Osat Sector Taiwan
Osat Sector Taiwan
Osat Sector Taiwan
OSAT Sector
Taiwan: Electronics
Neutral → Positive
Aaron Jeng, CFA
(886) 2 8780 1469
aaron.jeng@daiwasmbc.com.tw
Summary
We have upgraded our rating for the Taiwan Outsourced Semiconductor Assembly and Test
(OSAT) sector to Positive from Neutral as we believe that all the fundamental indicators point
to positive for 2010. Although there may be some share-price corrections in the 4Q09-1Q10
slow season, we would expect these to be moderate, as most of the key fundamental
parameters, including demand, supply and inventory levels, appear to be healthy at this time.
In addition, we have upgraded our rating for Advanced Semiconductor Engineering (ASE) to
2 (Outperform) from 4 (Underperform). We maintain our 3 (Hold) rating for Siliconware
Precision (SPIL) as we expect ASE to continue to outperform SPIL (in terms of share-price
performance) for several reasons, including: 1) ASE’s leading position in copper-wire
technology should help it to increase its market share from 4Q FY09 onward, 2) MediaTek’s
(2454 TT, NT$480, 3) transition to an RF-integrated single-chip solution for its mainstream
handset IC platform in 2010 would hurt SPIL more than ASE, 3) ASE enjoys higher operating
leverage than SPIL, 4) an increase in IDM outsourcing would benefit ASE more than SPIL,
and 5) a rising gold price would hurt SPIL more than ASE.
We have raised our six-month target price for ASE to NT$33.0 (based on a PBR of 2.4x on our
FY10 BVPS forecast) from NT$21.0 (based on a PBR of 1.4x on our FY09 BVPS forecast),
and lowered our six-month target price for SPIL to NT$47.0 (based on a PBR of 2.2x on our
FY10 BVPS forecast) from NT$48 (based on a PBR of 2.3x on our FY09 BVPS forecast).
Logic IC
AMKR US** Amkor US$ NR 1,009 5.5 0.99 0.37 0.63 (62.8) 71.2 15.0 8.7 3.3 3.3 26.97 44.97
STAT SP** STATSChipPAC S$ NR 1,872 0.9 n.a. n.a. n.a. n.m. n.m. n.a. n.a. 0.9 0.9 n.a. n.a.
2449 TT* King Yuan NT$ NR 504 13.0 0.93 (0.91) 0.89 n.m. n.m. n.a. 14.6 0.8 0.8 n.a. 6.11
2441 TT* Greatek NT$ NR 520 31.4 3.11 2.58 3.36 (17.1) 30.2 12.1 9.3 1.7 1.7 13.06 15.88
Memory IC
IMOS US** ChipMOS US$ NR 63 0.8 n.a. n.a. n.a. n.m. n.m. n.a. n.a. 0.1 0.1 n.a. n.a.
8131 TT* FATC NT$ NR 532 40.3 2.32 0.07 3.16 (97.2) n.m. 601.5 12.4 2.2 2.2 0.34 15.80
Source: Companies, Bloomberg, Daiwa forecasts for ASE, SPIL and PTI only
Note: *share prices as at 5 November 2009, **share prices as at 4 November 2009
Company section
Advanced Semiconductor Engineering (2311 TT)..................................................19
Siliconware Precision (2325 TT).............................................................................24
We have raised our six-month target price for ASE to NT$33.0 (based on a PBR of
2.4x on our FY10 BVPS forecast) from NT$21.0 (based on a PBR of 1.4x on our
FY09 BVPS forecast) and lowered our six-month target price for SPIL to NT$47.0
(based on a PBR of 2.2x on our FY10 BVPS forecast) from NT$48.0 (based on a
PBR of 2.3x on our FY09 BVPS forecast).
Sector outlook
Demand is recovering
For 2010, we forecast Global demand for electronic products has continued to exceed our expectations
semiconductor sales to since early 2009. We think the upward revisions to forecasts for major electronic
rise by 8% YoY and product shipments by the market will continue over the near term. We forecast
foundry sales to semiconductor sales globally to increase by 8% YoY for 2010, and sales for
increase 18% YoY foundry companies to rise by 18% YoY for 2010 due to increased outsourcing
from IDM customers as economies continue to recover.
