Industry Update

Taiwan: SATS/Substrate/PCB

1 September, 2014

Scenario analysis

Whats new?

Our view

PTI/STATS have the best synergetic

With rising market interest on

The only potential buyer of

match-up (least business overlap),

the potential STATS ChipPAC

STATS ChipPAC is a Chinese

but STATS valuation is too high.

(STAT SP; NR) M&A event, we

govt-backed IC packager with a

provide our view on the subject

strategic angle, such as access

as well as the scenario impact

to more advanced technologies

on the overall IC package/test

(ie. ROIC not the key incentive).

industry.

Separately, we do not believe PTI

If ASE/SPIL/PTI buy STATS (now

trading at 1.4x P/B as the stock is
up by over 100% since May), we
expect the acquirers share price to

is interested given the pricing.

react negatively on ROE dilution.

Taiwan IC Backend Supply Chain

Primary Analyst:
Andrew Chen
+886 2 35187940

STATS is up for grabs, what is the impact?

andrew.chen@yuanta.com

With significant contribution from:

Event background STATS ChipPAC (STAT SP; NR) shares have risen over

Caitlin Huang
+886 2 3518 7911

100% since May on M&A speculation, and it is now trading at 1.4x P/B:

caitlin.huang@yuanta.com

STATS ChipPAC is the fourth largest IC packager globally with annual

http://research.yuanta.com
Bloomberg code: YUTA

revenue of around US$1.6 bn. As opposed to ASE (#1), Amkor (#2) and SPIL
(#3), STATS ChipPAC has been struggling with profitability for years despite
having similar advanced packaging sales exposure. For reference, STATS

Figure 1: Companies mentioned

Company

major shareholder is the Singapore govt-backed Singapore Technologies

P/E
P/B
2014F 2014F

Semiconductors which holds 83.8% of the company, and the entity has

Ticker

Rating

TP

ASE

2311 TT

HOLD-OPF

39

14.5

2.2

SPIL

2325 TT

HOLD-OPF

50

12.6

2.1

Our view The only potential buyer of STATS is a Chinese govt-backed IC

PTI

6239 TT

BUY

72

14.4

1.4

packager: With the current pricing (1.4x P/B for a company near the

Amkor

AMKR US

NR

NR

11.7

2.1

breakeven level with a large net debt balance sheet), we believe the only

STATS

STAT SP

NR

NR

N.A.

1.4

Source: Bloomberg, Yuanta Investment Consulting

estimates

already publicly said that STATS is up for sale.

feasible potential buyer of STATS is a Chinese govt-backed IC packager

with a strategic angle, such as access to more advanced technologies (ie.
ROIC not the key incentive). For reference, Jiangsu Changjiang (600584 CH;
NR) is commonly regarded as the symbolic Chinese IC packager with
annual revenue of around US$1.0 bn, and could act as the vehicle for a
potential M&A. It is interesting to note that Jiangsu Changjiangs share price
has also risen by 45% since May this year.
The market view is that the potential tie-up is negative for the Taiwan IC
backend industry, but we see it as more neutral: While the potential tie-up
will make the new entity larger (it could become roughly the size of SPIL in
terms of annual revenue), the question is: does it really create a stronger
entity? We believe competition will remain ongoing, while the potential M&A
could face cultural challenges during the restructuring period. In sum, we
hold a neutral view on the event should it materialize.
Better for Taiwanese companies not to get involved: Although PTI/STATS
have the best synergetic match-up (least business overlap), we believe
STATS valuation is too high. If ASE/SPIL/PTI buy STATS at the current
price, we expect the acquirers share price to react negatively given the
ROE dilution.

ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ARE LOCATED IN APPENDIX A.

Yuanta does and seeks to do business with companies covered in its research reports. As a result, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision.

How things stand at the moment

Figure 1: Peer comparison
Unit: in US$ mn
Bloomberg Ticker
Market Cap
2014F Sales
2014F Operating
Profit
2014F OPM (%)
2014F Net Profit

Sales mix

Segmental capacities

Total Shareholders
Equity
Net Debt
% Net Debt / Market
Cap
P/E (2014F)
P/B (2014F)
Major shareholder

STATS ChipPAC

Jiangsu Changjiang

ASE

SPIL

PTI

STAT SP
1,190
1,628

600584 CH
1,452
1,008

2311 TT
9,902
8,475

2325 TT
4,697
2,795

6239 TT
1,477
1,386

55

37

937

451

155

3%
7

4%
33

16%
374

11%
103

Advanced packaging:
49%
WB packaging: 30%
Testing: 21%

Packaging & Testing:

95%
Chips: 5%

11%
685
Packaging FC &
Bumping: 14%
Packaging WB: 30%
Packaging Discrete &
Others: 5%
Testing: 10%
IC Substrate: 1%
EMS: 40%

