)
Siti (6288 TT) Stanley (6923 JP)
TI (TI US)
Maxim (MXIM US) US:
Linear (LLTC US) Advanced LED (Unlisted)
Starchip (Unlisted)
BetaLED (Unlisted)
Holophane (Unlisted)
Thermal Mooncell (Unlisted)

Foxconntech (2354 TT)

ATDI (Unlisted) EU:
CCI (6230 TT) Philips (PHIA NA)
Gia-Tzoong (5355 TT) LEDworx GmbH (Unlisted)
Auras (3324 TT) Whiteley Elec
Yeh-Chiang (6124 TT) (Unlisted)

Source: BNP Paribas estimates

We are cautious on Epistar and Everlight in the near term

Though Epistar is a beneficiary of high LED adoption rate in mini-PC through its
foundry business (5-7% of 2008 sales) with Toyoda Gosei, its low gross margin at 20-
25% for mini-PC application and inferior product mix should constrain its profitability in
2008. Therefore, we maintain our conservative view with a target price of TWD73 and
reiterate HOLD.

In the short term, Everlight’s share price should continue to be constrained by

disappointing LED shipments in the handset segment due to weaker demand. We find
its product mix in 2Q08 will be less favourable with more lower-margin products such
as Christmas lights squeezing its margin leading to more downside risk.

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SKYE CHEN TAIW AN LED 12 JUNE 2008

Exhibit 8: Epistar P/E Band Chart Exhibit 9: Everlight P/E Band Chart

(TWD) (TWD)
200 160 25x
180
140
160
120 18x
140
40x
120 100

100 30x 80 12x

80 60
20x 8x
60 40
40 10x 4x
20
20
0
0
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07
May-03 May-05 May-07

Sources: TEJ; BNP Paribas Sources: TEJ; BNP Paribas

Exhibit 10: Model Of LED Backlight Notebook

Make ACER DELL SONY SONY SONY Toshiba
Model Name Ferrari 1100 XPS M1330 VGN-TZ2000 VGN-SZ780 Premium VGN-G218TN/T Portégé® M700 Laptop

Picture

Price (LED) USD $1,630 USD $1,449 USD $1,670 USD $1,631 USD $2,330 USD $1,599
Screen Size (inch) 12.1" 13.3" 11.1" 13.3" 12.1" 12.1"
Battery Hour (hour) 3 3 4.5-8.5 3.0-6.0 11.5 3.8
Weight (kilogram) 1.95 1.8 1.25 1.8 1.14 2.09
Thickness (centimeter) 3.4 3.38 2.97 2.97 2.55 2.03
Launch Time In the market In the market In the market In the market In the market In the market
Price (CCFL) USD $1,330 USD $1,299 na na na na

Make APPLE APPLE ASUS ASUS ASUS ASUS ASUS

Model Name MacBook Air MacBook Pro U11PU75DD(U1E) U21PEU75DD(U2E) U62PET7ADD(U6E) F8V VX3

Picture

Price (LED) USD $1,799 USD $1,999 USD $2,150 USD $2,760 USD $1,500 na na
Screen Size (inch) 13.3" 15.4" 11.1" 11.1" 12.1" 14'' 12.1"
Battery Hour (hour) 5 5 2.0-7.0 2.0-7.0 2.0-7.0 na na
Weight (kilogram) 1.36 2.45 1 1.25 1.57 na na
Thickness (centimeter) 1.93 2.54 2.9 2.9 3.16 na na
Launch Time In the market In the market In the market In the market In the market 2H08 1H08
Price (CCFL) na na USD $1,300 USD $1,300 USD $1,300 na na

Sources: Website; BNP Paribas

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Exhibit 11: Model Of Mini-PC

Photo

Eee PC 900/901/
Model
Eee PC 700 1000/1000H Aspire One HP mini note M912 MSI Wind Notebook
Company Asustek Asustek Acer HP Gigabyte MSI
Ticker 2357.TW 2357.TW 2353.TW
Price US$399 US$ 550 and up US$ 399/499 USD 499/749 Undisclosed USD 399/499
CPU Intel Celeron Intel Celeron/ Atom 915 Intel Atom 945 Via C7M, 1/1.6GHz Intel Atom Intel Atom 945 GMS
Operating System Linux / MS XP Linux / MS XP Home Linux / MS XP Home Novell Linux/MS Vista HomeWin XP, Linux Linux / MS XP Home
8.9" with touch screen, panel
Size
7" 8.9"/10" 8.9" 8.9" (1280x768) can be rotate 180° 8.9"/10" (1024 x 600)
Weight Slighlty > 1kg < 1kg 1.27kg 1.2kg 1.04/1.18kg
HD 4G and 8G SSD 12G SSD 4/8G SSD/80G HDD 4Gb SSD/120/160GB HDD 120/160/250GB, 2.5" SATA 80G HDD (2.5" SATA)
DRAM 512MB 1Gb 512MB 512MB~2Gb DDR2 support up to 2GB
DUAL card reader as 4 in 1 support SD, MMC, MS
Card reader
expandable HD and MS Pro
Battery battery life 7.8hr 3/6 cell for 3/6 hr life 3/6 cell for up to 4.5 hr life 4hrs 3/6 cells; 2.5-5 hr

