Global LED production capacity is no longer excessive

Global LED chip supply and demand overall balance, and overcapacity situation further ease. Lighting has become the most important application of LED industry, good LED industry chain in China. The future of LED chip manufacturers will be the most benefit.

UBS said the global LED market since 2011, there has been a serious oversupply. This is mainly due to the Chinese government to promote energy conservation. Local governments have introduced a policy to encourage LED chip companies, including the core production of LED chip MOCVD to give RMB 8 million to 10 million RMB of subsidies. At the same time, LED backlight TV demand growth, which led to Taiwan, South Korea LED manufacturers have expansion and led to a substantial increase in global LED chip production capacity, beyond the growth in demand.

2011 global LED chip production capacity of about 44.2 million square inches, while the demand at the same period is only 33.97 million square inches, supply and demand ratio of up to 130%. However, UBS recent research shows that due to the global main LED chip manufacturers new capacity is limited, and the demand continues to grow, in 2014 global LED chip supply and demand ratio from 130% in 2011, down to 104%. The overall balance brings good to the LED industry Chain enterprises.

Benefit from the global phase-out incandescent, and LED lighting products prices continue to decline, the global penetration rate of LED lighting is expected to reach 30% level in 2015. UBS research shows that lighting applications for the global demand for LED chips is expected from 17% in 2011, significantly increased to 54% in 2015. China as a global LED lighting products production base, production accounted for 80% of global production, which is the most benefit.

LED industry chain is generally divided into three sub-sectors of upstream LED chip manufacturing, middle stream LED chip package and downstream LED chip application, of which the top of the industry chain LED chip manufacturing industry with high access threshold: that requires large-scale capital investment, but also the need for long-term accumulation of technology. It also makes China's LED chip manufacturing enterprises have a large-scale reduction since 2011. UBS is expected that it is about 10 or so China's enterprises to product large-scale LED chip.

From the growth rate, 2010 - 2014, LED chip industry output value of the compound annual growth rate of 32%, leading LED packaging and application industry. UBS believes that with the rapid development of China's LED industry, LED chip companies in the industry chain will be the most benefit. It mainly due to the strong national support, patent issues have been resolved. China's LED chip manufacturing enterprises have been pass their own R & D and industry mergers and acquisitions, and gradually break the LED chip patent bottleneck. Product technology continues to improve, the rapid decline in material costs, and leading enterprises gross margin and ROE is at the highest level.

In terms of valuation, LED industry chain-related enterprise market consensus estimates show that the market expected LED chip manufacturing enterprises 2015/16, and PE valuation level of about 40 times and 28 times, which higher than the LED chip packaging business 35 times and 25 times, which lower than the LED chip application business 54 times and 39 times.