Brightens up LED Lighting Market
Neo-Neon LED Lighting International Ltd, a listing company (1868) in the mainstream of the lighting revolution, has spared no effort on the LED lighting business and never deviated from the core lighting business. Neo-Neon LED Lighting’s CFO Chan Cheung said in our interview that the longawaited “year of LED lighting explosion” has finally arrived, and it is high time for Neo-Neon to exert the “potential strength” of LED lighting.
While the Light Emitting Diode (LED) revolution is progressively taking place, 7 billion people around the world are zealously welcoming the success of such lighting revolution. According to conservative market estimates, the global output value of LED lighting market in 2010 reached USD70 billion. Some governments, such as Japan’s, planned to replace traditional incandescent lamps earlier in 2012, while a number of the others rejected to extend the existing concession rights of LED chips and phosphor. The size of these markets is expected to expand to more than USD100 billion in 2014. It is also projected in the report that 50% of conventional lighting products will change to LED lighting products in 2015, and further increase to 90% in 2019. Such money-generating products are publicly known in the market.
To maintain the profit margin at 34%, the management prepared for a large-scale vertical integration in 2009 by establishing the chip plants, packaging plants and the wholesale and sales network in upper, middle and lower stream accordingly. The management saw an immediate need for internal reform in the aftermath of financial tsunami, therefore vertically developed their business from the lower stream to upper stream, aiming to set up a seamless and self-sufficient supply chain from its own chip production to sales of products. He pointed out that the focus in the upper stream is on investing and developing chip plants, therefore a production plant for research and development was set up in Jiangmen region. The company also spent USD2 million to purchase 5 sets of MOCVD (Metal Organic Chemical Vapour Deposition) machines for producing semiconductor membrane in the first phase, and hired a considerable number of specialists of high-technology chips in Taiwan for assisting research and development. While core R&D are important, the sales network development for its LED lighting products in the lower stream cannot be overlooked as logistics costs have always been expensive.
Mr. Chan said that the depositor can cut LED wafers into 50,000 pieces without affecting the lightness, which helps lowering the marginal cost of LED lighting chips and ensures there are “plenty of sources” in the upper stream. As a result, the flow of the entire stream has been smoothened. LED lighting used to connect to a direct current and needed a small inbuilt adaptor, while those products by the group do not require any adaptor, leaving room for price reduction by 30%. He stressed that the energy-saving lamp is an upgrade of the incandescent lamp, instead of the LED lamp. In addition to price, the lack of the public in-depth understanding of LED lighting also brings challenges to the market. There have been a lot of ‘purported LED lighting products’ in the market, affecting the overall product quality and harming the healthy development of the market. Overseas sales currently account for 76% of total sales of the group, and the group will further explore the markets in Europe, the US and China. He projected that LED light bulbs will start to be widely used in the market after 2012 when the prices of them are onl
As for the investment spotlights for Neo-Neon LED Lighting, he pointed out that its P/E has long been maintained at approximately 20x based on HK$0.127 earnings per share (EPS). The asset value of HK$3.743 per share indicates a substantial discount to it assets. To boost its share price, the group strives for: 1. focusing on raising EPS through its own production and sales strategies and seeking targets for merger and acquisition; 2. enhancing marketing effort to expedite the general use of LED lighting; 3. seeking certain large-cap funds for purchase, repurchasing shares by batches or even increasing stakes of substantial shareholders, which are expected to give support to the stock price.