However, even with these increases, the companies’ capex-to-sales ratios would
remain under control for FY10, in our view: ASE’s would increase to 16% from
12% for FY09, while SPIL’s would rise to 15% from 9% for FY09. Compared with
the very high levels of capex expansion for FY02 and FY04 (when capex-to-sales
ratios reached 20-30%), we regard the two companies’ FY10 capex plans as
disciplined. In addition, we believe the OSAT companies will adjust their capex
plans quickly to adapt to the changing macro demand situation, which means their
utilisation rates and gross-profit margins for FY10 should be sustained at the high
ends of their past-five-year ranges.
25,000 30
20,000 25
15,000 20
10,000 15
5,000 10
0 5
2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E
ASE capex (LHS) SPIL capex (LHS)
ASE capex-to-sales ratio (RHS) SPIL capex-to-sales ratio (RHS)
Utilisation rate
Wirebonders (%) 87 83 75 76 84
Testers (%) 86 78 75 71 83
SPIL
Capacity
Wirebonders (units) 4,053 4,614 4,656 4,817 5,514
Testers (units) 317 353 374 381 412
Utilisation rate
Wirebonders (%) 96 97 84 84 90
Testers (%) 92 85 72 70 85
Source: Companies, Daiwa forecasts
However, inventory levels among downstream companies are possibly lean even
now, due to the strong sell-through of handsets, PCs and most electronic products
year-to-date. At the end of 3Q09, the average DOI levels were only 29, 14, 30 and
32 for the handset, PC, TFT-LCD and EMS sectors, respectively, while for
downstream companies the DOI hit a past-five-year low of 24, down from 28 days
one year earlier.
Our PC-sector analyst, Calvin Huang, believes that inventory levels in the PC
supply chain remain lean for now due to the strong sell-through. Our handset-
component sector analyst, Andrew Chang, believes the recent build-up of inventory
for the forthcoming peak season is normal and that inventory levels remain healthy
currently. Our surveys of both the China-handset supply chain and the global-panel
supply chain also point to inventory levels being healthy at this time. Indeed, there
is tight supply for some components currently, such as optical-storage ICs and
pick-up heads, DRAM, and flash memory. The low inventory levels across the
board indicate to us that even if there were seasonal adjustments in inventory
during the 1H10 slow season, the correction would not be sharp.
Fabless sales (US$m) 9,315 9,681 10,464 8,045 7,521 8,789 9,514 9,038
QoQ (%) (6) 4 8 (23) (7) 17 8 (5)
Gross-profit margin (%) 53 51 54 47 52 54 54 53
DOI (days) 73 71 69 72 65 57 52 59
IDM sales (US$m) 22,305 21,961 23,540 18,832 16,269 17,950 20,235 20,864
QoQ (%) (10) (2) 7 (20) (14) 10 13 3
Gross-profit margin (%) 52 53 57 51 49 51 51 51
DOI (days) 77 82 79 87 84 73 72 73
Source: Bloomberg, Daiwa forecasts
ASE has been quite aggressive about using copper wire in its wirebonding ICs and
started R&D on it quite some time ago. Since last year, the company has been
persuading customers to qualify its copper-wire technology. We estimate that ASE
will invest at least US$75m (25% of its FY09 capex) in copper wire (including
buying new copper wirebonders and upgrading its existing gold wirebonders). The
company aims to install 1,000 sets of copper wirebonders by the end of this year,
and will buy a further 2,000 sets of copper wirebonders in 2010.
Its efforts started to bear fruit from the middle of 2009. ASE offers a 15% price
discount to customers if they opt for copper wire rather than gold wire. By the end
of 3Q FY09, ASE had been qualified by about 100 customers for its copper-wire
process and more than 30 customers had started mass production, including some
of ASE’s top-10 customers by revenue. The company expects copper wire to
account for 8% of its 4Q FY09 wirebonding revenue, which would be a remarkable
feat, in our opinion.