NB ODM Pegatron Pegatron Quanta Inventec MSI

Launch time 4Q07 July April June 2008
Shipment (2007) 350K NA
Shipment (2008E) 3.5-5M 5-7m
IMR casing, multi-touch 4 color (black, white, blue
Comment
tourch pad and pink); Alumnum casing

Sources: Company; BNP Paribas

Exhibit 12: Model Of Auoto Use LED Exterior Lighting

Headlight Decorative Tail light Directional light
AUDI na A4, A5, A6 A4 A4, A8, Q7
BMW na 5 series 5 series 5 series
Lexus LS600h All series All series All series
Mercedes Benz na Some classes Some classes Some classes
Sources: Websites; BNP Paribas

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SKYE CHEN TAIW AN LED 12 JUNE 2008

FINANCIAL STATEMENTS

Epistar Corp
Profit and Loss (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E 2Q08 sales to remain
Revenue 6,290 10,206 13,922 16,730 19,246 slow due to lower-than-
Cost of sales ex depreciation (3,567) (5,176) (7,965) (9,827) (10,808) expected demand from
Gross profit ex depreciation 2,723 5,030 5,956 6,903 8,438 handsets
Other operating income - - - - -
Operating costs (769) (1,148) (1,728) (1,819) (1,967)
Operating EBITDA 1,954 3,882 4,228 5,084 6,471
Depreciation (804) (1,680) (2,338) (2,738) (2,816)
Goodwill amortisation - (91) (91) (91) (91)
Operating EBIT 1,151 2,111 1,799 2,254 3,563
Net financing costs (4) (54) (33) (16) (16)
Associates (16) 1 - - -
Recurring non operating income 8 102 (50) 0 0
Non recurring items 129 66 54 20 20
Profit before tax 1,268 2,225 1,770 2,259 3,568
Tax (28) (131) (97) (124) (271)
Profit after tax 1,240 2,094 1,673 2,135 3,296
Minority interests - - - - -
Preferred dividends - - - - -
Other items - - - - -
Reported net profit 1,240 2,094 1,673 2,135 3,296
Non recurring items & goodwill (net) (129) 25 37 71 71
Recurring net profit 1,110 2,119 1,709 2,206 3,368
Per share (TWD)
Recurring EPS * 3.11 3.87 3.12 4.02 6.14
Reported EPS 3.47 3.82 3.05 3.89 6.01
DPS 1.42 2.00 2.00 2.00 2.00
Growth
Revenue (%) 87.2 62.2 36.4 20.2 15.0
Operating EBITDA (%) 96.4 98.6 8.9 20.2 27.3
Operating EBIT (%) 110.7 83.4 (14.8) 25.3 58.1
Recurring EPS (%) 74.8 24.3 (19.3) 29.0 52.7
Gross profit should be
Reported EPS (%) 78.3 10.1 (20.1) 27.6 54.4
eroded by inferior
Operating performance product mix
Gross margin inc depreciation (%) 30.5 32.8 26.0 24.9 29.2
Operating EBITDA margin (%) 31.1 38.0 30.4 30.4 33.6
Operating EBIT margin (%) 18.3 20.7 12.9 13.5 18.5
Net margin (%) 17.7 20.8 12.3 13.2 17.5
Effective tax rate (%) 2.2 5.9 5.5 5.5 7.6
Dividend payout on recurring profit (%) 45.6 51.7 64.1 49.7 32.6
Interest cover (x) 273.0 42.4 55.0 146.6 228.4
Inventory days 136.8 151.5 158.9 171.2 178.1
Debtor days 127.1 101.7 105.4 111.5 113.7
Creditor days 57.1 61.9 66.2 71.3 74.2
Operating ROIC (%) 13.8 21.8 14.9 15.1 21.4
Operating ROIC - WACC (%) 4.0 11.9 5.1 5.2 11.6
ROIC (%) 13.0 21.7 13.8 14.5 20.7
ROIC - WACC (%) 3.1 11.8 4.0 4.6 10.8
ROE (%) 13.9 22.9 16.9 20.2 26.8
ROA (%) 9.5 12.2 5.7 5.3 6.8
* Pre exceptional, pre-goodwill and fully diluted
Sources: Epistar Corp; BNP Paribas estimates

