LED industry integration status will continue

The LED chip and package index were stronger than the broader market: Taiwan's LED chip index rose by 12.11% in May, and the LED package index rose by 8.29% in May; the same time, Taiwan's electronic components index rose by 4.32%, and the Taiwanese weighted index rose by 2%.

Taiwan’s industrial chain performed well in May: Revenues of 9 LED chip companies in Taiwan totaled 4.269 billion NT$ in May, up 6.65% month-on-month; 9 Taiwanese LED packaging companies’ revenues totaled 5.888 billion NT in May. This was a 4.7% increase from the previous quarter. In May, China's energy saving subsidy policy has not yet been withdrawn, and the stocking effect of TV backlighting has continued until the end of May. The overall growth of the follow-up market in the backlight area is mainly smart phones and tablets. At the same time, the growth trend of the lighting market was determined. Capabilities at the chip end were full, and order visibility was high, which led to the growth of revenue in May.

Industry trends and comments: China's LED upstream chip production tends to be active, and market supply and demand are facing challenges. In May, global LED bulb prices have been steadily declining. Dachang is planning to enter the home lighting market; LED industry is highly competitive and integration will continue.

Industry Investment Strategy: After the LED industry upstream chip has been oversupplied, some companies have chosen to withdraw, market concentration is gradually increasing, and the competitive environment has improved. The epidemic and chips are the highest link. Once the competitive landscape is stable, leading companies will benefit in the long run. We recommend leading Sanan Optoelectronics. The rapid expansion of midstream packaging and fierce competition make it difficult for ordinary companies to make long-term profits. We recommend leading players in each segment. In the field of lighting packaging, Hongli Optoelectronics and Ruifeng Optoelectronics are recommended; in the field of backlight packaging, JuFei Optoelectronics is recommended; in the display area, National Star Optoelectronics is recommended.

We believe that Hongli Optoelectronics has the greatest flexibility. In the downstream application industry, lighting will grow rapidly, and the backlight may become saturated in the past two years. More and more large companies are entering LED lighting. It can be foreseen that the future competition will be very fierce, and at the same time, LED lighting penetration will accelerate. We recommend Sunshine Lighting. The company is currently the largest LED lamp manufacturer in China. Most of the products are supplied to international giants such as Philips and OSRAM to obtain a relatively stable net interest rate and avoid price competition risks.

In the long term, the key to LED lighting applications is brands and channels. It is optimistic about the prospects of NVC Lighting's cooperation with BDO Runda and long-term recommendation of BDO Runda.

Industry risk: The LED industry is imbalanced or lasting for a long time; LED lighting applications start at or below expectations; domestic companies' breakthroughs in core technologies and core technologies may lag behind expectations.