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Research analysts Asia Technology Anne Lee, CFA - NITB anne.lee@nomura.com +886 2 2176 9966 Regional Head of Technology James Kim - NFIK james.kim@nomura.com +852 2252 6203 Greg Kang - NFIK greg.kang@nomura.com +82 2 3783 2336 Eason Hung - NITB eason.hung@nomura.com +886 2 2176 9965 Kyoichiro Yokoyama - NSC kyoichiro.yokoyama@nomura.com +81 3 6703 1113
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
EQUITY RESEARCH
Anchor themes We are bearish on the LED industry in both the short and long terms, as we believe that deteriorating profitability in backlighting will continue in 2012F, and because LED lighting is another tough market to address in the long term. Nomura vs consensus We are first to be bearish on LED lighting. Not all LED lighting revenue is addressable, and the packaged LED value by 2015F is only 1.2x of the backlighting peak.
Research analysts Asia Technology Anne Lee, CFA - NITB anne.lee@nomura.com +886 2 2176 9966 Regional Head of Technology James Kim - NFIK james.kim@nomura.com +852 2252 6203 Greg Kang - NFIK greg.kang@nomura.com +82 2 3783 2336 Eason Hung - NITB eason.hung@nomura.com +886 2 2176 9965 Kyoichiro Yokoyama - NSC kyoichiro.yokoyama@nomura.com +81 3 6703 1113
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Contents
3
Investment summary Gloomy outlook for backlighting LED lighting another tough market Supply-demand analysis Oversupply risk remains in 2012F and onward Payback period analysis Industry consolidation is necessary, in our view Earnings, valuation, and stock action SEMCO LG Innotek Seoul Semiconductor Epistar Corp Everlight Electronics Appendix A-1
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Investment summary
We retain our bearish view on the LED industry. In the short term, while demand for LED lighting seems to us to be unlikely to be ready to take off until 2013F due to high initial costs and macro uncertainties, we estimate that the LED market for backlighting will remain unprofitable in 2012F and onward due mainly to weak LED TV demand and continued pricing pressure. Moreover, we estimate that the LED industry will be oversupplied by 55% in 2012F. In the long term, we believe that the general lighting market will prove to be another tough market for LED makers. 1) The actual addressable market size of packaged LED for lighting is smaller than the market expected; we estimate that in 2015F the size of the market will be only 1.2 times our estimated peak size for packaged LED for backlighting in 2012F, and 2) we think that the industrys profitability during the peak lighting cycle will not be as high as that during the peak LED TV cycle, and that the LED lighting market will be commoditized as latecomers catch up with technology, thus weighing on the industrys profitability. As a result, we retain our negative view on LED companies and maintain our Neutral ratings on SEMCO, LGI, and Epistar, and our Reduce rating on Everlight. However, we upgrade SSC to Neutral.
packaged LED market for lighting will grow only 1.2 times our estimated peak size for packaged LED for backlighting in 2012F. Moreover, industry profitability during the peak cycle of lighting is not as high as that of LED TVs, given the formers fragmented market, no rush to bring the products to markets (compared to IT products), and continued price cuts to stimulate demand. In our view, LED makers in the lighting market are likely to experience margin squeeze eventually, when third-tier makers catch up with technology. While we expect first-tier LED makers to enjoy a meaningful margin recovery if demand for LED lighting picks up, we believe such will likely be short-lived. As a result, we are bearish on the LED industry in the short and long terms. In our opinion, LED lighting is causing structural changes in the LED industry. We believe consolidation is necessary in this industry and see 2012F the best time to undergo such a change. In this report, we identify four directions: 1) LED makers move towards downstream lamps, fixtures, etc; 2) LED chip makers work towards horizontal integration and build direct relationships with lighting companies; 3) global lighting giants further enhance their technology and channel networks by M&As; and 4) small/mid-size lighting companies/channels cooperate with LED makers.
Payback period analysis commercial demand to come first followed by residential demand; street lighting to be subsidydriven
We believe payback periods are a reasonable measure than price differences to evaluate competitiveness of LED lighting, given LED lightings lower power consumption and longer life span compared to incandescents. We analyse that some commercial LED lighting (eg. MR16 used in display window) will be competitive in 2012F, as the payback period is already at around 0.6 years. For residential lighting, the payback period of LED vs. incandescent will reach our estimated 1.3 years in 2012F. However, we believe LED penetration will be slow due to competition from compact fluorescent lamp (CFL) which offers a comparative price and high luminous efficiency (the payback period of LED for CFL will be around 5.8 years by 2013F, on our estimates). We believe CFL will continue to be the major challenge for LED lighting. Lastly, we believe governments subsidy programmes are necessary to promote LED street lighting, due to the long payback period and high replacement costs. We estimate that the payback period of LED against conventional street lights will remain long at 11.9 years and 7.4 years in 2011F and 2012F respectively.
The market size of LED fixtures and systems will reach USD21.2bn in 2015F vs. USD4.8bn for the market size of packaged LED for lighting LED makers will eventually see a margin squeeze in the lighting market as third-tier makers catch up with technology in a market with limited growth opportunity. Meanwhile, we believe it is difficult for LED chip and package makers to move to downstream makers due to potential conflicts with existing customers. Nevertheless, we believe that investors are looking to revisit LED players. The share prices of LED makers are currently trading at or near historical low valuations, on our estimates. As such, we expect a short-term bear-market rally on: 1) a potential rebound in LED TV demand in 2Q12F; and 2) positive news flow regarding LED lighting demand. However, we remain bearish on the LED industry in the short and long terms and we would recommend investors be cautious on any short-term rally. We believe some investors continue to hold a positive view on the LED lighting market, expecting demand to rise significantly. In this report, we highlight that not all LED lighting market segments are addressable markets for LED makers and caution that LED makers will continue to face price competition. Of the stocks in our coverage, we are positive on SEMCO in view of its strong commitment to the lighting business and own-brand LED lighting products. However, we maintain our Neutral rating on SEMCO due to possibility of a spin-off of its LED business in 2012F and weak earnings contributions from other businesses. We have Neutral ratings on Seoul Semiconductor (SSC), LG Innotek (LGI) and Epistar, considering our short- and long-term bearish view on the industry. We maintain our Reduce rating on Everlight, as we think its intention in having its own-brand LED lighting is likely to cause it to lose cooperative opportunity with lighting companies. Moreover, we believe its ownbrand products lack competitiveness vs. those of leading lighting companies. SEMCO (009150 KS, Neutral): In our view, SEMCOs business momentum has deteriorated due to high revenue exposure to TV and PC-related components. We believe its business momentum will reach a bottom in 1Q12F, as the PC industry will likely face HDD supply issues in 1Q12F, negatively impacting other PC-related components and TV demand, which we believe will bottom in 1Q12F. As for the LED business, we think its business momentum will be better than peers given its intention to build own-brand lighting products, but we see low profitability inevitable in 2012F. LGI (011070 KS, Neutral): We maintain our Neutral rating on LGI, as we believe visibility of earnings momentum recovery is low in the short term due mainly to its structural weakness. While IT demand polarization of smartphones will likely continue in 2012F, we estimate its revenue exposure to TV- and PC-related components will be ~52% in 2012F, leading to continued weakness in the overall earnings trend. Moreover, we estimate the proportion of LED revenue in lighting will only be 13% in 2012F and, thus we believe its LED business profitability will continue to be under pressure. SSC (046890 KS, Upgrade to Neutral) - We upgrade our rating on SSC to Neutral from Reduce, as we believe it is trading at its fair value after a significant correction over the last one year. However, we believe its earnings momentum will remain weak in the short and long terms, in line with the industry trend. Epistar (2448 TT, Neutral): As a pure chip maker, Epistar faces serious risk-reward imbalance challenges in the lighting business, bearing heavy capex but only earning chip level revenues. It also faces oversupply risks, in our view. Although Epistar's earnings may hit a short-term trough in 4Q11-1Q12F, we expect its 2012-13F earnings to remain low, given continued oversupply and severe competition in LED lighting. We may turn more positive if Epistar is able to secure more long-term orders from LED lighting companies with easing industry over-supply. Everlight (2393 TT, Reduce): We maintain our Reduce rating on Everlight, in view of its weakening industry position in LED lighting and backlighting business. For LED lighting, Everlight's own-brand business faces direct competition from leading lighting companies, and its margins are much lower than the corporate average, dragged by low economies of scale and low-priced strategy. For backlighting, Everlight's several structural issues remain: shrinking addressable market, which is squeezed by panel makers' increased in-house production, competition from Chinese makers, and weak customer base in TV and tablet PC applications.
