LED industry: the dawn of dark clouds

The central and local policies to promote the demand and the demand for the ring to make the LED industry to see a glimmer of light in the clouds gap. At present, the mainland LED industry is still competing in the Red Sea. The absence of patents and technologies, structural overcapacity, and disorderly competition have made it difficult for industry companies to grow. However, the Red Sea also hides a great opportunity for breeding strong people.

The gradual implementation of industrial policies during the "12th Five-Year Plan" period is expected to promote the general lighting market to start along public lighting, commercial lighting, and civilian markets, and eventually reach a production scale of 500 billion yuan. We believe that in the next few years, all aspects of China's LED industry will face full integration. Companies that are in line with the strategic direction of the government, have capital and technological advantages, and have the advantages of brands and channels will eventually win the competition in the Red Sea. In the short and medium term, they should mainly pay attention to the policy dividend. For the listed company's performance and valuation double upgrade.

Wide sea diving, sky high the birds to fly. The support of policies during the “12th Five-Year Plan” period and the drop in the price of LED products will lead to a production scale of RMB 500 billion in the mainland LED market, with a compound annual growth rate of 32%. The vast market provides LED industry players with sufficient space for development.

Policies and prices have driven the market to start in sequence. We believe that the promotion of policies and price reductions will jointly promote the initiation of the Chinese LED lighting market along public lighting, commercial lighting, and civilian lighting.

2011-2012 is the beginning of the “Twelfth Five-Year Plan”. The combination of a series of policies by the central government and local governments will lead public lighting to be the first to start, commercial lighting will be driven by cost savings, and the civil market will finally start due to price factors.

Competition in the Red Sea breeds the strongest. LED statistics There are currently more than 5,000 LED industry players in China, including more than 1,000 packaging companies. Lack of patents and technologies, structural overcapacity, and accelerated deployment of international manufacturers have made Chinese LED manufacturers face competition in the Red Sea. In the next few years, all aspects of China's LED industry will likely face large-scale integration. This is the best era and the worst era. The elimination and consolidation of the industry will bred the ultimate powerhouse, and will eventually form the binary pattern of the coexistence of leading and technologically-advanced manufacturers in China's LED industry. We believe that becoming the final strong must at least meet one of several conditions that are in line with the government's strategic direction (being supported by the government), possessing financial and technological advantages, and having brand and channel advantages.

Taiwan's industrial chain is picking up significantly and enhancing industry confidence. In the second quarter of 2012, the LED industry as a whole showed a cyclical warming trend. According to May data, the revenue of Taiwanese chip companies increased by 4.80% month-on-month, and packaged company revenues increased by 4.45% month-on-month, but the year-on-year growth trend has not yet been established. The driving force of the recovery is still mainly from the increase in the demand for backlight, and the lighting has also picked up slightly.

The introduction of policies has been a long way off. In the first half of 2012, the central and local policies were introduced one after another, injecting a booster for the industry to pick up. On the whole, the weak situation in the industry in the first quarter has begun to change in the second quarter, and the LED industry in the mainland is getting colder. From our recent large-scale research feedback on LED companies, there has been preliminary signs of a pick-up in demand, and the performance of listed companies is expected to improve. We judge that the overall warming of China's overall LED demand will continue to be accompanied by the gradual landing of policies. Only in the second half will there be a substantial year-on-year increase in the performance of listed companies.

The policy dividend is the main observation point in the short and medium term. In the short to medium term, policy dividends are the main guarantee for listed companies to obtain revenue. The LED lighting renovation project in Guangdong Province is a response to the central government's policies. If the initial implementation is effective, it may lead to the follow-up of some economically strong regions, making the start of the domestic lighting market a good start. The industry expects that Guangdong Province will be expected to promote 2 million LED street lamps and 30 million LED indoor lighting fixtures in the next three years, which is expected to drive the domestic market size of over 10 billion yuan. We believe that the progress of LED retrofit projects in Guangdong from July to August is an important observation point during the year. Leading listed companies in the LED industry in Guangdong Province are expected to be the first to benefit, gaining double improvements in performance and valuation.