From SPIL’s point of view, we believe the pressure is rising. The company cannot
turn down customers’ requests to provide copper-wire solutions even though its
solution is not yet ready. Before being able to catch up in terms of copper-wire
technology, we think SPIL will face the dilemma of maintaining its market share or
gross-profit margin/ROE.
COGS (%) 78 77 74 72 69 67
Material cost (%) 47 31 31 31 31 31
Depreciation (%) 16 25 23 22 21 20
Labour cost (%) 16 21 20 18 17 16
SPIL
Wirebonding 71 81 79 77 77 75 76
Flip chips 12 10 11 14 15 16 16
Testing 9 9 9 9 8 9 8
Others 8 0 0 1 0 0 0
Source: Company, Daiwa forecasts
Gold price
(US$ per ounce)
1,050
1,000
950
900
850
800
750
700
650
600
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Source: Bloomberg
22 950
20
900
18
850
16
800
14
12 750
10 700
3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Our cost analysis indicates that there are no savings in wafer costs from adopting
the MT6253 (compared with the MT6225) due to the foundry companies’
aggressive price cuts on the MT6225 wafers. However, on the IC back-end side, we
expect the transition to result in a cost saving of about 40% for MediaTek. In other
words, all things being equal, we think the sales contribution from MediaTek to
back-end companies would decrease by 20% after the complete transition to the
MT6253 from the MT6225 (ie, currently, the MT6225 accounts for 60-70% of
MediaTek’s total handset shipments and the handset business unit accounts for 70-
80% of its total sales, which means the MT6225 accounts for almost 50% of
MediaTek’s sales).
Given that MediaTek is SPIL’s largest customer, accounting for about 10-15% of
sales (compared with only 5-10% of sales for ASE), we expect SPIL (2-3% of sales
would disappear once the transition to the MT6253 is completed) to suffer more
than ASE (1-2% of sales would disappear) due to this product transition.
6253 platform
Four-in-one single chip MT6253 1.1 QFN 0.6 1.80
Qualcomm
MediaTek
MediaTek
Broadcom Others
Marvell
NEC (IDM)
Zoran Mstar
Marvell Freescale Xillinix Intel (IDM) AMD (IDM)
Sandisk nVidia
STM (IDM) (IDM) CSR
ASE has a higher proportion of fixed costs as a percentage of total costs than SPIL
(we estimate 31% for ASE and 22% for SPIL for FY09), indicating that: 1) during
an upturn, ASE would have greater operating leverage than SPIL, and 2) SPIL has
a higher proportion of material costs than ASE (we estimate 38% for ASE and 57%
for SPIL for FY09), indicating that SPIL would suffer more than ASE from high
gold prices.
In addition, ASE’s testing segment accounts for the higher proportion of its total
revenue than that of SPIL. No material cost is incurred for testing, and thus testing
generates a higher gross-profit margin. For 3Q FY09, ASE derived about 18% of
its revenue from testing, the gross-profit margin for which was 35.2%, much higher
than the company’s overall gross-profit margin of 25.2%. Once fully loaded, we
believe the gross-profit margin for testing could exceed 40%. Testing has
accounted for only about 10% of SPIL’s revenue over each of the past two years.
As a result, over the next six months, we see the potential for more upside surprises
for ASE’s gross-profit margin than for SPIL’s.
Depreciation costs to COGS: ASE vs. SPIL Operating expenses to sales: ASE vs. SPIL
(NT$bn) (%) (NT$bn) (%)
18 30 12 12
16
25 10 10
14
12 20 8 8
10
15 6 6
8
6 10 4 4
4
5 2 2
2
0 0 0 0
2006 2007 2008 2009E 2010E 2011E 2006 2007 2008 2009E 2010E 2011E
ASE depreciation cost (LHS) SPIL depreciation cost (LHS) ASE OP expense (LHS) SPIL OP expense (LHS)
SPIL (RHS) ASE (RHS) SPIL (RHS) ASE (RHS)
We expect more outsourcing orders in the future from other IDMs, such as NEC
(Not rated), STM (Not rated), Fujitsu (Not rated) and Numonyx (Not rated). As for
SPIL, our supply-chain survey indicates that one of its main graphics customers is
likely to outsource its CPU packaging orders from the middle of 2010, but the
initial volume should be limited. We believe ASE’s IDM portion of sales bottomed
out in 2Q09 at 30%, and that its greater exposure to IDM sales will result in it
recording stronger revenue growth than its peers during the next upturn.