Equipment maker
Equipment average LED chip/package maker 2448 TT 3061 TT 2393 TT CREE US 7282 JP 046890 KS 009150 KS 011070 KS Epistar Forepi Everlight Cree Seoul Semi SEMCO LG Innotek
MOCVD utilization 120% 2013 ? Depending on capex 100% 80% 60% 40% 20% 0%
LED market for backlightings to peak 140% out in 2012F 120% 100% 80% 60% 40%
12.8%
10.9%
9.0%
2009
2010
2011F
2012F
2013F
2010 1,176 468 160 98 1,544 857 4,302 2010 19% 33% 318% 661% 117.5%
2011F 1,089 457 365 256 1,653 1,376 5,198 2011F -7% -2% 129% 163% 7% 10.9%
2012F 984 406 470 669 1,638 1,874 6,040 2012F -10% -11% 29% 161% -1% 9.0%
2013F 975 374 442 624 1,580 3,132 7,127 2013F -1% -8% -6% -7% -4% -4.1%
12.8%
LCD TV PC (Desktop + NB) Feature phone Smartphone Tablet PC Strong demand growth for new device
Low cost direct-type LED TVs to stimulate LED penetration; but not helpful to LED market values and profitability
TV vendors have been launching new-feature products such as LED TVs, 3D TVs, connected TVs, smart TVs, etc. over the past two years, trying to boost revenues by introducing premium products into the matured industry. However, given current slowing macro conditions, we believe consumers are less likely to pay extra money to buy premium products and prefer to purchase new devices including smartphones and tablet PCs. When it comes to buying TVs, we believe affordability plays a more important role than new features, such as Internet and 3D functions, in consumers buying process. As such, LED penetration in LCD TVs has continued to disappoint, as mainstream edgetype LED TVs still have a 20-30% price premium over traditional CCFL TVs. We forecast the penetration rate of LED TV will reach only 45% in 2011F vs market expectations of ~50-60% at the beginning of 2011F. To meet consumer needs for lower-cost products amid current macro uncertainties, we believe TV vendors will continue to lower LED TV retail prices and start to launch lowerspec LED TVs in 2012F. Low-cost direct-type LED TVs, which adopt the current CCFL mechanical structure, are an alternative, as they use fewer LEDs (30-50 LEDs in 32" TVs, vs edge-type 80-100) and diffuser plates, eliminating expensive light guide plates and BEF film to save costs. We think this is slightly positive for LED makers, as the LED dollar content per TV is similar to that for edge-type LED TVs, given higher spec and larger-size LEDs used (ASP per LED is 3-4x higher, although # of LEDs is only about one-third, according to our channel checks).
However, as we estimate the LED industry will be severely oversupplied at 55% in 2012F and competition will intensify further, we do not expect the low-cost direct-type LED TVs to improve LED makers' profitability.
Fig. 8: Backlight comparison
Low-cost direct-type LED Thickness LED number (32" TV) Brightness (nits) LED chip reflective coating Backlight cost Light guide plate LED packaging Diffuser plate Thick 30-50 300 Yes CCFL +15-20% No Small (#3528, #3228) High efficiency Direct CCFL Thick No 350 No CCFL No No Normal Edge LED Thin 70-90 250-350 No CCFL +50-70% Yes Big (#5630, #6030) No
Source: Displaysearch
10
11
Incandescent
The number represents share of LED
Halogen
HID
LFL
CFL
LED
Fig. 11: LED lighting market growing fast (USD) ($mn) LED lighting market value y-y 40,000
35,000 30,000 69% 53% 35% 28% 76%
10%
14%
22%
29%
36%
N.A,, 10%
EU, 10%
China, 55%
Source: DisplaySearch, Nomura estimates Source: Nomura estimates
Commercial CFL >20 yrs 18.7 yrs 6.6 yrs LFL 4.1 yrs 2.1 yrs 0.5 yrs Halogen 0.4 yrs 0.3 yrs 0.2 yrs
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Government
Definition of standards
LEDlighting
Produc tivity Ecological awareness
Product quality (lm/w) Returnon Invest ment Best pratice migation Product price (lm/$) Capital invest ment Product availability
Source: Aixtron
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LED lighting fixture, system control LED module/lamp value-add LED packaging value-add Lighting LED chip LED lighting
Market value growth for LED fixtures is faster than market value growth for LED modules
53%
Breaking down
41% CAGR
Chip
Fig. 17: How big is the LED lighting market (vs peak market value for backlighting in 2012F) in 2015F? (USD)
($mn) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2012F
Source: Nomura estimates
8.4x
3.4x 1.2x LED module/ lamp value-adds Packaged LED 2015F LED lighting source
We estimate the LED market size for lighting will exceed that of total backlight applications by 2014F, and to be 1.2 times in 2015F. In 2010, backlighting saw an impressive growth rate of 118% y-y, thanks to LED TV demand. However, we expect the growth rate for LED backlighting to drop significantly in 2011F and eventually drop to negative territory from 2013F, suggesting that the LED market for backlighting will peak out in 2012F. Meanwhile, we expect relatively stable growth for the LED lighting market. We estimate the packaged LED market for lighting will grow 67% y-y in 2013F on
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increased demand for LED lighting. We estimate the LED industry for lighting and backlighting will witness a 13% CAGR over 2011F-2015F.
Fig. 20: Total value of packaged LED for both backlighting and lighting
($mn) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 20.5% 20.8% 16.2% 18.0% 11.9% LED lighting LED backlighting y-y (Overall) y-y (backlighting) y-y (lighting) 92.6% Explosive growth thanks to LED TV demand The overall market to show gradual growth at 13% CAGR over 2011-2015F 140% 120% 100% 80% 60% 40% 20% 7.9% 0% -20%
Crossoverin2014F
4,000 3,000 2,000
36% 45% 25% 78%
132%
95% 78%
36%
45%
0.4 0.2 0
1,000 0 2010
1,000 0 2010
25%
2011F
2012F
2013F
2014F
2015F
2011F
2012F
2013F
2014F
2015F
"Golden period" to come in 2013F, as macro conditions, prices, and industry standards will be more ready by then
We think LED lighting will be ready to take off in 2013F, with LED lighting market revenue expanding 76% y-y to USD20.4bn in 2013F, reflecting our view of a stabilising macro economy and LED lighting prices hitting tipping points by late-2012F. For example, we expect prices of a 60W-replacement LED light bulb to drop to USD10-15 by late-2012/early-2013 (only 3-4 times the price of a CFL light bulb), from current levels of USD25-35. At USD10-15, we believe the prices are low enough to trigger demand. We think the industry standards for LED lighting will become more matured and stringent in 2013F, in the way of a more comprehensive interface endorsement label (eg. Energy Star) and standardization consortium (eg. Zhaga Consortium). Over the past few years, the lack of a unified industry standard has made it difficult for consumers to distinguish the quality of LED light bulbs which has many varieties of specifications, reducing their willingness to purchase LED light bulbs. With no unified industry standard, LED lighting
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vendors also face production challenges such as low economies of scale, inventory control, and short product cycles. However, we see the industry standards for LED light engines and luminaires getting more matured, which will help to stimulate LED lighting penetration by fostering competition, preventing fragmentation, and reducing the development costs of lighting applications. For example, nine lighting giants such as Philips, Osram, Panasonic, and Toshiba established a "Zhaga" consortium in Feb 2010, aiming to create standardized interfaces for LED light engines to secure a stable design platform for luminaire makers and designers. As of today, the total number of members has reached 162. Also, governments are pushing the standardized endorsement label very hard for LED lighting products. For example, the US Department of Energy (DoE) and Environmental Protection Agency (EPA) established an Energy Star standard for integral LED lamps in Aug 2010, and it will set up a new Energy Star luminaires standard with effect from Apr 2012. Although the Energy Star is not a compulsory international standard now, some states in the US have started to ban unqualified LED lighting products from product launches. Most LED makers have slowed down capacity expansion since 2H11, and we believe limited capex will be spent in 1Q-3Q12F due to low utilization rates and the gloomy macro environment. Therefore, we expect only a gradual recovery in utilization rates and profitability in late-2012F/early-2013, which we estimate will likely last into 2013F, when the LED lighting demand is expected to take off. Consequently, we think LED makers will enjoy improved profitability in 2013F (we call it the "golden period").
