"Low profit growth" haunts China's young LED industry

On March 5, Premier Wen Jiabao of the State Council made a report on the work of the government at the Fifth Session of the Eleventh National People's Congress. Careful people will surely feel that "promoting energy-saving emission reduction and ecological environmental protection" has been placed in an extremely important position both in the "2011 work review" and in "2012 major tasks."

Not long ago, the "12th Five-Year Development Plan for Integrated Circuit Industry" issued by the Ministry of Industry and Information Technology (hereinafter referred to as the "Planning") outlined a grand blueprint for China's IC industry development in the next five years. According to the "Planning", the IC sales revenue during the "12th Five-Year Plan" period will reach 330 billion yuan, an average annual increase of 18%.

One side is the "integrated circuit industry" and the other is the "energy saving and emission reduction and ecological environment protection." These two seemingly incomprehensible fields actually exist in an intersection, that is, the LED industry in China that is in the ascendant. .

The above-mentioned two messages were brought to the forefront of the newspapers, which gave the industry people and the capital market all cheer. As a result, many research reports have commented on this inconsistently. “In the future, domestic integrated circuit design, manufacturing, and packaging companies, especially the LED industry, will have unprecedented opportunities for development.”

China's Ascendant LED Industry

Recently, Huabao Securities made an analysis of the current status of China's LED market, its research report pointed out that "because of the high energy-saving demand in overseas markets, the LED lamp price is highly accepted, so more than 70% of domestic LED lighting products are currently used for export overseas" .

This "outside the market" situation has clearly continued for a long time. As early as the beginning of 2011, Wu Qingyi, a secretary of Dongyue Lighting (600261), who was interviewed by Securities Daily, told reporters that “There are still many bottlenecks in China’s LED industry that need to be broken through. In the face of overseas markets, Chinese companies are Mainly rely on OEM to create profits."

Then, taking the LED lighting field as an example, even if its price is 2-3 times more expensive than an incandescent lamp, it can save nearly 70% and extend its lifespan by nearly 10 times. Is this product with absolute performance advantages unable to ignite domestic demand?

A businessman who has been in the LED industry for several decades, but who recently retired from his body, disclosed to the “Securities Daily” reporter that “the market for home lighting has so far been the most tempting for LED companies. But the Chinese people There are not a few lights in the home, and the power consumption of large appliances such as refrigerators will be insignificant. Therefore, even if the life of your LED lights and energy-saving effect are better, you want to open this market. It also takes a very difficult process."

"Compared to the lighting market of thousands of households, under the guidance of energy-saving and emission-reduction policies, more and more office buildings, hotels, hospitals, and even city plans are willing to pay real dividends in the upgrading of lighting equipment. The vast majority of them simply regard the installation of LED lights as a kind of 'image project'. But at least there is a demand, this market will be active." Mr. Wang added to the reporter.

However, it is this seemingly malformed market demand that has triggered the LED industry's own patients, Mr. Wang introduced, "This kind of lighting equipment upgrading project a large number, so the profits are also large. Units generally only care about is not LED In addition, the most important thing is the 'relationship', considering the life of the lamp itself, and the energy saving effect is even more important. It is precisely because of this that LED manufacturers are tempted to build connections, take relationships, and do public relations, but they almost ignore the product quality. Even more frightening is that, given the large differences in the prices of different quality LED chips, price wars without self-discipline can be seen everywhere in the industry."

Low profit growth in the industry

Although the OEM's development model has severely squeezed the profitability of Chinese LED companies, the confidence of the people in the future of this industry seems to have never weakened.

Data show that from January to July 2011, China's LED industry plans to increase the total investment is still a huge 125.618 billion yuan, of which more than 40% of the funds are invested in a number of industries, or even the entire industry chain investment. What is more noteworthy is that investment made by non-LED companies into the LED industry has become an important part of the LED industry's investment. Such projects account for more than 45% of all investment projects, and the amount exceeds 65% of the total investment amount. In 2011, the average gross profit margin of the listed and non-listed companies in the downstream applications industry was only 15%. Statistical data showed that the gross profit rate of China's major LED (lamp beads application industry) continued to decrease from 2009 to 2011, and the average annual decline rate exceeded. 13%.

What is even more impressive is that even in such a thin profit space, China's LED companies have created amazing results. Data shows that during the “Eleventh Five-Year Plan” period, the size of the IC industry has doubled. The output and sales revenue increased from 26.58 billion and 70.2 billion yuan in 2005 to 65.25 billion and 144 billion yuan in 2010, accounting for the proportion of the global integrated circuit market from 4.5% in 2005 to 8.6% in 2010. The domestic market scale has expanded from 380 billion yuan in 2005 to 735 billion yuan in 2010, accounting for 43.8% of the global IC market share. Among them, in 2011, under the economic downturn in Europe and the United States, the export of China's LED and other energy-saving products still rose by 25% against the market.

Industry welcome policy spring

It should be said that after the Chinese people stepped into the LED industry, they continued to benefit from the country’s increasing support for industry.

In addition to the "12th Five-Year Development Plan for the integrated circuit industry" mentioned above, a series of specific measures to promote LED domestic demand have also been launched in the near future.

According to relevant media reports, China National Electronics Import and Export Corporation recently announced that it was entrusted by the Department of Economic Development of the Ministry of Finance, the Department of Resource Conservation and Environmental Protection of the National Development and Reform Commission, and the Department of High-tech Development and Industrialization of the Ministry of Science and Technology. “2012 financial subsidies for semiconductor lighting products promotion projects (indoor lighting products - LED downlights, reflective self-ballasted LED lights, outdoor lighting products - LED lights, LED tunnel lights)" for domestic open tender.

According to the requirements of the Ministry of Finance and the National Development and Reform Commission's Interim Measures for the Administration of Financial Subsidy Funds for Promotion of High-efficiency Lighting Products, this tender will select a number of semiconductor lighting (LED) product manufacturers and products, and determine the supply price. The subsidy funds shall be indirectly subsidized, and shall be subsidized by the financial subsidy to the successful bidder. The subsidy shall be sold to the end-user by the bid-winning price of the bid-winning agreement minus the subsidy of the financial subsidy. The ultimate beneficiary is the end-user.

Perhaps it is precisely because of the spring breeze that comes from the policy level that all sectors of society have generally been optimistic about the future of China's LED. Changjiang Securities (000783) was introduced in the research report. Some people from the National Development and Reform Commission predicted that during the “12th Five-Year Plan” period, the LED industry is expected to achieve a quadrupling target. By the end of 2015, China’s LED lighting penetration rate will reach 20%. The general estimate is more optimistic. It is estimated that by 2015, the penetration rate of outdoor LED lighting in China will reach 60% to 80%, the penetration rate of indoor and commercial LED lighting will reach 25% to 30%, and the penetration rate of indoor home LED lighting will be about 5% to 10%. The overall penetration rate of LED lighting in the Chinese market will reach even more than 20%. The rapid growth of the LED lighting market is estimated to continue from 2012 to 2015.