Ennostar Caution
Ennostar (3714.TT), the parent company of Epistar (pvt), the top LED chip producer in Taiwan and sister packaging company Lextar (pvt), reported 1Q results NT$ 8.45b ($283.67m US), down 13.3% q/q but up 24.2% y/y. The consolidated company generated $13.3m in cash in 1Q, after CAPEX of $31.3m and $33.68m in cash in 4Q after $34.1m in CAPEX. While we don’t often show results for LED manufacturers, Epistar indicated that May results would be affected by Chinese COVID lockdowns, although they expected to see results return to normal in June. As Epistar is a major Mini-LED supplier to Apple (AAPL), this represents one more datapoint toward understanding how the Chinese lockdowns are affecting major CE companies. Figure 1 shows the combined sales of both Epistar and Lextar, which have been on a positive trajectory since last year, but look to be leveling off so far this year.
Ennostar - Monthly Sales - Source: SCMR LLC, Company Data
Exposure to the IT (Monitors and Notebooks) and smartphone backlight category has grown almost 3x since last year in terms of sales contribution, which makes the company quite sensitive to demand weakness and pricing pressure for smartphones and IT products, hence the warning about said impact in May. However the company continues to expand its capacity, most recently at Lextar where new lines dedicated to Mini-LED backlight production have been installed, but more telling is Ennostar’s decision to increase the company’s overall 2022 CAPEX budget by 45.5% from $184.5m to $268.4m this year, a hint that despite the short-term issues they currently face in 2Q, they remain positive about their Mini-LED backlight business overall, which has to reflect at least a bit on the company’s relationship with Apple.
Epistar - 1Q Sales By Product Category - 2022 & 2021 - Source: SCMR LLC, Ennostar, Digitimes
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