Fig. 23: The timetable for Energy Star and Zhaga Consortium
Nine lighting giant companies announced to establish "Zhaga" Consortium for the standardization of LED light engine
New Energy Star Luminaires V1.1 for the standardization of luminaires effective
2010.2
2010.3
2010.8
2011.11
2012.4
Profitability in LED lighting cycle may not be as high as that in the LED TV cycle
However, we believe that profitability of LED makers during the peak LED lighting cycle will not be as high as that in the peak LED TV cycle. Gradual demand growth: We expect the demand for LED lighting to grow gradually compared to significant growth seen for LED backlighting. Compared to IT products, the general lighting market is currently fragmented by region and country as formfactors, specifications and lighting type are not determined by end users only but by LED vendors and local regulations. As such, LED makers need to meet many specifications, increased overhead costs, and have to build relationships with channel distributors. In addition, there is no rush to put LED lighting products to the markets, as there are many alternative light sources and users are unlikely to put a priority on transitioning light source.
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Already overgrown capacity: LED supply in the upstream has increased during the golden period in the LED TV cycle and the industry is currently suffering an oversupply condition of over 50%. Alongside the gradual transitioning to LED lighting from conventional lighting, we believe the LED industry will not experience supply shortages. Therefore, for LED makers (chip, packaging levels), without significant strong growth, we think the high margins experienced by LED TVs during the golden period is unlikely to be repeated in the lighting cycle. Increased competition again: Furthermore, we believe LED makers will eventually see a margin squeeze in the lighting market as third-tier makers catch up with technology. Price cuts: We estimate prices for LED lighting will be cut by another 30% in 2012F to stimulate demand. We also estimate prices for packaged LED (chip and package) will drop 30-35% y-y in 2012F. To some extent, we believe LED makers will enjoy improved margins from LED lighting demand growth, but a golden period in the LED lighting cycle is likely to be short-lived, about 4-5 quarters. We also expect LED makers to face price competition again. The golden period of LED TVs for LED makers was from 3Q09 to 2Q10. During that period, LED demand grew 193% and the penetration rate increased from 2% to 18%, causing severe shortages in the upstream supply. In particular, MOCVD equipment and sapphire wafers were key bottlenecks in the supply chain. However, both bottlenecks were resolved within one year. Since then, the supply of MOCVD equipment and sapphire wafer has increased tremendously. For example, Veeco rapidly increased its MOCVD equipment capacity from 25-30 tools per quarter in 3Q09 to more than 100 tools (almost 4x) in 3Q10. In our opinion, shortages happen only when the time to bring products to markets is important and when supply fails to catch up with demand in the short run. In our view, shortages are more likely to happen in IT products, for which consumers are willing to spend before the supply picks up. In contrast, we think a severe shortage is less likely to happen in a lighting market, as there are many alternative light sources/solutions. If LED supply, performance, or standards/regulations are not ready on time, demand can be pushed out a few quarters later until everything is ready.
Fig. 24: Packaged LED demand growth for backlighting
(mn) 30,000 25,000 20,000 15,000 10,000 5,000 0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11F1Q12F3Q12F1Q13F3Q13F
Source: Displaysearch, IDC, Nomura estimates
Backlighting
Lighting
17
(USDmn)
600 500 400 300 200 100 0
(%)
Cree Epistar Everlight LGI SSC S-LED
Golden period of LED TV cycle Cree Epistar Everlight S-LED LGI SSC
1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
Aixtron
Veeco
25 20 15 10 5 0 2004 2006
2008
2H09
2Q10
4Q10
2Q11 4Q11E
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Idle LED capacity in China could eventually be a threat for global players in China market
China is one of the largest markets for general lighting including LED lamps, due to its large population and fast-growing economy. Meanwhile, we estimate China will have 700-plus MOCVD installations by 2011F (similar scale with Taiwan and Koreas) vs. 261 in 2010. We expect this to be driven by government subsidy programmes. However, due to lack of technology and engineers, many of the machines are not running yet. Nevertheless, we believe this idle capacity will gradually come onstream and may eventually become a threat to global players in the Chinese market, as 1) the Chinese government may have higher incentives to subside products produced locally, and 2) Chinese LED makers are located closer to the local supply chain.
Fig. 30: MOCVD installation by country
2010 1,000 900 800 700 600 500 400 300 200 100 0 China Japan Korea Taiwan Other
Source: Displaysearch, Company data, Nomura estimates
2011F
2012F
20
Residential
Commercial
40% 41%
42% 32%
35%
20%
Incandescent 59%
2011F
2012F
2013F
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We believe individual consumers are more sensitive to price and are less tolerant of a large initial investment. According to a Mckinsey survey, the purchase price is the most important criteria in deciding on the type of light source for residential use, followed by light quality and life cycle costs. Therefore, a high LED replacement cost will remain a burden on individual consumers, and potentially impede a demand pick-up in the residential lighting market. Incandescent bulbs (60W): payback period to fall to inflection point by end-2012F With our assumption of a 30% y-y price drop and a 15% y-y luminous efficiency improvement for LED bulbs, we expect LED bulbs to reach a price level that is competitive with incandescent bulbs in 2013F. Our 30% y-y price drop assumption is derived from the SSL manufacturing roadmap from the US Department of Energy. According to Mckinsey's Global Lighting Professionals & Consumer Survey, consumers will choose LED over traditional lighting when the payback period falls below two years on average. Based on our payback period model, we estimate the payback period for 60W incandescent bulbs will drop to 1.3 years and 0.5 years in 2012F and 2013F respectively, which seems to be attractive to consumers, in our view. However, a 60Wequivalent LED bulb price will still be 14 times higher than an incandescent bulb in 2012F, and it should be a large burden on individual consumers to replace cheap conventional bulbs, delaying demand pick in the residential lighting market. We estimate a 60W-equivalent LED bulb price will fall to 10 times higher than an incandescent bulb in 2013F, within the tipping point in the range of 9-12x suggested by Aixtron.
Fig. 33: Solid-state Lighting Manufacturing Roadmap 2011
60 40 20 0 2010 2012 2015 2020 16 10 50 -28% p.a. -13% p.a. OEM lamp price 5
20 15 10 5 0
18
2010 15 10 5 0 2010 13
2012
2015
-28% p.a. 6 2 2012 2015 -13% p.a. 1 2020 Package price- Cool color
CFL: a major challenge for LED bulbs in the residential area Meanwhile, we believe that CFL is the major challenge for LED bulbs in the residential segment, offering comparative prices at 10-15% of LED lamps and luminous efficiency of ~60lm/, as high as LED lamps. Therefore, we believe it will take years to see LED bulbs replace CFLs in terms of payback period. However, LED may be more preferable in developed markets given CFLs have a low CRI rating and contain hazardous mercury.
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2% 4%
CFL
LED
200
150
60
100
40
2.0 yrs
50
20 0
Yr0 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 Yr16 Yr17 Yr18 Yr19
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10
LED 39 20 58 17 24 $15-20
Yr20
23
India European
1207 329.94
U.S. Brazil Japan Philippines U.K. South Korea Canada Malaysia Australia Portugal Ireland
The government will completely replace incandescent lights from 2012 to 2014. The government has forbidden the use of incandescent lights since January, 2010. The government wi l l forbid the use of incandescent lights starting from 2012. The government forbade the use of incandescent The government has forbidden the use of incandescent lights since 2011 The government will forbid the use of incandescent lights starting from 2013. The government will forbid selling incandescent lights starting from 2012. The government will forbid manufacturing, importing and selling incandescent lights starting from January, 2014. It has forbidden importing and selling incandescent lights from 2008 to 2009. The government has increased the tax of imported incandescent lights by EUR 0.5. The government has forbidden selling incandescent lights with low luminous efficacies since 2009.
312.891 194.933 127.92 95.834 62.644 49.006 34.384 29.219 22.504 10.658 4.581
24
LFL
LED
Yr-0
Yr-1
Yr-2
Yr-3
Yr-4
Yr-5
Yr-6
Yr-7
Yr-8
Incandescent
Halogen
HID
LFL
CFL
LED
2011F
2012F
Yr-9
25
Streetlight The industrial lighting market accounts for around 20% of the general lighting market and HIDs (High Intensity Discharge lamp) are mostly widely used. There are various types of HID lamps, depending on areas of use. Here, we conduct a payback period analysis for street lighting, as it can be easily and commonly replaced. We believe government programmes to promote LED lamps for industrial usage are necessary due to LED lightings high payback period and high replacement costs. We estimate the payback period of LED against conventional streetlight will be very long at 11.9 years and 7.4 years in 2011F and 2012F, respectively.