40
30
ASE expects the IDM portion
20 to return to 40% in 2H FY10
10
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09E
1Q10E
2Q10E
3Q10E
4Q10E
ASE SPIL
IDM and fabless customers’ portion of revenue for ASE and SPIL in the 2004 and 2007 upcycles
1Q04 2Q04 3Q04 4Q04 1Q07 2Q07 3Q07 4Q07
ASE
Total revenue (NT$m) 17,221 20,290 22,023 22,179 21,093 23,362 27,733 28,976
IDM 8,094 10,348 11,672 11,311 8,859 9,578 12,203 13,619
Fabless 9,127 9,942 10,351 10,868 12,234 13,784 15,530 15,357
SPIL
Total revenue (NT$m) 8,248 8,712 8,946 9,103 13,751 15,233 17,909 17,729
IDM 1,485 1,742 1,789 1,821 2,750 3,047 3,940 4,432
Fabless 6,763 6,970 7,157 7,282 11,000 12,186 13,969 13,296
ROE
Given our view that ASE would outperform SPIL in terms of revenue growth in
FY10, we expect ASE’s ROE to catch up with that of SPIL in FY10.
ASE SPIL
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
ROE (LHS) PBR (RHS) ROE (LHS) PBR (RHS)
Valuation
Based on our valuation Our foundry analyst, Pranab Kumar Sarmah, forecasts foundry-industry sales to
scenarios, we believe increase by 18% YoY for 2010. We expect sales for the OSAT industry to rise in
there is limited downside line with those for the foundry industry and expect ASE to outperform SPIL in
risk for ASE terms of revenue growth due to the structural changes mentioned earlier in this
report.
We have used different scenarios for 2010 to test the upside and downside risk for
ASE and SPIL. Given a 3% growth rate and an 8% cost of equity (risk-free rate of
3.6%, beta of 1.1 and risk premium of 4%), we arrive at a six-month target price of
NT$33.0 for ASE based on our FY10 sales-growth forecast of 21% YoY. Should
ASE’s FY10 sales increase by 16% YoY (equal to our forecast of SPIL’s annual
sales growth for FY10) and all other things being equal (growth rate of 3% and a
cost of equity of 8%), ASE’s fair value would drop to NT$27.0, similar to the 5
November closing share price of NT$27.35. Under the bear-case scenario (ASE’s
FY10 revenue increases by only 10% YoY), ASE’s fair value would fall to
NT$22.0, 19% lower than the 5 November closing share price.
However, after backward testing, we think the downside risk for ASE’s share price
is limited as investors usually assign a higher growth rate to ASE than to SPIL
when the cycle bottoms out (probably given ASE’s higher operating leverage and
higher exposure to IDM customers). For example, with an expectation of a 4%
long-term growth rate and a 16% YoY rise in sales for FY10 (in line with that for
SPIL), NT$30.0 would still be a reasonable price for ASE, in our view, implying
10% upside potential from the current share-price level.
On the other hand, based on our forecast of a 16% YoY rise in SPIL’s FY10
revenue, we have a six-month target price of NT$47.0, based on a 3% growth rate
and an 8% cost of equity. Under a bear-case scenario (SPIL’s FY10 revenue rises
by only 10% YoY), SPIL’s fair value would fall to NT$38.0, 12% lower than its
current share price if we keep the other parameters unchanged. However, its upside
potential is not as significant as that of ASE, given what we see as its less-positive
revenue-growth outlook and lower operating leverage.
The major risk to our target prices for ASE and SPIL is a worse-than-expected
2010 macro environment, which we believe would lead to a slowdown in order
outsourcing from IDM customers and make SPIL’s lower-operating-leverage
business model more attractive.