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SKYE CHEN TAIW AN LED 12 JUNE 2008

Epistar Corp
Cash Flow (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
Recurring net profit 1,110 2,119 1,709 2,206 3,368
Depreciation 804 1,680 2,338 2,738 2,816
Associates & minorities 16 (1) - - -
Other non-cash items 214 151 139 104 104
Recurring cash flow 2,144 3,949 4,186 5,048 6,288
Change in working capital (470) (1,819) (2,043) (1,464) (1,086)
Capex - maintenance - - - - -
Capex - new investment (1,381) (1,532) (4,500) (3,150) (3,150)
Free cash flow to equity 293 598 (2,357) 435 2,053
Net acquisitions & disposals - - - - -
Dividends paid (506) (1,096) (1,096) (1,096) (1,096)
Non recurring cash flows (1,226) 800 200 200 200
Net cash flow (1,439) 301 (3,253) (462) 1,156
Equity finance 0 0 0 0 0
Debt finance 742 2,471 9,079 (81) (142)
Movement in cash (698) 2,772 5,826 (542) 1,015
Per share (TWD)
Recurring cash flow per share 6.00 7.20 7.64 9.21 11.47
FCF to equity per share 0.82 1.09 (4.30) 0.79 3.74
Balance Sheet (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
Working capital assets 5,409 7,990 10,808 12,848 14,311
Working capital liabilities (1,936) (8,417) (14,022) (20,270) (26,413)
Net working capital 3,473 (427) (3,215) (7,422) (12,103)
Tangible fixed assets 6,235 10,947 17,785 23,673 29,639
Operating invested capital 9,708 10,520 14,570 16,251 17,536
Goodwill 31 31 31 31 31
Other intangible assets - - - - -
Investments 117 117 117 117 117
Other assets 262 467 467 467 467
Invested capital 10,118 11,135 15,185 16,866 18,151
Cash & equivalents (648) (3,420) (9,246) (8,703) (9,718)
Short term debt 46 146 246 346 446
Long term debt * 2,025 4,525 13,725 13,725 13,725
Net debt 1,422 1,250 4,725 5,367 4,452
Deferred tax - - - - -
Other liabilities 50 50 50 50 50
Total equity 8,645 9,834 10,410 11,448 13,648
Minority interests - - - - -
Invested capital 10,118 11,135 15,185 16,866 18,151
* Includes convertibles and preferred stock which is being treated as debt
Per share (TWD)
Book value per share 24.20 17.94 18.99 20.89 24.90
Tangible book value per share 24.12 17.89 18.94 20.83 24.84
Financial strength
Net debt/equity (%) 16.4 12.7 45.4 46.9 32.6
Net debt/total assets (%) 11.2 5.4 12.3 11.7 8.2
Current ratio (x) 3.1 1.3 1.4 1.0 0.9
CF interest cover (x) 400.9 40.2 65.1 225.0 326.2
Valuation 2006A 2007A 2008E 2009E 2010E
Recurring P/E (x) * 25.7 20.7 25.7 19.9 13.0
Recurring P/E @ target price (x) * 23.5 18.9 23.4 18.1 11.9
Reported P/E (x) 23.1 20.9 26.2 20.5 13.3
Dividend yield (%) 1.8 2.5 2.5 2.5 2.5
P/CF (x) 13.3 11.1 10.5 8.7 7.0
P/FCF (x) 97.4 73.4 neg 100.9 21.4
Price/book (x) 3.3 4.5 4.2 3.8 3.2
Price/tangible book (x) 3.3 4.5 4.2 3.8 3.2
EV/EBITDA (x) ** 14.5 9.4 11.2 9.6 7.5
EV/EBITDA @ target price (x) ** 13.3 8.6 10.3 8.9 6.9
EV/invested capital (x) 3.0 4.1 3.2 2.9 2.7
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Sources: Epistar Corp; BNP Paribas estimates

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SKYE CHEN TAIW AN LED 12 JUNE 2008

