The LED industry turnaround is coming under the new supply and demand pattern
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After the cold winter of 2015, the LED industry ushered in the industry reshuffle in 2016, and the industrial structure became clear: the concentration of the industry continued to increase, and the situation of the big ones and the strong ones became more and more vivid. As demand starts and supply ends integrate, the LED industry will return to rationality, and investment value has already emerged. After the cold winter of 2015, the LED industry ushered in the industry reshuffle in 2016, and the industrial structure became clear: the concentration of the industry continued to increase, and the situation of the big ones and the strong ones became more and more vivid. As demand starts and supply ends integrate, the LED industry will return to rationality, and investment value has already emerged. Upstream: Suppliers contract capacity, and supply is in short supply. (1) In 2015, LED experienced industry reshuffle and the upstream chip production capacity contracted. During 2010-2014, high profits and government subsidies stimulated the crazy expansion of China's LED manufacturers, resulting in a serious overcapacity of LED production capacity in China, and product prices continued to decline. In this context, in 2015 the government canceled the subsidy for the new MOCVD. The subsidy tightened and the sharp decline in the selling price caused LED chip makers to lose a large area. Small manufacturers could not afford to suffer such losses and were forced to withdraw. At the same time, large manufacturers cut production. The LED chip production capacity has also shrunk significantly. (2) Small and medium-sized manufacturers have limited capacity to expand production and benefit chip manufacturers. With the sharp increase in the demand for small-pitch LED displays and LED lighting downstream of LED chips, the LED industry boom has re-ignited since 2016, and LED chip manufacturers have begun to expand. The reshuffle and integration of the industry in the past 15 years has led to an increase in the concentration of LED upstream chip manufacturers, and has formed a high industry barrier. Many small and medium-sized manufacturers are difficult to achieve effective expansion. The new capacity of the LED industry will also come from domestic large manufacturers. Downstream: multiple application overlays, downstream demand expansion. (1) Market expansion of small pitch LEDs. With the continuous updating and maturity of LED packaging technology, small-pitch display is gradually completing the replacement of existing DLP and LCD splicing screens. LEDinside estimates that indoor small-spacing LED consumption will reach 29 billion granules in 2016, and indoor small in 2021. The distance LED consumption will reach 189.8 billion particles, with a compound annual growth rate of 46%. (2) LED has become the mainstream light source for general lighting due to the ban on the complete shutdown of incandescent lamps. According to the "China Roadmap for Phased Elimination of Incandescent Lamps", on October 1, 2016, China will completely stop production and disable incandescent lamps. The market penetration rate of LED lighting products will further increase and maintain a stable growth rate. (3) The automotive LED lighting market is heating up and becoming a new growth point. The gross profit of automotive LED lighting products is 3-5 times that of ordinary LED products. Due to the large market scale and high product added value, the automotive LED lighting market is heating up. Midstream: LED price increases are transmitted to the middle reaches, and packaging manufacturers with scale advantages will benefit. In view of the significant increase in demand for downstream LED lighting, LED display and LED automotive lighting, the market demand for midstream LED packaging has also increased, but the growth rate of the upstream chip packaging industry has been relatively slow, according to LEDinside statistics, 2015 The growth rate of the midstream packaging sector was 2%, and the year-on-year growth rate was 6% in 2016 (while the upstream chips increased by 9% year-on-year). The price increase of the upstream chip is transmitted to the midstream packaging manufacturers, which benefits the packaging manufacturers with scale advantages. Investment strategy: After the transformation and breakthrough in 2016, we believe that the LED industry will fully recover. Under the new supply and demand pattern, it is recommended to focus on the LED industry chain leading stocks: upstream chips: Sanan Optoelectronics, Huacan Optoelectronics, Ganzhao Optoelectronics; Package: Hongli Zhihui, Mulinsen, Guoxing Optoelectronics; downstream applications: Liard, Zhouming Technology, Foshan Lighting, Op Lighting. Risk warning: The LED industry supply and demand structure changes are not up to expectations, and chip prices continue to decline.