Fig. 43: Assumption for street lighting
Street light Streetlight Electricity cost ($/kWh) Watt Lumens Life span (hr) Luminaire cost Lm/W Fixture (incl. Luminaire) Ballast + Igniter cost Ballast lifespan Installation cost Cost ($) Electricity cost Lamp replacement cost Maintenance cost Total annual cost Payback Assumption Electricity cost growth rate Discount rate Inflation
Source: Nomura research
12 40,000 50 50
44 8 40 92
2% 4% 3%
HID
LED
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10
Yr11
Yr12
Yr13
Yr14
Yr15
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LED packaging/chip makers moving into downstream Acquiring system control design technology, or local channels
LED packaging value-add, 0.10032
LED lighting market value breakdown 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
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MOCVD Equipment
Epi/Chip
Package
Module/ lightengine
Lightingfixture/ Luminaire
* MOCVD equipment making is an oligopoly Description market, dominated by Aixtron and Veeco
* Grow epi layer on sapphire wafer * Structure and dope the substrate * Cut the chip into dies
* Encapsulate and make contacts and primary optics * Coat with phosphor (for white LED)
* Mount LED packages on a PCB * Optimize into application * Integrate light modules with optics and thermal/ power management components
* Combine module and ballast, with a fixture, that plays a key role in the optics, and a heat sink * Attach external control unit for fixtures
* Branding includes various know-how such as marketing, advertising, channel, and promotion
Epistar, Forepi,Genesis Taiwan Liteon Edison,Delta,BrightLED,UnityOpto Everlight TSMC, UMC,HonHai AUO/Lextar Epivally Korea Lumens,Luxpia, Itswell SeoulSemiconductor LGInnotek,Samsung LED(Samsung) Nichia Japan Citizen Toyoda Gosei Sharp Toshiba, Panasonic Sanan,Silan, Epilight, AquaLite,ElecTech, Tsinghua Tongfang China Nationstar,Honglitronic, Refond, Ledman,MLS Tospo,Opple,NVC,Yankon, Foshan, Yamming Aixtron,Veeco USA/EU SemiLeds Cree Osram,GE Philips/Lumileds
Source: Mckinsey, LEDinside, and Nomura research
28
Earnings should bottom in 1H12F, but long-term margins will have structural problems, in our view
Considering the expected severe LED oversupply and macro weakness, we think many LED makers' earnings will approach new lows in 4Q11-2Q12F. Although we expect earnings to recover gradually from 3Q12F with demand recovery and slowed capacity expansion, we think LED makers' margins may not return to peak levels in the LED TV cycle, and in the long run, we see LED maker's margins facing several structural problems. We believe the profitability of LED makers during the golden period in the LED lighting cycle will not be as high as that in the LED TV cycle. As highlighted in earlier sections, we think the peak LED lighting cycle will be shortlived, as shortages are less likely to happen, given the lighting markets very fragmented nature and no rush needed to bring products to markets. Moreover, we believe LED makers will eventually see price competition in the lighting market, as late comers catch up with technology. As packaged LEDs account for the largest proportion in LED lighting costs (30-60% of LED luminaire costs, according to DOE) and aggressive cost reduction is to trigger a take-off in LED lighting demand, we think the pricing pressure for LEDs will continue to be high in 2012-13F, not only from industry competition, but also from lighting customers' cost requirements. For LED makers that penetrate into the LED light source and fixture business, despite higher sales growth potential, we believe their margins will be at risk as well. Margins for OEM/ODM for global leading lighting companies will be low, in our view, given strong bargaining power of customers. Margins for own-brand or smaller customers should ideally be higher, but are also subject to economies of scale and inventory controls. We forecast the LED operating margins of Epistar, Everlight, SSC, LG Innotek, and SLED will bottom out in 2Q12F and recover gradually in 2H12F. However, we estimate their operating margins in 2H12F will be only half of the peak levels in 2Q-3Q10.
Fig. 47: Sales of LED makers
(USDmn) 600 500 400 300 200 100 0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Cree LGI
Epistar SSC
Everlight S-LED
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
29
30
structural issues remain: shrinking addressable market, which is squeezed by panel makers' increased in-house production, competition from Chinese makers, and weak customer base in TV and tablet PC applications.
Fig. 49: Share price performance (2009-present)
Jan 09=100 700 600 500 400 300 200 Epistar Everlight SEMCO Forepi Cree Seoul Semi
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jan-09
Jan-10
Jan-11
Jul-09
Jul-10
Oct-09
Oct-10
Jul-11
Source: Bloomberg
Oct-11
Apr-09
Apr-10
Apr-11
Source: Bloomberg
May-09
May-10
May-11
Sep-11
Jan-09
Jan-10
Jan-11
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jul-11
31
100
SEMCO
TECHNOLOGY
009150.KS 009150 KS
EQUITY RESEARCH
Bottom in 1Q12F
December 15, 2011 Rating Remains Target price Remains Closing price December 13, 2011 Potential downside
Neutral
KRW 90,000 KRW 90,000 0%
Anchor themes Recovery of TV and PC demand seems unlikely until 1H12F, impacting SEMCO's profitability in 2012F. Moreover, its major products, including MLCC and LED, seem to be weaker than we had expected. Nomura vs consensus Our FY12F EPS estimate is 28% below market consensus. We are bearish on the stock to reflect weak downstream demand in 1H12F.
Research analysts South Korea Technology James Kim - NFIK james.kim@nomura.com +852 2252 6203 Greg Kang - NFIK greg.kang@nomura.com +82 2 3783 2336
FY13F New
Revenue (bn) Reported net profit (bn) Normalised net profit (bn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
Source: Nomura estimates
7,147.54 4,469.15 3,529.20 7,986.19 3,416.45 9,005.85 5,263.22 95.4 12.4 5.9 2.0 1.1 18.4 29.2 -37.5 N/A 8.9 N/A N/A 10.6 47.5 -50.6 25.1 9.5 2.2 0.8 8.4 48.2 78.7 N/A 6.2 N/A N/A 18.5 34.7 -3.2 26.0 8.5 2.0 0.8 8.1 36.2 12.8 N/A 5.6 N/A N/A 17.8 24.6 54.1 16.9 7.0 1.7 0.8 10.9 27.4
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | SEMCO
13.4 46.1 -31.0 10.7 39.2 -31.8 11.4 38.9 -26.0 5,739.9 76.3 138000/59200 74.26
23.7 6.8
24.3 21.6 24.3 0.8 9.3 2.7 8.5 15.0 21.3 15.4 8.7 5.1 26.2 20.5 5.7 0.8 12.4 12.1
12.4 11.1 12.4 1.1 7.1 2.0 5.9 9.8 24.3 18.5 11.2 8.0 19.7 14.0 13.9 1.9 18.4 14.6
25.1 22.4 25.1 0.8 7.7 2.2 9.5 26.1 28.6 12.0 4.4 3.8 -0.7 19.8 15.6 2.1 8.4 5.0
26.0 23.1 26.0 0.8 5.1 2.0 8.5 24.4 28.3 11.8 4.1 3.3 20.0 20.5 12.0 1.6 8.1 5.0
16.9 15.0 16.9 0.8 5.1 1.7 7.0 17.4 29.2 12.3 4.9 4.5 11.8 13.3 10.5 1.4 10.9 6.3
Notes
33
Nomura | SEMCO
Cashflow(KRWbn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Nomura estimates
FY09 853 124 -236 740 -315 425 -274 -71 -43 -15 23 -24 -28 222 565 736 759 330 1,089 631 FY10 1,286 -325 4 965 -970 -5 -614 -23 139 268 -235 -68 -3 62 -149 -158 -393 1,089 696 1,014 FY11F 853 9 27 890 -1,115 -225 -47 41 -26 27 -230 -78 -1 224 -153 -7 -237 695 458 1,476 FY12F 933 106 314 1,352 -950 402 -144 53 24 -25 310 -54 0 -157 -46 -257 53 458 511 1,266 FY13F 1,110 -30 277 1,357 -950 407 -175 0 26 -30 228 -54 0 -32 -15 -102 127 511 638 1,107 Notes
Balancesheet(KRWbn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Nomura estimates
FY09 1,089 0 764 487 63 2,403 943 2,104 60 71 5,581 1,111 849 71 2,032 608 123 2,763 223 15 373 470 1,737 2,595 5,581
FY10 695 0 839 752 189 2,476 1,557 2,619 90 94 6,836 757 956 106 1,819 953 262 3,033 328 15 373 721 2,366 3,475 6,836
FY11F 458 0 880 704 214 2,256 1,603 2,709 89 53 6,710 1,011 976 112 2,099 923 235 3,258 389 15 373 940 1,734 3,063 6,710
FY12F 511 0 829 760 238 2,338 1,748 3,049 89 0 7,224 943 1,120 102 2,166 834 259 3,259 465 15 373 1,151 1,961 3,500 7,224
FY13F 638 0 870 864 306 2,679 1,922 3,333 93 0 8,027 981 1,312 96 2,389 764 285 3,437 550 15 373 1,505 2,146 4,040 8,027
Notes
1.18 10.0
1.36 16.1
1.07 5.5
1.08 5.4
1.12 8.2
0.74 24.3
0.79 29.2
1.73 48.2
1.36 36.2
1.00 27.4
34
Nomura | SEMCO
NEUTRAL with PT of W90,000 BUY 12 84,000 - 110,000 NEUTRAL 10 75,000 - 105,000 REDUCE 3 51,000-73,000
Risks: The won/US dollar exchange rate is the biggest earnings risk for SEMCO, which translates to higher earnings volatility, both to the upside and downside, depending on currency movements. In addition, downside risks to our target price include the possibility of aggressive MLCC capacity expansion by Japanese manufacturers.