Everlight Electronics
Profit and Loss (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
2Q08 sales could be
Revenue 7,949 9,853 13,705 17,419 19,772
Cost of sales ex depreciation (5,103) (6,436) (9,330) (12,299) (13,846) disappointing due to
Gross profit ex depreciation 2,847 3,417 4,375 5,119 5,925 weaker demand in
Other operating income - - - - - handset and mini-PC
Operating costs (836) (964) (1,797) (2,328) (2,955)
Operating EBITDA 2,011 2,453 2,578 2,791 2,971
Depreciation (270) (385) (402) (424) (442)
Goodwill amortisation - - - - -
Operating EBIT 1,740 2,068 2,176 2,367 2,529
Net financing costs 51 24 (20) (10) 6
Associates 229 201 114 145 -
Recurring non operating income 88 3 12 12 12
Non recurring items 90 120 100 100 100
Profit before tax 2,198 2,417 2,382 2,614 2,647
Tax (311) (255) (357) (392) (397)
Profit after tax 1,887 2,162 2,025 2,222 2,250
Minority interests - - - - -
Preferred dividends - - - - -
Other items - - - - -
Reported net profit 1,887 2,162 2,025 2,222 2,250
Non recurring items & goodwill (net) (90) (120) (100) (100) (100)
Recurring net profit 1,796 2,042 1,925 2,122 2,150
Per share (TWD)
Recurring EPS * 5.61 6.01 5.67 6.25 6.33
Reported EPS 5.89 6.37 5.97 6.55 6.63
DPS 3.87 4.23 5.37 6.29 7.58
Growth
Revenue (%) 18.0 23.9 39.1 27.1 13.5
Operating EBITDA (%) 12.2 22.0 5.1 8.3 6.5
Operating EBIT (%) 19.3 18.8 5.2 8.8 6.9
Recurring EPS (%) 15.2 7.2 (5.7) 10.2 1.3
Reported EPS (%) 16.9 8.0 (6.3) 9.7 1.3
Operating performance
Gross margin inc depreciation (%) 32.4 30.8 29.0 27.0 27.7
Operating EBITDA margin (%) 25.3 24.9 18.8 16.0 15.0
Operating EBIT margin (%) 21.9 21.0 15.9 13.6 12.8
Net margin (%) 22.6 20.7 14.0 12.2 10.9
Effective tax rate (%) 14.2 10.5 15.0 15.0 15.0
Dividend payout on recurring profit (%) 68.9 70.4 94.8 100.6 119.7
Interest cover (x) na na 115.1 252.4 na
Inventory days 35.2 34.3 32.4 33.3 35.6
Debtor days 95.1 91.4 83.5 85.8 90.3
Creditor days 127.5 109.4 99.9 104.1 111.3
Operating ROIC (%) 53.1 52.1 44.9 40.8 37.8
Operating ROIC - WACC (%) 43.0 42.1 34.9 30.7 27.8
ROIC (%) 30.4 29.3 26.8 26.4 24.4
ROIC - WACC (%) 20.3 19.3 16.7 16.3 14.3
ROE (%) 23.1 24.1 20.9 20.9 19.3
ROA (%) 16.5 16.8 14.0 13.0 11.4
* Pre exceptional, pre-goodwill and fully diluted
Sources: Everlight Electronics; BNP Paribas estimates

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SKYE CHEN TAIW AN LED 12 JUNE 2008

