Focus on chip and lighting targets

LED lighting will really start in 2014 and enter a high-speed upward cycle of 2-3 years. Demand starts are mainly driven by falling product prices. The profitability of chip makers will be well maintained in 2014. The growth of downstream light sources and lighting fixtures is mainly due to the increase in demand, and the changes in midstream packaging are relatively large. The main factors leading to this change are technological changes and extrusion in the upstream and downstream. We believe that the integration of the LED industry, especially upstream and midstream, will be further accelerated, and the downstream light sources and lighting market may be diversified. Changes in channels and models have become a new element in the growth of the LED lighting industry. E-commerce and other models may become a way for end-user manufacturers to break the traditional solidified lighting channels. We recommend that investors “respect the two ends and choose the best among them”, that is, focus on chip and lighting targets, and pay attention to risk and selective investment in the package segment.

Flowers are not afraid of late. We believe that the LED lighting industry will start a new high-speed growth cycle in 2014. The main factor driving the growth of lighting is the price drop. The price of light bulbs observed by industry agencies shows that the price of terminal lighting bulbs has fallen by more than 20% in the past 12 months. Our channel research shows that 3.5W-5W bulb lamps are already very close to the energy-saving lamps of more than a dozen W in the Chinese market.

Industry research agencies predict that the LED lighting output value in 2014 will reach US$17.8 billion, and the total number of LED lighting products shipped will reach 1.32 billion, an increase of 68% year-on-year.

The process of chip integration will continue, and the supply and demand situation will benefit the profitability of chip manufacturers. We believe that 2014-2015 may be the last opportunity for chip makers to grow. The cruel competition in the past few years has caused the chip manufacturers in mainland China to be greatly reduced. From the perspective of scale, Sanan Optoelectronics, BDO Runda, Huacan Optoelectronics, and Tongfang Semiconductor have already stood in the first tier. We believe that due to factors such as capital investment ability and technological level, the integration of chip manufacturers will further accelerate and form a pyramidal structure. In 2014, the supply and demand structure of the chip is more apt to be tightly balanced, and the overall benefit will be to chip makers' profit margins.

Diversification of light source and lighting manufacturers. We judge that the structure of the light source and lighting manufacturers will exhibit diversified features. We believe that the decline in the price of end products will continue. Light source and lighting manufacturers will transfer the cost pressure to the packaging manufacturers. On the other hand, in the design of product solutions, we will further increase the margin pressure brought about by the decline in prices.

Package manufacturers have large variables. We believe that due to the decline in product prices and the impact of factors in the industry chain, the margins of packaging companies are vulnerable to being squeezed by the upstream and downstream. The search for an extension of the industrial chain and a new growth breakthrough has become a top priority for packaging manufacturers from 2014 to 2015. Expansions such as mergers and acquisitions and integration will also become frequent in this area.

The high-end electronics manufacturing industry in the LED industry has become increasingly strong. We believe that the LED lighting industry has become increasingly strong in the electronics manufacturing industry. On the one hand, advances in technology have driven the cost of chips to downstream terminal industries to continue to decline; on the other hand, as market demand has increased, the effectiveness of capital investment effectiveness, cost control capabilities, and management capabilities has played a more important role in market competition. The bigger it is.

In addition to the traditional semiconductor manufacturers in the channel to compete with traditional lighting manufacturers, but also pay more and more attention to traditional lighting manufacturers in the manufacturing cost advantages and process control advantages.

Capital expenditure capabilities support the long-term growth of listed companies. LED lighting industry As an electronic manufacturing industry, capital strength is an important guarantee for expansion. Listed companies have greater advantages in financing and capital expenditures.