From 4Q03-3Q04 (the share prices of ASE and SPIL increased from 1Q03-1Q04,
but we could not determine the implied growth rate for 1Q03-3Q03 as the ROE
was lower than the required rate of return), ASE’s implied revenue-growth rate was
in the range of 5-8%, while SPIL’s implied revenue-growth rate was 2-3%. In the
4Q06-3Q07 upcycle, ASE’s implied revenue-growth rate was in the range of 2-8%,
while SPIL’s ranged only from 1-3%.
Assumptions
Cost of equity (%) 9.2 8.9 9.5 9.4 9.1 9.8 9.2 10.8 10.5 9.6 8.9
Risk-free rate (%) 3.9 3.6 4.2 4.3 4.0 4.6 4.3 4.6 4.7 4.8 4.7
Beta (x) 1.3 1.3 1.3 1.3 1.3 1.3 1.2 1.5 1.5 1.2 1.0
Risk premium (%) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
SPIL
ROE (annualised) (%) (4.6) 9.5 15.7 18.6 17.8 18.1 13.1 24.6 22.2 24.0 30.3
Assumptions
Cost of equity (%) 8.1 8.6 10.5 9.4 8.5 9.4 10.5 9.8 9.9 9.8 9.9
Risk-free rate (%) 3.9 3.6 4.2 4.3 4.0 4.6 4.3 4.6 4.7 4.8 4.7
Beta (x) 1.0 1.2 1.6 1.3 1.1 1.2 1.5 1.3 1.3 1.3 1.3
Risk premium (%) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Source: Daiwa
We have upgraded our rating for ASE to 2 (Outperform) from 4 Market data
TWSE Index 7,417.46
(Underperform), and raised our six-month target price from Market cap (US$bn) 4.61
EV (US$bn; 09E) 6.0
NT$21 to NT$33, now based on a target PBR of 2.4x on our 3-mth avg daily T/O (US$m) 21.43
Shares outstanding (m) 5,480
FY10 BVPS forecast, given our view that the company will see Free float (%) 70.0
structural improvements in 2010. Major shareholder ASE Enterprises (16.7%)
Exchange rate NT$/US$ 32.546
Performance (%)* 1M 3M 6M
Use of copper wire could lead to market-share gains Absolute 4.4 20.5 37.1
Relative 4.7 11.2 17.9
ASE’s focus on copper wire started to bear fruit from the middle Source: Daiwa
Note: *Relative to TWSE Index
of 2009. At the end of 3Q FY09, ASE’s copper-wire process had
been qualified by about 100 customers, and mass production has Investment indicators
2009E 2010E 2011E
started for more than 30 customers, including some of ASE’s PER (x) 25.3 13.7 12.6
PCFR (x) 9.1 4.9 4.9
top-10 customers in terms of revenue. ASE expects copper wire EV/EBITDA (x) 7.5 6.0 5.7
to account for 8% of its 4Q FY09 wirebonding revenue, which PBR (x) 2.2 2.0 1.8
Dividend yield (%) 2.3 2.8 5.1
would be a remarkable number, in our view. ROE (%) 8.8 15.4 15.0
ROA (%) 4.1 7.6 7.8
Net debt equity (%) 64.0 44.4 34.2
Source: Daiwa forecasts
Operating leverage and IDM outsourcing in an upcycle
We believe ASE will outperform SPIL (in terms of share-price Price and relative performance
performance) during the upcycle, since ASE has higher
operating leverage. In addition, increased outsourcing by IDM
customers over the next few quarters would benefit the
company, in our opinion. We believe it would also be less
sensitive to gold-price hikes than SPIL, especially after its
aggressive investments in copper wire. Source: Bloomberg, Daiwa
Income summary
Revenue EBITDA Net profit EPS CFPS DPS
Year to 31 Dec (NT$m) (%) (NT$m) (%) (NT$m) (%) (NT$) (%) (NT$) (NT$)
2007 101,164 0.7 36,037 3.2 12,164 (33.5) 2.590 (5.4) 5.260 1.500
2008 94,431 (6.7) 29,044 (19.4) 6,331 (47.9) 1.141 (55.9) 5.571 1.700
2009E 85,027 (10.0) 26,004 (10.5) 6,203 (2.0) 1.079 (5.4) 2.993 0.628
2010E 102,595 20.7 32,459 24.8 11,486 85.2 1.998 85.2 5.558 0.777
2011E 109,711 6.9 34,684 6.9 12,439 8.3 2.164 8.3 5.570 1.399
Source: Company, Daiwa forecasts
Note: The investment indicators and income summary on the front page of this report, as well as the back-page financial summary, are all based on the forex assumptions set out in the table at
the back of this report, unless stated otherwise.