12 Bumping: 35k
wpm
WL-CSP: 5k wpm

8 Bumping: 80k wpm

12 Bumping: 5k wpm
FC BGA: 2.5 mn units
/ month
WLCSP: 340 mn units
/ month
WB BGA: 16 mn units
/ month

Wirebonders: 16,007
FC/Bumping: 87 mn
units / month
Testers: 3,287
IC Substrate: 52 mn
units / month

Wirebonders: 7,460
FC BGA: 28 mn units /
month
FC CSP: 72 mn units /
month
Testers: 470

Wirebonders (exGreatek): 1,738

Testers: 310
12 bumping: 25k
wpm
Wirebonders
(Greatek): 2,325

948

555

4,607

2,232

1,327

741

223

1,780

221

111

62%

15%

18%

5%

8%

N.A. (near breakeven)

1.4x
Singapore
Technologies
Semiconductors:
83.8%

43.5x
3.4x

14.5x
2.2x

12.6x
2.1x

14.4x
1.4x

Xingchao Group:
16.3%

Microelectronics
Investment: 17%

Chairman Bough Lin:

2.2%

Kingston Group:
7.9%

Packaging (exPackaging FC &

Greatek): 49%
Bumping: 41%
Testing(ex-Greatek):
Packaging- WB: 47%
25%
Testing: 12%
Greatek: 26%

Source: Company data, market news, Yuanta Investment Consulting estimates

Taiwan: SATS/Substrate/PCB

1 Sep, 2014

Page 2 of 5

Appendix A: Important Disclosures

Analyst Certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to
each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal
views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed by that research analyst in the research report.
Current distribution of Yuanta ratings

Rating

# of stocks

Buy

176

48%

HOLD-OPF

83

23%

HOLD-UPF

47

13%

Sell

1%

Under Review

53

14%

Restricted

1%

Total:
367
Source: Yuanta Investment Consulting August 18, 2014

100%

Ratings Definitions
BUY: We have a positive outlook on the stock based on our expected absolute or relative return over the investment period. Our
thesis is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile. We
recommend investors add to their position.
HOLD-Outperform: In our view, the stocks fundamentals are relatively more attractive than peers at the current price. Our thesis
is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile.
HOLD-Underperform: In our view, the stocks fundamentals are relatively less attractive than peers at the current price. Our thesis
is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile.
SELL: We have a negative outlook on the stock based on our expected absolute or relative return over the investment period. Our
thesis is based on our analysis of the companys outlook, financial performance, catalysts, valuation and risk profile. We
recommend investors reduce their position.
Under Review: We actively follow the company, although our estimates, rating and target price are under review.
Restricted: The rating and target price have been suspended temporarily to comply with applicable regulations and/or Yuanta
policies.
Note: Yuanta research coverage with a Target Price is based on an investment period of 12 months. Greater China Discovery
Series coverage does not have a formal 12 month Target Price and the recommendation is based on an investment period
specified by the analyst in the report.
Global Disclaimer
2014 Yuanta. All rights reserved. The information in this report has been compiled from sources we believe to be reliable, but
we do not hold ourselves responsible for its completeness or accuracy. It is not an offer to sell or solicitation of an offer to buy any
securities. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change
without notice.
This report provides general information only. Neither the information nor any opinion expressed herein constitutes an offer or
invitation to make an offer to buy or sell securities or other investments. This material is prepared for general circulation to clients
and is not intended to provide tailored investment advice and does not take into account the individual financial situation and
objectives of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness
of investing in any securities, investments or investment strategies discussed or recommended in this report. The information
contained in this report has been compiled from sources believed to be reliable but no representation or warranty, express or
implied, is made as to its accuracy, completeness or correctness. This report is not (and should not be construed as) a solicitation
to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on such
business in that jurisdiction.
Yuanta research is distributed in the United States only to Major U.S. Institutional Investors (as defined in Rule 15a-6 under the
Securities Exchange Act of 1934, as amended and SEC staff interpretations thereof). All transactions by a US person in the
securities mentioned in this report must be effected through a registered broker-dealer under Section 15 of the Securities
Exchange Act of 1934, as amended. Yuanta research is distributed in Taiwan by Yuanta Securities Investment Consulting. Yuanta
research is distributed in Hong Kong by Yuanta Securities (Hong Kong) Co. Limited, which is licensed in Hong Kong by the
Securities and Futures Commission for regulated activities, including Type 4 regulated activity (advising on securities). In Hong
Kong, this research report may not be redistributed, retransmitted or disclosed, in whole or in part or and any form or manner,
without the express written consent of Yuanta Securities (Hong Kong) Co. Limited.