35
Nomura | SEMCO
Revised 1,737 494 294 950 1,844 1,700 144 1,535 2,810 932 1,618 261 7,926 127 159 54 -16 323
Previous 1,856 491 309 1,055 2,158 2,019 140 1,827 2,684 572 1,818 294 8,524 106 316 60 63 545
Differential (%) -6.4 0.5 -4.8 -10.0 -14.5 -15.8 2.8 -16.0 4.7 62.9 -11.0 -11.3 -7.0 19.6 -49.8 -10.2 n.a. -40.8
36
Nomura | SEMCO
37
LG Innotek
TECHNOLOGY
011070.KS 011070 KS
EQUITY RESEARCH
Maintain Neutral
December 15, 2011 Rating Remains Target price Increased from 71,000 Closing price December 13, 2011 Potential upside
Neutral
KRW 74,000 KRW 73,100 +1.2%
Anchor themes LGI has structural weaknesses that may linger for a while. LGI has limited cash on hand for future investment, while a consumer-taste shift to smartphones will continue to impact LGI's earnings. Nomura vs consensus Our 2012F EPS forecast is in line with market consensus. We believe its weak earnings momentum should continue in 2012F.
Research analysts South Korea Technology James Kim - NFIK james.kim@nomura.com +852 2252 6203 Greg Kang - NFIK greg.kang@nomura.com +82 2 3783 2336
FY13F New
Revenue (bn) Reported net profit (bn) Normalised net profit (bn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
Source: Nomura estimates
4,672 37 37
4,819 76 76
9,785.29 -3,457.87 -3,342.08 1,860.81 3,779.87 8,453.03 9,060.17 191.0 6.9 6.4 0.9 0.5 16.8 96.9 -135.3 N/A 8.5 N/A N/A -4.9 144.2 -134.2 na 9.8 1.0 0.4 -4.7 142.6 na N/A 5.1 N/A N/A 2.7 132.9 na 18.0 6.1 0.9 0.5 5.3 130.7 354.3 N/A 3.8 N/A N/A 11.3 140.6 139.7 7.5 4.3 0.8 0.5 11.7 111.9
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | LG Innotek
48.1
Notes 20.2 38.1 20.2 0.5 7.3 1.3 7.3 18.0 12.4 9.4 3.8 1.9 22.2 10.4 11.1 2.0 8.5 6.6 6.9 13.1 6.9 0.5 243.9 0.9 6.4 17.8 12.6 10.7 3.8 4.8 -16.0 3.6 35.7 5.2 16.8 4.9 na na na 0.4 na 1.0 9.8 na 9.4 7.7 -0.3 -1.5 na na 11.2 1.4 -4.7 -0.3 18.0 33.9 18.0 0.5 3.9 0.9 6.1 23.7 12.7 11.2 2.9 1.6 18.0 9.3 9.3 1.1 5.3 3.3 7.5 14.1 7.5 0.5 2.1 0.8 4.3 11.9 15.1 14.8 5.3 3.6 18.8 3.8 14.8 1.6 11.7 6.3
8.1 57.1 na na na
39
Nomura | LG Innotek
Cashflow(KRWbn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Nomura estimates
FY09 280 39 -159 160 -329 -169 19 -32 32 76 -73 -4 356 549 -686 214 141 162 303 675 FY10 440 -192 -242 6 -1,466 -1,461 -40 -46 -62 522 -1,086 -6 355 753 -73 1,029 -57 304 247 1,424 FY11F 343 -398 -109 -165 -500 -665 25 -25 32 130 -502 -7 2 369 44 408 -95 247 153 1,986 FY12F 539 -24 -165 349 -450 -101 0 0 20 89 8 -5 0 -29 100 65 73 152 225 1,935 FY13F 751 132 -228 655 -750 -95 0 90 20 -11 3 -7 0 -146 151 -3 1 225 226 1,837 Notes
Balancesheet(KRWbn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Nomura estimates
FY09 304 1 667 246 45 1,263 15 1,394 53 80 2,804 455 796 94 1,345 524 60 1,929
FY10 247 1 791 365 90 1,495 55 2,338 121 117 4,126 228 460 527 1,214 1,444 -2 2,656
FY11F 152 1 883 383 140 1,560 30 2,351 146 223 4,310 505 435 314 1,253 1,634 30 2,917
FY12F 225 1 894 395 140 1,655 30 2,363 150 241 4,438 477 454 292 1,223 1,684 50 2,957
FY13F 226 1 892 391 50 1,559 30 2,624 176 167 4,557 481 489 293 1,262 1,582 70 2,914
Notes
0.94 6.1
1.23 3.0
1.24 -0.2
1.35 2.7
1.24 5.6
2.41 77.2
3.24 96.9
5.79 142.6
3.59 130.7
2.44 111.9
40
Nomura | LG Innotek
54%
52%
-50 -100
2012F
LED
D&N SubstrateMaterial
PCB
CM
Motor/ Automotive
41
Nomura | LG Innotek
Debt (LHS)
Debt/Equity (RHS)
Big jump in debt /equity ratio due to hugh capex on LED , but deteriorated profitability
Fig. 62: LED: Quarterly revenue and OPM trend and forecast
(KRWbn) 300 Sales (LHS) OPM (RHS) 5% 0% -5% -10% -15% -20% 1Q11 2Q11 3Q11 4Q11F1Q12F2Q12F3Q12F4Q12F
Source: Company data, Nomura estimates
General lighting
6% 13%
Revise 1,358 1,003 970 354 347 408 379 0 4,819 83 16 -44 16 34 26 8 0 139
Previous 1,179 960 1,041 349 341 401 400 0 4,672 53 5 -44 16 29 22 25 0 107
Differential 15% 5% -7% 1% 2% 2% -5% n.a. 3% 55% 197% n.a. 1% 17% 18% -68% n.a. 30%
42
Nomura | LG Innotek
Fig. 64: LGI: Revenue and operating profit trend and forecasts
(KRWbn) Sales Camera module DN Power Tuner Wireless Total LED Motor/Automotive Motor Automotive Total Material Photomask Lead frame Total PCB Package substrate Lead frame Tape substrate Package Total Others Total sales q-q y-y Operating profit Camera module DN Power Tuner Wireless Total LED Motor/Automotive Motor Automotive Total Material Photomask Lead frame Total PCB Package substrate Lead frame Tape substrate Package Total Others Total sales q-q y-y (2) 6 (3) 1 (2) (7) n.a. n.a. (3) 5 (3) (1) 1 6 n.a. (93.2) (3) 4 (3) (2) 1 (5) n.a. n.a. (3) 4 (4) (2) 0 (7) n.a. n.a. (2) 3 (2) (2) 0 (6) n.a. n.a. (2) 5 (2) 1 (0) 34 n.a. 482.0 2 7 (2) 7 0 68 98.4 n.a. 1 4 (3) 2 0 43 (37.4) n.a. 38.5 n.a. n.a. 6 33 (15) 25 4 157 (11) 19 (13) (5) (0) (14) (1) 18 (9) 8 (0) 139 5 0 5 5 7 3 10 6 4 2 7 6 2 3 5 6 4 3 7 5 5 4 8 7 6 4 11 8 5 4 8 6 26 (0) 25 26 18 9 27 23 19 14 34 26 2 (3) (1) 3 (2) 1 1 (1) 1 1 0 1 1 1 2 2 2 4 3 3 5 2 3 5 21 (10) 11 8 (6) 2 8 8 16 (1) 3 0 2 (34) (2) 3 1 2 (23) 0 3 2 5 (30) 2 0 2 4 (33) (2) (0) (1) (4) (33) 4 2 2 8 (15) 4 4 4 12 3 (2) 1 1 (0) 1 17 19 22 58 (11) (1) 9 5 13 (119) 3 7 7 16 (44) 17 10 7 12 19 21 23 21 19 46 83 21 51 25 97 (8) 1,099 (3.2) 41.9 24 47 27 98 (15) 1,173 6.7 14.0 23 43 28 94 0 1,069 (8.9) (8.2) 20 44 24 88 0 1,116 4.4 (1.7) 22 39 22 83 0 1,061 (4.9) (3.5) 24 48 23 94 0 1,200 13.1 2.3 29 55 24 108 0 1,319 9.9 23.4 26 45 22 93 0 1,238 (6.1) 10.9 38.0 8.6 8.1 88 222 101 410 (70) 4,104 87 185 105 377 (23) 4,457 100 187 92 379 0 4,819 39 24 63 100 46 46 92 102 32 41 73 96 29 52 81 99 28 49 77 96 35 50 85 97 41 55 96 112 37 51 88 103 164 66 230 582 147 163 310 397 141 206 347 408 40 30 70 43 34 78 39 41 80 36 46 83 34 42 77 38 48 86 43 55 98 38 56 93 201 71 271 158 152 310 153 201 354 107 64 87 257 203 111 55 90 256 273 111 54 85 250 249 105 47 91 243 203 97 46 77 220 203 111 51 91 253 245 122 59 101 282 267 110 48 89 248 255 478 285 368 1,130 905 434 219 353 1,006 928 440 205 358 1,003 970 316 289 228 319 305 340 355 358 644 1,152 1,358 1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F
Risks Captive customers slowing down: As a key component supplier for the LG group, volatility in captive earnings momentum is a risk for LG Innotek, both to the upside and downside. However, LG Innotek is diversifying its client base and product line to reduce the dependency on captive customers.