ASE’s efforts started to bear fruit from the middle of 2009. ASE offers a 15% price
discount to customers if they opt for copper rather than gold wire. At the end of 3Q
FY09, ASE’s copper-wire process had been qualified by about 100 customers, and
mass production has started for more than 30 customers, including some of ASE’s top-
10 customers in terms of revenue. ASE expects copper wire to account for 8% of its
wirebonding revenue for 4Q FY09, which would be a remarkable number, in our view.
When demand recovers and sales for the semiconductor industry bottom out, IDM
customers usually resume their outsourcing strategies, especially after closing
down their factories during a downturn. We expect more outsourcing orders to
materialise in the future from other IDMs, such as NEC, STM, Fujitsu and
Numonyx. We believe ASE’s IDM portion of sales bottomed out in 2Q FY09 at
30%, and that its greater exposure to IDM sales will result in it recording stronger
revenue growth than its peers during the next upturn.
ASE raised its capex guidance for 2009 again to US$300m (from US$200m
announced at the 2Q results conference). The additional amount will be spent on
low-cost solutions, such as copper wirebonding and bumping fan out. ASE expects
its 2010 capex to be around US$400-500m. The company had 500 sets of copper
wirebonders at the end of 3Q FY09 and expects to add a further 500 sets and 2,000
sets in 4Q FY09 and 2010, respectively (even more aggressive than it was three
months ago).
Earnings-forecast revisions
We have revised up our We have revised up our FY09, FY10, and FY11 EPS forecasts by 33.4%, 41.5%
FY09, FY10, and FY11 and 13.3%, respectively, mainly to factor in our more positive demand assumption
EPS forecasts for electronic products and ASE’s structural improvement.
50 32x 50
28x
3.5x
40 24x 40
3.0x
20x
30 30 2.5x
16x
2.0x
20 12x 20
1.5x
8x 1.0x
10 10
0.5x
0 0
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Profitability (%)
GAAP
Gross-profit margin 4.9 21.7 25.2 25.4 22.7 25.6 28.6 25.0 23.9 21.2 25.6 25.7
Operating-profit margin (10.5) 12.0 15.7 15.9 12.8 16.1 19.7 15.8 12.5 10.7 16.3 16.5
PBT margin (12.3) 10.6 15.3 15.2 11.8 15.4 19.1 15.1 10.2 9.8 15.5 15.7
Net-profit margin (11.7) 8.0 12.6 11.4 8.5 11.1 13.8 10.9 6.7 7.3 11.2 11.3
YoY (%)
GAAP
Sales (46) (18) (2) 39 72 21 13 2 (7) (10) 21 7
Gross profit (89) (32) (4) 102 691 43 28 0 (23) (20) 46 7
Operating profit n.m. (32) 2 321 n.m. 63 41 1 (39) (23) 83 8
Net profit n.m.) (31) 44 n.m. n.m. 67 23 (3) (48) (2) 85 8
QoQ (%)
GAAP
Sales (27) 56 21 1 (10) 10 12 (9)
Gross profit (79) 587 41 2 (20) 24 25 (20)
Operating income n.m. n.m. 59 3 (28) 39 37 (27)
Net income 149 n.m. 90 (9) (33) 43 39 (28)
Source: Company, Daiwa forecasts
Suffering from the trend toward copper wire and MediaTek’s single chip
Suffering from MediaTek’s migration to a single-chip Reuters code 2325.TW
(ie, the MT6225 accounts for 60-70% of MediaTek’s total Performance (%)* 1M 3M 6M
Absolute (2.3) 3.4 (5.0)
handset shipments and the handset business unit accounts for 70- Relative (2.0) (4.6) (18.3)
80% of its total sales currently). Given that MediaTek is SPIL’s Source: Daiwa
Note: *Relative to TWSE Index
largest customer, accounting for about 15% of the latter’s sales,
Investment indicators
we expect SPIL to suffer as a result of this product transition. 2009E 2010E 2011E
PER (x) 16.4 14.5 11.8
PCFR (x) 9.2 7.0 7.0
A laggard in copper wire technology EV/EBITDA (x) 7.1 6.0 5.3
PBR (x) 2.1 2.0 1.8
We believe that rapid adoption of copper-wire technology would Dividend yield (%) 4.2 4.5 5.5
ROE (%) 13.4 14.2 15.8
hurt SPIL, as we estimate that the throughput rate for SPIL’s ROA (%) 11.0 11.7 13.1
Net debt equity (%) Net cash Net cash Net cash
copper wire of around only 75% is much worse than ASE’s Source: Daiwa forecasts
95%. In our view, SPIL’s low throughput rate for copper wire
would force the company to choose between maintaining its Price and relative performance
market share or gross margin/ROE.
