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Overweight LED and Solar: green is in
Overweight LED and solar on China green policy
China’s government has been circulating positive messages on its new
energy policy since the beginning of the year, with solar and LED being
the major beneficiaries. The National Development and Reform
Commission (NDRC) is now working on a three-year renewable energy
project (2009-11), confirmed by the premier of Dept. of Resource
Conservation and Environmental Protection. Based on the target of 15%
renewable energy to total power generation by 2020, China is expected
to create 1GW of solar demand in 2010, which should result in an
increase in global demand by 48% y-y, to 7.8GW in 2010. Supply should
be balanced and may raise the solar cell price by <10%. Energy saving’s
is another policy that should trigger more LED lighting demand such as
“10,000-lamps- in-10-cities.” Although China players will be the biggest
beneficiaries of China demand, Taiwan players are expected to benefit
as well, as understood from the third “Chiang-Chen-Talk”. We are now
overweight on solar and LED.
Solar top BUY: Motech with TP of TWD150
China players will definitely be the biggest beneficiaries of the China
solar market, but Motech is also well-positioned. Motech has a
production site in China and has a lower contract exposure, which
provides a better cost structure. Motech’s profitability should bottom in
2Q09 and is estimated to make EPS of TWD1.40 and TWD7.40 in 2009
and 2010. We upgrade Motech to BUY with TP of TWD150, revalued at
2.9x P/BV (historical range is 0.25-4.0x). We also upgrade SAS to BUY,
a Taiwan wafer maker, and set TP at TWD106.
LED top BUY: Epistar, a star in lighting and panel-backlight
Epistar is the best upstream LED maker in greater China. It could catch
China’s lighting demand and extend its sales growth momentum to 2010.
In addition to its high market share in panel-backlight (NB, TV and
monitor), company is estimated to make EPS of TWD2.60 and TWD4.90
in 2009 and 2010. We upgrade Epistar to BUY from HOLD and set TP at
TWD120, which is justified on 3.2x P/BV (mid-high-end of historical PB
band at 0.7-3.7x). We upgrade Everlight to HOLD due to its limited
exposure to panel-backlight and its lighting solution remains uninspired.
Contents
Upgrade solar and LED sectors to overweight .............................................................. 3
Favourable new energy policy in China and TW ........................................................... 4
Strong demand could be from China and US................................................................ 7
Top BUY: Motech in solar sector ................................................................................. 12
Green policy: a strong catalyst .................................................................................... 14
Devil’s advocate: risks to our investment case ............................................................ 21
Company updates........................................................................................................ 23
Epistar Corp 24
Everlight Electronics 30
Motech Industries 34
Sino-American Silicon Products 38
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