BUY OR SELL-South Korea LED boom: too far, too fast?

SEOUL Feb 18 (Reuters) - South Korean light-emitting diode (LED)-related stocks have rallied in recent months, thanks to growing global interest in energy-saving technologies.

Since late October, Samsung Electro-Mechanics (009150.KS) is up 43 percent, Seoul Semiconductor (046890.KQ) and Kumho Electric (001210.KS) have more than doubled and Fawoo Technology (045890.KQ) has gained 89 percent.

Over the same period, the Korea Composite Stock Price Index .KS11 has gained only 19 percent.

LED consumes less power and lasts longer than traditional light sources and is increasingly used in electronics products from mobile phones to flat-screen televisions.

New demand for the product is emerging.

The South Korean government called on Monday for "green growth" in Asia's fourth-largest economy, proposing to replace all lighting in public facilities with LED lights from this year.

Investors are starting to wonder whether LED-related shares can rise further on the back of the industry's growth potential, or whether the gains have been excessive.

TOO MUCH, TOO FAST

Market participants currently bearish on LED stocks say gains this year have been fuelled by retail investors betting too much, too fast.

"There's no doubt the LED business has huge growth potential in the long-term, but LED makers will not easily make profits in the short-term," said Kim Do-han, analyst at Samsung Securities, adding the sector was set for a pull-back.

"As the LED market is still in the initial stages of development, players will have to make enormous investments ... and make their products more affordable."

Lee Seung-Jun, senior fund manager at Midas Asset, said his 12-month price targets for the sector have already been busted by the surge in the shares.

"Given that it's really hard to measure with relative accuracy how fast the LED industry will grow, it might be better to wait a bit and confirm the numbers before making bets."

Valuations also appear to be exceedingly rich. Samsung Elec-Mech trades at 69 times forward earnings compared with the KOSPI index's PE of 20. Seoul Semiconductor trades at 52 times.

CHERRY-PICKING

But some analysts say a number of LED stocks are still worth getting into, especially since some companies have diversified business portfolios. Samsung Elec-Mech also makes electronics parts, while Kumho Electric makes liquid crystal display parts.

"Taking into account Samsung Elec-Mech's fundamentals and that its parts-making business is doing very well compared to its struggling Japanese peers, I'd say the shares could go up further," said Park Sang-hyun, analyst at HI Investment & Securities, possibly hitting 49,000 won in the near-term.

Lee Jung, an analyst at Hana Daetoo Securities, maintained his "buy" rating on Kumho Elec and put its 12-month target price at 44,000 won, saying the stock was still attractive.

"With its entry into the LED lighting business, it has attained a very promising growth engine and I'd advise taking a more active approach on this share at its current level," he said.

Kumho Electric jumped 14.9 percent to 31,150 won on Wednesday, and Samsung Elec-Mech rose 3.3 percent to 44,000 won. (Editing by Jonathan Hopfner and Muralikumar Anantharaman)