LED industry boom brokers behind the three Sheng

According to the January 2, 2014 opening price calculation, by the end of November 25, 2014, the cumulative decline in the LED chip leader reached about 12%. But in this year's three optical performance has maintained a net profit growth rate of 30%-40%. And, LED the industry as a whole in 2014 ushered in the rapid growth of the stage of penetration, a few years ago, the situation of excess capacity in the end of this year has been greatly eased, chip prices remained stable. According to our recent investigation of the LED industry chain, we found that some of the upper reaches of the large enterprise chips are basically reached the full production of the situation.

Core view:

1) LED industry is a high industry boom, while foreign manufacturers upstream LED expansion is not positive, Chinese will become the world's LED chip manufacturing base, Sanan optoelectronics as LED chip leader, and has the international leading technology, will become one of the most direct benefit of the company.

2) Sanan Optoelectronics in the near future gross profit and net profit increase, continue to expand production capacity to bring further decline in the cost of the future, to continue to improve the profitability of the company.

3) the company's determination to integrate the LED industry chain is obvious, there is a greater probability of mergers and acquisitions in the industry in the future.

4, the company with a leveraged employee stock ownership plan cost of about 14.75 yuan, while the current stock price of $14, there is a greater margin of safety.

1 the LED lighting industry chain

Before a lot of big V LED lighting industry chain has been more clear, so we have to stock based, supplemented by the industry, not the length of the introduction of the entire LED industry chain.

(Figure 1:LED lighting industry profile)

Simply put, LED lighting industry can be divided into upstream chip and sapphire substrate, midstream packaging test and downstream lighting applications. In the upper reaches of the scale and Elec-Tech Sanan optoelectronics more obvious advantages, in the middle of nationstar and rectangular lighting is leading, while the downstream lighting application of NVC, Foshan and Yankon channel more prominent.

Figure 2: Smiling Curve

LED lighting industry is fully consistent with the smile curve, the upstream chip and downstream applications are the highest value-added areas. In addition to the development of the upstream area of the chip needs to invest a lot of money, the price of each MOCVD is 20 million / Taiwan (the four cavity), more than 50 to scale, so the new business to invest at least $1 billion. Plus the machine needs debugging run in about 1-2 years, third years in the state of the machine will achieve the best, but the machine in fifth years will not have the original economy, so the upstream market is highly capital intensive industry, high barriers to entry.

The lower reaches of the lighting industry, the largest application of the channel and the brand, who has many channels, who has a high brand awareness, who will be able to occupy a larger share in the downstream areas. The establishment of channels and brands need a long time to accumulate and expand, so the downstream access threshold is relatively high. Among them, NVC, and FSL Yankon more obvious advantages in the downstream.

(Figure 3: Global MOCVD growth rate)

Due to the high cost of inputs, and LED chip price instability, the global LED chip manufacturers to expand very cautious. From 2013-2017 global MOCVD composite growth rate of only 3.7%, much lower than the growth of the LED chip demand side. As can be seen from Figure 4, 2013 -2017, LED chip demand growth rate is about 13%, in the case of supply and demand in the case of the emergence of the rapid decline in the upper reaches of the stock in the short term, facing the situation of insufficient capacity in 2014.

Figure 4: LED application requirements for each application

Moreover, the relevant policies to ensure that the next 1-2 years LED industry boom:

1) the Ministry of Finance issued a notice on the adjustment of the publication of the list of government procurement of energy-saving products thirteenth, adjusted to increase the photo products, involving a total of LED street lights, LED, etc..

2) the six ministries and commissions of the State Council issued the "semiconductor lighting energy saving industry planning", and put forward that the annual output value of LED lighting energy saving increases by an average of 30% in 2015, reaching in the year of, of which LED lighting products are up to 180 billion

3 (Jiangxi) energy saving and emission reduction in 12th Five-Year, the introduction of a special plan, requiring all public institutions in 2015 to use efficient lighting fixtures in 2013.04

4, Fujian Province issued a number of opinions on the promotion of the application of LED lighting products in Fujian Province, clear before the end of 2015, the basic completion of the field of public lighting in general use of LED products

5 (2014.10) a total ban on sales of more than 60W incandescent lamp

2 Sanan optoelectronics LED chip leading

1) scale

From the existing production capacity, the company is the absolute leader in the domestic LED chip, the company's current number of MOCVD reached 180 units, far more than other domestic manufacturers. At the same time, the company also has a certain advantage in capacity utilization, its effective capacity is much higher than other manufacturers.

At the same time, the company is one of the most aggressive expansion in domestic LED chip manufacturers, the establishment of a subsidiary under the proposed total investment of about 10 billion, the total size of 200 MOCVD ah, the first to start the 100 stage, the construction period is one year. After the completion of the project, the company has a scale of MOCVD will be more than doubled.

Figure 5: domestic LED chip company capacity

Moreover, we observe the expansion of foreign LED manufacturers to get the situation, CREE, Philips, OSRAM and Samsung on the upstream chip MOCVD expansion of production is less than 10 units, foreign production capacity will be in short supply situation. Therefore, we believe that foreign manufacturers have a high probability of outsourcing orders. An optoelectronic three