Everlight Electronics
Cash Flow (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
Recurring net profit 1,796 2,042 1,925 2,122 2,150
Depreciation 270 385 402 424 442
Associates & minorities (229) (201) (114) (145) -
Other non-cash items 78 108 712 1,009 1,351
Recurring cash flow 1,916 2,334 2,924 3,410 3,943
Change in working capital (451) (271) (260) (342) (287)
Capex - maintenance - - - - -
Capex - new investment (500) (650) (675) (700) (725)
Free cash flow to equity 966 1,412 1,989 2,368 2,931
Net acquisitions & disposals - - - - -
Dividends paid (1,237) (1,437) (1,824) (2,134) (2,572)
Non recurring cash flows - (25) (42) (42) (42)
Net cash flow (272) (50) 123 192 317
Equity finance 0 0 0 0 0
Debt finance (116) (90) (90) (98) (112)
Movement in cash (388) (140) 33 93 205
Per share (TWD)
Recurring cash flow per share 5.99 6.87 8.61 10.04 11.62
FCF to equity per share 3.02 4.16 5.86 6.98 8.64
Balance Sheet (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
Working capital assets 4,387 4,964 6,265 7,607 8,449
Working capital liabilities (2,936) (3,630) (5,171) (6,675) (7,901)
Net working capital 1,451 1,334 1,094 932 548
Tangible fixed assets 2,061 3,096 4,173 5,297 6,464
Operating invested capital 3,512 4,429 5,266 6,229 7,011
Goodwill 15 15 15 15 15
Other intangible assets - - - - -
Investments 2,934 2,909 2,886 2,863 2,840
Other assets 840 840 840 840 840
Invested capital 7,301 8,193 9,007 9,946 10,706
Cash & equivalents (1,024) (884) (917) (1,011) (1,215)
Short term debt - 20 35 50 65
Long term debt * - - - - -
Net debt (1,024) (864) (882) (961) (1,150)
Deferred tax 162 170 179 188 197
Other liabilities 69 69 69 69 69
Total equity 8,094 8,818 9,641 10,650 11,590
Minority interests - - - - -
Invested capital 7,301 8,193 9,007 9,946 10,706
* Includes convertibles and preferred stock which is being treated as debt
Per share (TWD)
Book value per share 25.29 25.98 28.40 31.38 34.15
Tangible book value per share 25.24 25.93 28.36 31.33 34.10
Financial strength
Net debt/equity (%) (12.7) (9.8) (9.1) (9.0) (9.9)
Net debt/total assets (%) (9.1) (6.8) (5.8) (5.4) (5.8)
Current ratio (x) 1.8 1.6 1.4 1.3 1.2
CF interest cover (x) na na 134.2 307.8 na
Valuation 2006A 2007A 2008E 2009E 2010E
Recurring P/E (x) * 17.8 16.6 17.6 16.0 15.8
Recurring P/E @ target price (x) * 22.8 21.3 22.6 20.5 20.2
Reported P/E (x) 17.0 15.7 16.8 15.3 15.1
Dividend yield (%) 3.9 4.2 5.4 6.3 7.6
P/CF (x) 16.7 14.5 11.6 10.0 8.6
P/FCF (x) 33.1 24.0 17.1 14.3 11.6
Price/book (x) 4.0 3.8 3.5 3.2 2.9
Price/tangible book (x) 4.0 3.9 3.5 3.2 2.9
EV/EBITDA (x) ** 12.6 12.1 12.2 11.2 11.0
EV/EBITDA @ target price (x) ** 16.3 15.5 15.7 14.4 14.2
EV/invested capital (x) 4.2 4.0 3.7 3.3 3.1
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Sources: Everlight Electronics; BNP Paribas estimates

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SKYE CHEN TAIW AN LED 12 JUNE 2008

BNP Paribas Technology Research Team

Eric Chen
Foundry, IC Design, DRAM
BNP Paribas Securities (Taiwan) Co Ltd
(886 2) 2175 7057
eric.chen@asia.bnpparibas.com
Szeho Ng, CFA
Packaging & Testing, Foundry, Displays
BNP Paribas Securities (Asia) Ltd
(852) 2825 1167
szeho.ng@asia.bnpparibas.com
Peter Yu, CFA
Semiconductors, Displays, Handsets
BNP Paribas Securities Korea Co Ltd
(82 2) 2125 0535
peter.yu@asia.bnpparibas.com

Skye Chen Frederick Wong Nick Ahn

Handsets/LED/DRAM Handsets Downstream Technology
BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities (Asia) Ltd BNP Paribas Securities Korea Co Ltd
(886 2) 2175 7052 (852) 2825 1801 (82 2) 2125 0537
skye.chen@asia.bnpparibas.com frederick.wong@asia.bnpparibas.com nick.ahn@asia.bnpparibas.com

Patty Liu Christie Lai Chris Lin

PC/Downstream Research Associate Research Associate
BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities (Taiwan) Co Ltd
(886 2) 2175 7049 (886 2) 2175 7058 (886 2) 2175 7056
patty.liu@asia.bnpparibas.com christie.lai@asia.bnpparibas.com chris.lin@asia.bnpparibas.com

Rick Chen Sara Lim

Research Associate Research Associate
BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities Korea Co Ltd
(886 2) 2175 7065 (82 2) 2125 0541
rick.chen@asia.bnpparibas.com sara.lim@asia.bnpparibas.com

12 BNP PARIBAS
SKYE CHEN TAIW AN LED 12 JUNE 2008

DISCLAIMERS & DISCLOSURES

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Recommendation structure

All share prices are as at market close on 11 June 2008 unless otherwise stated. Stock recommendations are based on
absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the
recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside
is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most
commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at
any point in time.

Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility
may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst
doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target
price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current
market price and our assessment of current fair value.

Sector recommendations are based on: OVERWEIGHT – Sector coverage universe fundamentals are improving. NEUTRAL – Sector
coverage universe fundamentals are steady, neither improving nor deteriorating. UNDERWEIGHT – Sector coverage universe
fundamentals are deteriorating.

© 2008 BNP Paribas Group

13 BNP PARIBAS