Income summary
Revenue EBITDA Net profit EPS CFPS DPS
Year to 31 Dec (NT$m) (%) (NT$m) (%) (NT$m) (%) (NT$) (%) (NT$) (NT$)
2007 64,622 14.7 23,888 22.9 17,489 31.2 5.910 13.2 7.779 3.350
2008 60,474 (6.4) 17,879 (25.2) 6,314 (63.9) 2.003 (66.1) 6.890 4.500
2009E 56,635 (6.3) 16,497 (7.7) 8,271 31.0 2.624 31.0 4.667 1.800
2010E 65,554 15.7 19,405 17.6 9,368 13.3 2.971 13.3 6.169 1.947
2011E 70,560 7.6 21,809 12.4 11,482 22.6 3.642 22.6 6.166 2.347
Source: Company, Daiwa forecasts
Note: The investment indicators and income summary on the front page of this report, as well as the back-page financial summary, are all based on the forex assumptions set out in the table at
the back of this report, unless stated otherwise.
However, on the IC back-end side, we expect the transition to result in about a 40%
cost saving for MediaTek. In other words, all other things being equal, we estimate
MediaTek’s contribution to back-end companies’ sales would decline by 20% after
completion of the transition to the MT6253 from the MT6225 (ie, the MT6225
accounts for 60-70% of MediaTek’s total handset shipments and the handset
business unit accounts for its 70-80% of total sales currently). Given that
MediaTek is SPIL’s largest customer, accounting for about 15% of the latter’s
sales, we expect SPIL to suffer as a result of this product transition, and for it to
lose about 2-3% sales after the transition to a single-chip solution is completed.
Earnings-forecast revisions
We have revised up our We have revised up our FY09, FY10, and FY11 EPS forecasts by 39.6%, 10.4%
FY09, FY10, and FY11 and 4.8%, respectively, mainly to factor in our more positive demand assumption
EPS forecasts for electronic products.