43
Seoul Semiconductor
TECHNOLOGY
046890.KQ 046890 KS
EQUITY RESEARCH
Upgrade to Neutral
December 15, 2011 Rating Up from Reduce Target price Reduced from 27,000 Closing price December 13, 2011 Potential downside
Neutral
KRW 22,000 KRW 22,000 0%
Action: Upgrade to Neutral on limited growth momentum In line with LED industry trends, we foresee limited growth momentum for SSC in the short and long term. While LED lighting demand is unlikely to take off in 2012F, we believe backlightings will remain unprofitable in 2012F and onward due to weak LED TV demand and continued pricing pressure. We estimate SSCs revenue will increase only by 7% y-y to W795bn in 2012F and operating profit will drop 7% y-y to W42bn. In the long term, we have a bearish view on the LED lighting market, as: 1) we estimate the addressable LED market for lightings in 2015F will be only 1.1x larger than the peak market size for backlightings in 2012F; 2) industry profitability during the peak lighting cycle is unlikely to be as high as that during the peak LED TV cycle; and 3) the LED lighting market will be commoditised as latecomers catch up with the technology levels, weighing on industry profitability. Nevertheless, we upgrade SSC to Neutral from Reduce, as we believe that it is currently trading at its fair value of 2012F P/B of 1.9x. Catalyst: Rapid penetration of LED lighting should boost profitability We believe rapid penetration of LED lighting may result in high profitability, though the likelihood of this seems low given the many alternatives. Valuation: Lowering applied multiple to 2.0x, from 2.5x We lower our target price by 18% to W22,000 to reflect our downward revision of 2012F earnings forecasts. Moreover, we now apply a target multiple of 2.0x (2.5x previously), considering our long-term bearish view.
Anchor themes We have a Neutral rating on SSC due to the company's short- and long-term earnings momentum. Nomura vs consensus Our 2012F EPS forecast is 47% below consensus (EPS of W1,341), as we believe LED lighting demand will not be ready to take off, while deteriorating profitability for backlightings will continue.
Research analysts South Korea Technology James Kim - NFIK james.kim@nomura.com +852 2252 6203 Greg Kang - NFIK greg.kang@nomura.com +82 2 3783 2336
FY13F New
Revenue (bn) Reported net profit (bn) Normalised net profit (bn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
Source: Nomura estimates
839 94 94
1,181 70 70
746 41 41
1,359 83 83
795 41 41 709.00 0.0 30.0 16.1 1.9 1.4 6.6 22.1 N/A N/A N/A
1,613.63 1,193.89 229.7 13.2 9.8 2.1 1.5 17.9 8.7 -26.0 N/A 16.8 N/A N/A 11.6 8.9
708.97 1,424.59 -56.1 30.0 19.5 2.0 1.4 6.8 27.2 19.3 N/A 12.4 N/A N/A 12.6 4.4
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Key company data: See page 2 for company data and detailed price/index chart.
-7.6 -20.8 -45.4 -7.8 -25.2 -44.1 -8.1 -25.4 -45.4 1,104.1 69.4 45200/18550 28.74
28 0 28 -5 23
94 0 94 -18 76
41 0 41 -17 24
41 0 41 -17 24
73 0 73 -17 56
18.7 11.8
43.5 55.2 43.5 0.4 65.0 2.7 21.5 32.9 22.6 14.0 9.7 6.2 14.6 19.0 12.5 2.9 9.1 10.1
13.2 16.7 13.2 1.5 34.6 2.1 9.8 12.1 23.4 16.1 13.1 11.2 15.6 19.5 13.0 4.3 17.9 16.8
30.0 38.1 30.0 1.4 57.4 2.0 19.5 41.4 16.0 11.2 6.1 5.5 18.1 42.3 13.4 2.6 6.8 4.2
30.0 38.1 30.0 1.4 8.8 1.9 16.1 30.1 16.0 10.3 5.3 5.2 20.3 42.3 12.6 2.5 6.6 5.3
17.0 21.5 17.0 1.4 11.2 1.8 10.7 17.0 16.0 10.8 6.2 7.1 17.9 23.9 9.8 2.2 10.9 8.8
Notes
59.6 1,660.2 na na na
45
Cashflow(KRWbn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Nomura estimates
FY09 64 -138 93 19 -57 -38 -83 2 2 -104 -220 -5 265 -22 0 238 18 9 27 -27 FY10 135 -105 5 36 -109 -73 -22 1 12 46 -36 -18 21 101 -45 59 23 27 50 52 FY11F 84 -27 -35 22 -100 -78 -62 0 -13 38 -115 -17 0 74 17 73 -42 50 7 168 FY12F 82 25 35 141 -100 41 -12 0 0 -41 -12 -17 0 -8 55 30 18 7 25 142 FY13F 110 -44 45 111 -101 10 13 0 0 -17 6 -17 0 -3 34 14 20 25 46 119 Notes
Balancesheet(KRWbn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Nomura estimates
FY10 50 1 164 103 186 504 116 163 9 22 814 1 48 60 109 100 13 222 0 29 204 360 592 814
FY11F 7 0 172 103 165 448 179 193 16 22 858 75 39 28 142 100 0 242 0 29 227 360 616 858
FY12F 25 1 171 109 171 477 191 196 22 24 910 95 61 42 198 72 0 270 0 29 251 360 640 910
FY13F 46 1 187 137 184 554 177 190 23 31 976 91 78 37 207 73 0 280 0 29 307 360 696 976
Notes
4.93 na
4.64 na
3.15 na
2.41 na
2.68 na
0.38 8.7
2.00 27.2
1.73 22.1
1.08 17.1
46
47
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011F
2012F
Fig. 67: SSC: Quarterly sales and operating profit trend and forecasts
Sales Operating profit OP margin Sales breakdown Handset Notebook TV Lighting Others Sales contribution (%) Handset Notebook TV Lighting Others y-y growth rate Handset Notebook TV Lighting Others q-q growth rate Handset Notebook TV Lighting Others 1Q10 125 16 13% 31 26 18 40 9 25.1 21.1 14.5 32.4 6.8 0.4 86.1 62.1 -23.4 -24.9 -11.1 852.6 2.0 -19.8 2Q10 215 31 14% 33 37 83 53 10 15.1 17.1 38.7 24.6 4.5 -16.2 -7.4 82.5 16.7 4.2 40.0 360.3 31.3 13.6 3Q10 277 45 16% 41 39 122 65 11 14.8 14.0 43.9 23.3 3.9 -13.0 22.9 9,049.2 63.1 -17.8 26.0 5.4 46.0 21.9 13.3 4Q10 222 25 11% 43 29 87 53 10 19.6 13.0 39.1 23.9 4.4 4.3 -2.0 4,478.3 34.2 -7.9 5.9 -25.3 -28.5 -17.8 -10.7 1Q11 207 14 7% 34 31 89 47 7 16.3 15.1 42.8 22.5 3.3 7.7 19.2 390.7 15.9 -20.0 -22.5 8.1 2.1 -11.9 -30.3 2Q11 208 18 9% 33 38 51 79 7 15.7 18.2 24.7 37.9 3.5 0.2 2.9 -38.3 49.1 -24.4 -3.1 20.8 -42.1 68.9 7.4 3Q11 4Q11F 1Q12F 166 165 169 6 7 7 4% 4% 4% 32 32 26 69 7 19.4 19.1 15.5 41.8 4.1 -21.4 -18.1 -78.8 7.5 -37.3 -1.1 -16.0 -49.8 -12.0 -6.2 33 34 25 66 7 19.9 20.6 15.3 40.0 4.2 -24.5 16.9 -71.1 24.3 -29.8 1.7 6.6 -2.6 -5.0 0.0 30 34 30 69 7 17.5 20.2 17.7 40.5 4.1 -12.3 9.2 -66.2 46.8 2.9 -9.9 1.0 19.4 4.0 2.1 2Q12F 3Q12F 4Q12F 191 219 217 10 13 12 5% 6% 5% 28 35 33 87 8 14.9 18.4 17.1 45.7 4.0 -13.1 -7.4 -36.6 10.4 3.4 -4.0 2.4 8.6 27.0 7.9 28 40 37 106 8 12.7 18.1 16.8 48.6 3.8 -13.8 24.3 42.6 53.1 20.7 -2.0 12.8 12.9 22.0 9.6 29 34 44 102 8 13.3 15.8 20.1 47.1 3.7 -12.5 0.8 73.4 54.7 17.9 3.2 -13.5 18.5 -4.0 -2.3 2010 839 116 14% 148 131 310 211 39 17.7 15.6 37.0 25.1 4.6 -6.6 13.8 9,500.2 58.6 -10.2 2011F 746 45 6% 132 135 191 261 28 17.6 18.1 25.6 35.0 3.7 -11.4 3.1 -38.3 23.8 -28.4 2012F 795 42 5% 115 143 143 364 31 14.4 18.0 18.0 45.7 3.9 -12.9 6.0 -25.2 39.4 11.1
