Overall Analysis of Listed Companies in the LED Industry
Semiconductor lighting has been listed as an important development direction of China's seven strategic emerging industries. Driven by the concepts of energy conservation, emission reduction, and the low-carbon economy, and with continuous technological breakthroughs, new applications have developed rapidly. Semiconductor lighting has become a current investment hotspot in China. In 2009, the total investment in semiconductor lighting projects nationwide (including planned investment) exceeded 20 billion yuan, and industrial investment in 2010 reached approximately 30 billion yuan.
Traditional lighting listed companies such as Foshan Lighting, NVC Lighting, Feile Audio (Yaming Bulbs), and MLS have successively turned their attention to and entered the semiconductor lighting field, and the curtain has risen on industrial transformation and upgrading. A number of listed companies have entered this field through acquisitions or fundraising, and several private semiconductor lighting enterprises have already been listed or are actively preparing to go public to raise funds for expansion. Large state-owned enterprises such as BYD, Tsinghua Tongfang, IRICO Group, Changhong Group, CETC Group, and Sinoma Group have begun investing in the semiconductor lighting energy-saving industry.
Currently, there are 4 listed companies in China whose main business is LED, and more than 30 related listed companies with the LED concept. Although the average scale of LED listed companies is relatively small, benefiting from the strategic emerging industries and energy-saving and environmental protection concepts, the LED industry as a whole has performed well, developed rapidly, and has promising prospects. Especially in 2010 and 2011, it showed leapfrog development. The overall profitability of the industry is higher than the market average, with broad development prospects. The LED industry is also favored by investors and has become an investment field with development potential and influence in the securities market, with some companies' stock prices rising nearly threefold.
I. Good Growth Potential
The overall scale of the LED industry is relatively small, with average total assets of less than 2 billion yuan before 2009, reaching 2.622 billion yuan in Q3 2010. However, judging from the annual growth rates of various financial indicators, both the scale and earnings of LED industry-related listed companies have grown, and the industry as a whole shows good growth potential, with rapid growth in recent years—particularly an explosive growth trend in the past two years (Figure 1). The average total asset growth rates of the industry in 2009 and Q3 2010 were 17.39% and 88.36% respectively. The total asset growth rate of the four listed companies whose main business is LED reached as high as 315.05% by Q3 2010. As some companies are planning to enter the LED industry or increase their investment in it, the growth rate of the overall industry scale will be even faster in the future.
From 2008 to Q3 2010, the main business revenue growth rates of the entire industry were 8%, 6%, and 22% respectively; while the industry net profit growth rates were -36%, 12%, and 169% respectively. The data shows that the LED industry rose rapidly after the financial crisis, growing most rapidly in 2010.
II. Strong Profitability
The Q3 reports from 2006 to 2010 show that the LED industry has outstanding operational performance and strong profitability. Its main business profit margin and return on equity are both relatively high, and after experiencing a slight decline in 2008, some financial indicators grew rapidly in 2009 and 2010, mainly due to the impact of the global financial crisis that broke out in 2008. After the crisis, the LED industry rebounded rapidly. From 2006 to Q3 2010, the average main business profit margin of the LED industry remained above 15%, and in Q3 2010 alone, the average main business profit margin of the entire industry reached 27%. Combined with the net profit in Q4, the full-year figure is expected to exceed 30%. The average main business profit margin of the four listed companies from 2007 to Q3 2010 was all above 30%, reaching 42.41% in Q3 2010, and is expected to exceed 45% for the full year.
From the perspective of return on net assets, the average return on total assets of the entire industry in 2007 was relatively high, reaching 13.43%. During the financial crisis, the return rate declined, but from 2008 to the third quarter of 2010, it showed a gradual upward trend, at 12.77%, 12.87%, and 12.26% respectively. Due to the continuous increase of industry entrants, the return on net assets of the four major listed companies showed a downward trend year by year, but their average level was still higher than the average level of the entire LED industry. Among them, Lehman Optoelectronics' return on net assets reached 38.55% in the third quarter of 2010, followed by Elec-Tech International, with a return on net assets of 29.37%. This indicates that LED listed companies have good asset quality, reasonable asset allocation, high resource utilization, large market demand, strong overall profitability, and great development potential.
III. Higher Investment Returns
The average net assets per share of the LED industry in 2009 and the third quarter of 2010 were 2.66 yuan and 4.09 yuan respectively, with growth rates of 10% and 54%. The growth in average net assets per share of the four listed companies mainly engaged in LED was even higher than the industry average, at 2.99 yuan and 7.97 yuan respectively, with growth rates reaching 56% and 167%.
The average earnings per share of LED industry listed companies in the past 3 years were 0.22 yuan, 0.26 yuan, and 0.39 yuan respectively. The average earnings per share of the four LED-focused listed companies in the past 3 years reached 0.48 yuan, 0.71 yuan, and 0.70 yuan, indicating that their profitability is far higher than the average level of the entire industry.
The company's P/E ratio indicators show that except for 2008, the average P/E ratio of the entire LED industry in the past 5 years has exceeded 50 times. Since the LED industry is an emerging industry with good development prospects, coupled with the booming Chinese securities market in 2009, the average P/E ratio of the entire LED industry in 2009 reached 242 times, far exceeding the average P/E ratio of the Shanghai Composite Index. In the first three quarters of 2010, the P/E ratio of the four listed companies mainly engaged in LED was 71.69 times, exceeding the average level of the entire industry of 62.74 times.
Due to the impact of the financial crisis, the average price-to-book (P/B) ratio of the LED industry in 2008 was 2.35, while in all other years it exceeded 3 (Note: a P/B ratio of 3 typically helps establish a good corporate image). The average P/B ratios for the entire industry reached 6.93 and 8.66 in 2009 and 2010 respectively, indicating that listed companies in the industry have sound asset quality and strong development potential.
The average earnings per share (EPS) of LED industry listed companies over the years ranged from 0.2 to 0.4 yuan, and the average net assets per share ranged from 2.5 to 4 yuan, both higher than the average level of China's overall securities market. The average price-to-earnings (P/E) ratio exceeded approximately 50 times, also higher than the market average, indicating that LED companies generate relatively high returns but also carry certain investment risks.
IV. High Level of Attention
Since LED has been listed as an important development direction among the seven strategic emerging industries in the national "Twelfth Five-Year Plan" for national development, it has received strong support from national policies and the favor of many investment institutions and individual investors. Some fund companies have even launched specialized emerging industry funds; for example, China Ocean Fund launched the China Ocean Environmental Protection New Energy Fund in 2010 to specifically invest in emerging industries. The average annual turnover rate of the LED industry exceeded 1000% in both 2007 and 2009. Despite the sluggish securities market in 2010, the annual turnover rate of the entire industry still reached 976.97%, reflecting the level of attention these stocks receive from investors.
At the same time, the annual volatility range of stocks of LED industry listed companies is also relatively large, reaching 217.86 and 87.43 in 2009 and 2010 respectively. With regard to the two indicators of turnover rate and volatility rate, the data of the four major listed companies in the industry shows no significant difference from the industry-wide average data.