0 0
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Source: Bloomberg, Daiwa forecasts Source: Bloomberg, Daiwa forecasts
Profitability (%)
GAAP
Gross-profit margin 9.5 20.7 23.2 21.6 20.8 23.2 23.4 21.0 21.1 19.9 22.2 24.4
Operating-profit margin 2.1 15.6 18.2 16.5 15.0 17.9 18.3 15.7 14.7 14.4 16.8 19.0
PBT margin 3.4 15.2 18.6 27.4 15.6 18.5 18.9 16.3 10.8 17.8 17.4 20.1
Net-profit margin 2.8 11.8 15.3 22.8 12.8 15.2 15.5 13.3 10.4 14.6 14.3 16.3
YoY (%)
GAAP
Sales (38) (11) (3) 33 62 20 5 (3) (6) (6) 16 8
Gross profit (72) (10) (4) 49 254 34 7 (5) (33) (12) 29 18
Operating profit (91) (7) (1) 123 n.m. 38 6 (8) (44) (8) 35 21
Net profit (85) (31) (20) n.m. 632 54 7 (43) (64) 31 13 23
QoQ (%)
GAAP
Sales (26) 54 18 (1) (10) 13 4 (9)
Gross profit (63) 233 32 (8) (13) 26 5 (18)
Operating income (84) n.m. 39 (10) (18) 35 7 (22)
Net income n.m. 536 54 48 (49) 34 7 (22)
Source: Company, Daiwa forecasts
China – Shanghai
Strategy (Regional) Hirokazu YUIHAMA (Head of Research) (86) 21 5840 1338 h.yuihama@dirsh.com.cn
Automobiles Ricon XIA (86) 21 5879 6833 ricon.xia@dirsh.com.cn
Consumer/Retail Nicolas WANG (86) 21 5840 5653 nicolas.wang@dirsh.com.cn
All Industries Hongxia ZHU (86) 21 5840 1138 hongxia.zhu@dirsh.com.cn
Singapore
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Macro Economy (Regional) Prasenjit K BASU (65) 6321 3069 p-k.basu@daiwasmbc.com.sg
(Chief Economist, Asia Ex-Japan)
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(Regional Head of Banking/Finance)
Healthcare (Singapore, Hong Kong and China) Soo Kee ANG (65) 6329 2133 sookee@daiwasmbc.com.sg
Conglomerates, Commodities, Energy and Chris SANDA (65) 6321 3085 csanda@daiwasmbc.com.sg
Small/Medium Caps (Singapore)
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Consumer/Retail Yoshihiko KAWASHIMA (886) 2 8780 5987 y.kawashima@daiwasmbc-cathay.com.tw
IT/Electronics (IC-design, Semiconductors) Aaron JENG (886) 2 8780 1469 aaron.jeng@daiwasmbc-cathay.com.tw
IT/Technology Hardware Calvin HUANG (886) 2 2758 8805 calvin.huang@daiwasmbc-cathay.com.tw
IT/Technology Hardware (Components) Andrew CHANG (886) 2 8789 5341 andrew.chang@daiwasmbc-cathay.com.tw
IT/Technology Hardware Mitsuharu WATANABE (886) 2 2758 9437 m.watanabe@daiwasmbc-cathay.com.tw
Materials, Small/Medium Caps Albert HSU (886) 2 8786 2212 albert.hsu@daiwasmbc-cathay.com.tw
South Korea
Banking/Finance Chang H LEE (Head of Research) (82) 2 787 9177 chlee@daiwasmbc.co.kr
Automobiles, Shipbuilding, Industrials, Steel Sung Yop CHUNG (82) 2 787 9157 sychung@daiwasmbc.co.kr
Capital goods Mike OH (82) 2 787 9179 mike.oh@daiwasmbc.co.kr
Chemicals Daniel LEE (82) 2 787 9121 daniel.lee@daiwasmbc.co.kr
Consumer/Retail Sang Hee PARK (82) 2 787 9165 sanghee.park@daiwasmbc.co.kr
Industrials Naoki IEIRI (82) 2 787 9184 ieiri@daiwasmbc.co.kr
IT/Electronics Jae H LEE (82) 2 787 9173 jhlee@daiwasmbc.co.kr
IT/Electronics, Software Thomas Y KWON (82) 2 787 9181 yskwon@daiwasmbc.co.kr
Australia
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Materials Vishal CHANDAK (91) 22 6622 1006 vishal.chandak@in.daiwasmbc.com
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Pharmaceuticals and Healthcare, Consumer Kartik A. MEHTA (91) 22 6622 1012 kartik.mehta@in.daiwasmbc.com
Software, Telecommunications R. RAVI (91) 22 6622 1014 ravi.r@in.daiwasmbc.com
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(Daiwa SMBC Europe)
Daiwa Securities SMBC Europe Limited, Frankfurt Branch Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, (49) 69 717 080 (49) 69 723 340
(Daiwa SMBC Europe, Frankfurt) Federal Republic of Germany
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• Daiwa Securities SMBC India Pvt. Limited
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