The Coming LED IPO from TCP International
LED lighting is a high growth market. According to McKinsey, the global LED market was $8.9 billion in 2011 and is forecasted to grow to $81.2 billion by 2020, representing a 27.9% CAGR. One barrier to entry for most would-be adopters of LED lighting is the cost. In past articles, we highlighted private LED companies such as Switch Lighting which is trying to make LED light bulbs affordable for home users. While most LED companies seem to be either privately held, startups, or large diversified corporations, one LED company which may be able to provide investors with meaningful and growing exposure to the LED market is the coming IPO of Swiss LED firm TCP International Holdings.
While a majority of their production takes place in China, TCP International Holdings (TCP) was incorporated in and has their principal offices in Switzerland. The Company is a vertically integrated manufacturer, developer, and supplier of energy-efficient LED and CFL lighting technologies with four strategically located manufacturing facilities in 4 major Chinese cities, the total size of which exceeds 2.2 million square feet. In 1993, TCP began selling CFLs and in the early 2000s became The Home Depot’s primary supplier of CFLs. Since their inception in 1993, TCP has sold over one billion energy-efficient lighting products. They have a wide range of products with 750 LED SKUs and 2,500 CFL SKUs, all of which counted for 92.4% of their net sales in 1993.
The Case for LED Investors
Not only is TCP able to manufacture a wide range of energy-efficient lighting products using their large manufacturing space, they are able to sell them as well. TCP’s net sales across all products increased from $263.8 million in 2011 to $428.9 million in 2013, representing a 27.5% CAGR. In 2013 they achieved profitability with adjusted EBITDA of $36 million on that $428 million in sales. While this overall sales growth is impressive, their LED sales growth was even more so. From 2011 to 2013, TCP’s LED lighting sales increased from $11.3 million, or 4.3% of net sales, to $107.1 million, or 25.0% of net sales, representing a 208.0% CAGR! While LED lighting only accounts for 25% of TCP’s revenues, the growth of this segment continues to shoot upwards. For the three months ended March 31, 2014, sales from their LED Lighting products had reached 35.9% of net sales. TCP seems to expect their LED lighting division to cannibalize their CFL lighting segment division with the following statement being made in their S-1 filing:
The use of CFLs is expected to bridge the market until more efficient and technologically advanced solutions, such as LEDs, become cost competitive. Despite expected near-term growth, the global market for CFLs is expected to contract from $13.2 billion in 2011 to $6.1 billion in 2020.
For the three months ended March 31, 2014, sales of their lighting products to The Home Depot and Walmart accounted for 18.3% and 26.4% of their net sales, respectively.
Not only is TCP showing that they can sell large quantities of LED lighting products and scale while doing so, they are also demonstrating thought leadership through innovation.
The “Connected by TCP” smart home lighting solution competes directly with LED companies we highlighted before such as LIFX who are offering their Wi-fi enabled LED bulb, the LIFX Edison, on Amazon for $99 a piece. The “Connected by TCP” starter kit comes with 2 bulbs and sells for just $70 on Amazon.
As LED revenues continue to capture an increasingly large share of net sales, TCP will become less of a pure-play investment in CFL lighting and more of a pure-play investment in LED lighting. TCP International Holdings recently filed for a $100 million IPO and will trade on the NASDAQ Global Select Market under the symbol “TCPI”.
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