2013F
48
Epistar Corp
DISPLAYS
2448.TW 2448 TT
EQUITY RESEARCH
December 15, 2011 Rating Remains Target price Increased from 62.0 Closing price December 13, 2011 Potential upside
Neutral
TWD 71.0 TWD 60.0 +18.3%
Anchor themes We are conservative on the 2012F LED industry outlook, as we believe continued ASP/margin pressure from LCD backlight applications, as well as the lighting applications, will weigh on the margins of LED companies. Nomura vs consensus Our FY12F EPS estimate is 4% below market consensus, as we expect higher pricing pressure to lead to lower margins.
Research analysts Taiwan Technology/Hardware Anne Lee, CFA - NITB anne.lee@nomura.com +886 2 2176 9966 Eason Hung - NITB eason.hung@nomura.com +886 2 2176 9965
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
Source: Nomura estimates
19,766 5,766 5,766 7.17 176.2 8.4 5.3 1.1 7.5 14.0
18,406 1,200 1,200 1.40 -80.4 N/A 8.7 N/A N/A 2.3
17,751 1,136 1,136 1.33 -81.5 45.2 12.5 1.1 1.1 2.5
20,008 2,151 2,151 2.51 79.3 N/A 6.2 N/A N/A 4.1
19,077 2,188 2,188 2.56 92.5 23.5 9.0 1.1 2.1 4.8
22,457 2,778 2,778 3.25 29.1 N/A 5.0 N/A N/A 5.1
21,435 2,901 2,901 3.39 32.6 17.7 7.3 1.1 2.8 6.1
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Key company data: See page 2 for company data and detailed price/index chart.
-2.8 13.4 -40.6 -3.0 11.0 -41.0 2.6 18.5 -20.3 1,681.3 75.0 116.5/48 25.28
JP Morgan & Ou-Pen Han5.1 Ma Fund Everlight Electronics Co. 4.1 Ltd. Source: Thomson Reuters, Nomura research
23.1 27.4 23.1 3.0 15.6 1.3 9.4 21.2 24.2 30.6 13.2 13.6 6.1 79.9 21.4 1.2 6.0 7.1
8.4 9.9 8.4 7.5 4.9 1.1 5.3 7.5 35.8 36.7 25.0 29.2 7.3 66.5 25.2 2.2 14.0 16.0
45.2 53.5 45.2 1.1 60.7 1.1 12.5 41.8 19.8 26.2 10.1 6.4 10.2 49.4 28.2 1.7 2.5 2.6
23.5 27.8 23.5 2.1 9.4 1.1 9.0 21.5 22.5 30.0 13.2 11.5 12.0 49.4 15.7 0.9 4.8 4.6
17.7 20.9 17.7 2.8 7.9 1.1 7.3 16.8 23.2 31.9 14.3 13.5 12.0 49.4 23.3 1.3 6.1 5.8
Notes
50
Cashflow(TWDmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Nomura estimates
FY09 3,888 2,375 -3,695 2,569 -2,720 -151 -3,138 -25 117 1,675 -1,522 -75 11,252 3,830 203 15,210 13,687 4,411 18,098 -13,695 FY10 7,260 -2,218 4,759 9,801 -4,980 4,822 -11,298 78 -10 3,351 -3,057 -1,384 0 499 18 -867 -3,925 18,098 14,173 -7,509 FY11F 4,659 -3,719 -93 846 -5,000 -4,154 560 -1,351 0 790 -4,154 -3,837 0 5,900 0 2,063 -2,091 14,173 12,082 482 FY12F 5,723 -135 -113 5,475 -3,000 2,475 220 0 0 -220 2,475 -562 0 0 0 -562 1,913 12,082 13,996 -1,431 FY13F 6,829 -335 -20 6,474 -5,000 1,474 150 0 0 -150 1,474 -1,081 0 0 0 -1,081 393 13,996 14,388 -1,824 Notes
Balancesheet(TWDmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Nomura estimates
FY09 18,098 3,730 4,534 1,946 485 28,793 2,215 13,840 0 616 45,464 4,403 976 4,251 9,630 0 132 9,762 0 7,690 1,784 26,229 35,702 45,464
FY10 14,173 207 6,646 2,676 734 24,436 17,036 17,345 0 538 59,355 4,301 1,383 4,718 10,401 2,363 122 12,887 0 8,475 5,993 32,000 46,468 59,355
FY11F 12,082 207 7,633 3,273 734 23,929 16,476 19,476 0 1,889 61,771 1,801 1,565 2,400 5,767 10,763 122 16,652 0 9,826 3,292 32,000 45,118 61,771
FY12F 13,996 207 7,822 3,400 734 26,158 16,256 19,274 0 1,889 63,577 1,801 1,626 2,520 5,947 10,763 122 16,833 0 9,826 4,918 32,000 46,744 63,577
FY13F 14,388 207 8,574 3,294 734 27,197 16,106 20,516 0 1,889 65,708 1,801 1,812 2,646 6,259 10,763 122 17,144 0 9,826 6,738 32,000 48,564 65,708
Notes
2.99 74.0
2.35 186.4
4.15 11.6
4.40 14.4
4.35 17.6
0.10 1.1
51
52
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Valuation methodology. As we revise our earnings estimates, we raise our TP to TWD71. Our new TP of TWD71 is based on 1.3x FY12F BVPS of TWD54.5 vs our previous TP of TWD62, based on 1.0x FY12F BVPS of TWD62. We use the mid-end of the historical range of 0.6-2.0x post the 2008 financial crisis, reflecting its leading technology but lower profitability and our low ROE estimate of 2-4% for 2011-12F. Key risks include: 1) faster/slower-than-expected LED TV growth; 2) faster/slowerthan-expected ramp-up of panel makers in-house LED chip capacity, and 3) worse-thanexpected ASP/margin erosion caused by oversupply or the ramp-up of replacement new technology such as AM-OLED.
Jul-12
53
Everlight Electronics
DISPLAYS
2393.TW 2393 TT
EQUITY RESEARCH
December 15, 2011 Rating Remains Target price Reduced from 46.0 Closing price December 13, 2011 Potential downside
Reduce
TWD 44.0 TWD 47.8 -8%
Anchor themes As LED TV price premiums continue to shrink, we expect packaging companies will suffer the most from pricing pressure, since they provide value-added effort and have less bargaining power. Also, the LED lighting is a tough market to address. Nomura vs consensus Our FY12F EPS forecast is 9% lower than consensus, as we factor in higher pricing pressure and the company's weakening industry position.
Research analysts Taiwan Technology/Hardware Anne Lee, CFA - NITB anne.lee@nomura.com +886 2 2176 9966 Eason Hung - NITB eason.hung@nomura.com +886 2 2176 9965
FY13F New
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
Source: Nomura estimates
16,652 2,310 2,310 5.53 12.1 8.6 6.0 1.3 8.4 15.6
16,230 1,621 1,621 3.88 -29.8 N/A 7.8 N/A N/A 10.4
16,277 1,486 1,486 3.56 -35.7 13.4 7.9 1.3 7.5 9.6
17,744 1,741 1,741 4.17 7.4 N/A 6.5 N/A N/A 10.5
17,504 1,549 1,549 3.71 4.2 12.9 6.5 1.2 4.8 9.5
19,311 1,875 1,875 4.49 7.7 N/A 5.7 N/A N/A 10.7
18,856 1,656 1,656 3.96 7.0 12.1 5.7 1.1 5.0 9.6
1.1 net cash net cash net cash net cash net cash net cash
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Key company data: See page 2 for company data and detailed price/index chart.
4.3 3.9
9.7 8.9 9.7 6.0 40.0 1.3 8.0 11.3 29.4 19.1 12.9 16.1 7.2 64.8 6.6 1.1 14.8 9.5
8.6 8.0 8.6 8.4 4.8 1.3 6.0 7.9 26.0 17.7 12.8 13.9 8.7 72.5 6.7 1.4 15.6 11.8
13.4 12.4 13.4 7.5 7.9 1.3 7.9 12.6 21.9 15.2 9.5 9.1 13.2 101.3 6.1 1.1 9.6 6.7
12.9 11.9 12.9 4.8 8.3 1.2 6.5 10.0 21.8 15.8 9.9 8.8 13.0 62.5 5.7 1.0 9.5 7.7
12.1 11.1 12.1 5.0 7.5 1.1 5.7 8.9 21.5 15.4 9.3 8.8 13.0 60.9 5.3 0.9 9.6 8.1
Notes
55
Cashflow(TWDmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Nomura estimates
FY09 2,136 2,167 -3,866 437 -743 -306 -4,753 522 -151 2,614 -2,074 -1,167 2,831 3,110 89 4,863 2,789 1,208 3,996 -965 FY10 2,949 -220 1,414 4,143 -1,110 3,032 -1,111 118 43 -1,970 112 -1,675 0 290 313 -1,072 -960 3,996 3,037 168 FY11F 2,471 142 -92 2,521 -1,000 1,521 -31 -532 0 563 1,521 -1,505 0 0 313 -1,192 329 3,037 3,366 -162 FY12F 2,767 4 -363 2,409 -1,000 1,409 -180 93 0 87 1,409 -967 0 0 313 -655 754 3,366 4,120 -915 FY13F 2,902 143 -379 2,666 -1,000 1,666 -280 93 0 187 1,666 -1,008 0 0 313 -695 971 4,120 5,091 -1,886 Notes
Balancesheet(TWDmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Nomura estimates
FY09 3,996 2,472 3,476 627 510 11,082 8,594 3,923 0 742 24,340 808 2,558 4,004 7,370 2,223 212 9,806
FY10 3,037 836 4,151 829 764 9,617 11,342 4,483 0 624 26,066 1,098 2,681 4,793 8,572 2,106 255 10,932
FY11F 3,366 836 4,558 1,144 764 10,668 11,373 4,558 0 1,156 27,755 1,098 3,305 5,032 9,436 2,106 255 11,796
FY12F 4,120 836 4,901 1,300 764 11,921 11,553 4,523 0 1,064 29,060 1,098 3,557 5,284 9,939 2,106 255 12,300
FY13F 5,091 836 5,280 1,331 764 13,302 11,833 4,376 0 971 30,482 1,098 3,846 5,548 10,493 2,106 255 12,853
Notes
1.50 20.9
1.12 21.0
1.13 12.8
1.20 13.2
1.27 13.4
0.06 1.1
56
57
100 80 60 40 20
Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12
Valuation Methodology. Our TP of TWD44 is based on 12x 2012F EPS of TWD3.71 (at the low-end of its historical P/E range of 12-21x), vs. our previous TP of TWD46, at 13x 2H11-1H12E EPS. We lower our P/E multiple to the trough 12x valuation, reflecting its weakening industry position. Key risks to our target price include: 1) faster-than-expected LED TV growth; 2) higher-than-expected margin share gain in backlight applications; 3) better-thanexpected ASP/margin erosion, and; 4) faster-than-expected growth from lighting.
58
Appendix A-1
Analyst Certification
We, Anne Lee, James Kim, Greg Kang, Eason Hung and Kyoichiro Yokoyama, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Previous Rating
Issuer name SEMCO LG Innotek Seoul Semiconductor Everlight Electronics Epistar Corp Previous Rating Buy Not Rated Reduce Neutral Buy Date of change 26-Jul-2011 24-Sep-2010 14-Dec-2011 24-Mar-2011 24-Sep-2010
59
Neutral
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our target price of KRW74,000 is based on 1.0x FY12F BVPS of KRW73,597. We think applying 1.0x P/B (rolled forward to 2012F BVPS of KRW73,597) is reasonable as we think that LGI will likely continue to suffer slowing topline growth with low profitability in 2012F and that it will face lacklustre cash generation for a while. Risks that may impede the achievement of the target price Captive customers slowing down: As a key component supplier for the LG group, volatility in captive earnings momentum is a risk for LG Innotek, both to the upside and downside. However, LG Innotek is diversifying its client base and product line to reduce dependency on captive customers.
Seoul Semiconductor (046890 KS)
Rating and target price chart (three year history) Date 28-Apr-11 24-Sep-10 24-Sep-10 26-Jul-10 26-Jul-10 18-Jun-10 22-Mar-10 22-Mar-10 Rating Reduce 34,000.00 Neutral 50,000.00 53,000.00 Buy 49,000.00 Target price 27,000.00 Closing price 34,100.00 43,300.00 43,300.00 46,150.00 46,150.00 45,400.00 41,700.00 41,700.00
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our target price of W22,000 is derived by applying a target multiple of 2.0x, which is a historical trough, to our FY11F BVPS estimate of W10,978. Risks that may impede the achievement of the target price We believe rapid penetration of LEDs in general lighting will provide high profitability for LED makers. However, slow penetration of LED in general lighting would provide further downside to our earnings forecasts in 2012F and 2013F
60
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of TWD71 is based on 1.3x FY12F BVPS of TWD54.5. We use the mid-end of the historical range of 0.6-2.0x post the 2008 financial crisis, reflecting its leading technology but lower profitability and our low ROE estimate of 2-4% for 2011-12F. Risks that may impede the achievement of the target price Key risks include: 1) faster/slower-than-expected LED TV growth; 2) faster/slower-than-expected ramp-up of panel makers in-house LED chip capacity and 3) worse-than-expected ASP/margin erosion, caused by oversupply or the ramp-up of replacement new technology, such as AM-OLED.
Everlight Electronics (2393 TT)
Rating and target price chart (three year history) Date 30-Aug-11 24-Mar-11 24-Mar-11 24-Sep-10 20-Aug-10 26-Jan-10 26-Jan-10 10-Oct-09 25-Mar-09 17-Dec-08 17-Dec-08 Target price Closing price 46.00 50.70 Reduce 83.10 74.00 83.10 86.00 89.50 90.00 86.00 Neutral 94.40 117.00 94.40 Suspended 99.48 38.00 59.20 Reduce 43.39 40.00 43.39 Rating
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of TWD44 is based on 12x 2012F EPS of TWD3.71 (at the low-end of its historical P/E range of 12-21x). Risks that may impede the achievement of the target price Key risks to our target price include: 1) faster-than-expected LED TV growth; 2) higher-than-expected margin share gain in backlight applications; 3) better-than-expected ASP/margin erosion, and; 4) faster-than-expected growth from lighting.
61
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our price target of KRW90,000 is derived by applying a P/B of 2.0x to 2012F BVPS of KRW45,109. Risks that may impede the achievement of the target price The won/US dollar exchange rate is the biggest earnings risk for SEMCO, which translates to higher earnings volatility, both to the upside and downside, depending on currency movements. In addition, downside risks to our target price include the possibility of aggressive MLCC capacity expansion by Japanese manufacturers.
Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx/ or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport-eu@nomura.com for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector.
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Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
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Disclaimers
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