Taiwan: SATS/Substrate/PCB

1 Sep, 2014

Page 3 of 5

Taiwan persons wishing to obtain further information on any of the securities mentioned in this publication should contact:
Attn: Research
Yuanta Securities Investment Consulting
4F, 225,
Section 3 Nanking East Road, Taipei 104
Taiwan
Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact:
Attn: Research
Yuanta Securities (Hong Kong) Co. Ltd
23/F, Tower 1, Admiralty Centre
18 Harcourt Road,
Hong Kong

Taiwan: SATS/Substrate/PCB

1 Sep, 2014

Page 4 of 5

Yuanta Greater China Equities

Research - Taiwan
Vincent Chen
Head of Taiwan Research
+886 2 3518 7903
vincent.chen@yuanta.com

George Chang, CFA

Co-Head of Tech
+886 2 3518 7907
george.chang@yuanta.com

DC Wang
Co-Head of Tech
+886 2 3518 7962
dc.wang@yuanta.com

Bonnie Chang
Head of Non-Tech
+886 2 3518 7925
bonnie.chang@yuanta.com

Aidan Wang
Head of Macroeconomics
+886 2 3518 7992
aidanwang@yuanta.com

Andrew C Chen
IC Backend, IC Substrate, PCB
and LED
+886 2 3518 7940
andrew.chen@yuanta.com

Steve Huang, CFA

Semiconductors & Display
+886 2 3518 7905
steve.huang@yuanta.com

Jeff Pu, CFA

Handsets
+886 2 3518 7913
jeff.pu@yuanta.com

Calvin Wei
PC/NB, Passive Components,
IPC
+886 2 3518 7971
calvin.wei@yuanta.com

Chuanchuan Chen
IC Design
+886 2 3518 7970
chuanchuan.chen@yuanta.com

Felix Hsu
Semiconductor, Solar, Car
Electronics
+886 2 3518 7946
felix.hsu@yuanta.com

Yvonne Tsai
Petrochem/Textile/Medical
Devices/Shipping
+886 2 3518 7942
yvonne.tsai@yuanta.com

Peggy Shih
Taiwan Financials,
Environmental Eng
+886 2 3518 7901
peggy.shih@yuanta.com

Peggy Lee
Pharmaceuticals
+886 2 3518 7984
peggy.lee@yuanta.com

Yen-liang Chen
Asset Plays, Non-tech
+886 2 3518 7967
yl.chen@yuanta.com

Robbie Tseng
Petrochemicals & Chemicals
+886 2 3518 7945
robbie.tseng@yuanta.com

April Chang
Hannah Cheng
RA - Strategy, Downstream Tech RA - Upstream Tech
+886 2 3518 7977
+886 2 3518 7930
april.chang@yuanta.com
hannah.cheng@yuanta.com

Maggie Chi
RA - Upstream Tech
+886 2 3518 7969
maggie.chi@yuanta.com

Shelly Chou
RA Downstream Tech
+886 2 3518 7915
shelly.chou@yuanta.com

Caitlin Huang
RA Downstream Tech
+886 2 3518 7911
caitlin.huang@yuanta.com

Leo Lee
RA Non-tech
+886 2 3518 7983
leo.kc.lee@yuanta.com

Jessie Lo
RA Non-tech
+886 2 3518 7949
jessie.lo@yuanta.com

Roger Lo
RA Upstream Tech
+886 2 3518 7939
roger.c.lo@yuanta.com

Rainy Wang
RA Upstream Tech
+886 2 3518 7916
rainy.wang@yuanta.com

Ellie Wang
RA Upstream Tech
+886 2 3518 7956
ellie.wang@yuanta.com

Wayne Wang
RA Non-tech
+886 2 3518 7909
wayne.wang@yuanta.com

Jessie Wu
RA Downstream Tech
+886 2 3518 7961
jessie.y.wu@yuanta.com

Livia Wu
RA Non-tech
+886 2 3518 7920
livia.wu@yuanta.com

Research - Hong Kong/Shanghai

Peter Chu, CFA
Head of HK Research
Consumer Research
+852 3969 9521
peter.kk.chu@yuanta.com

Kelvin Ng
Renewable Energy
+852 3969 9518
kelvin.kc.ng@yuanta.com

Benson Wan
Oil & Gas/Industrial
+852 3969 9529
benson.cf.wan@yuanta.com

Nice Wang
China Strategy
+86 21 6187 3821
nice.wang521@yuanta.com

Sales and Trading

Juan Tseng
Head of Taiwan Sales
+886 2 2175 8962
juan.tseng@yuanta.com

Duncan Wun
Head of HK Cash Equities
+852 3969 9869
duncan.wun@yuanta.com

Jason Wang Head of

Taiwan Sales Trading
+886 2 2175 8888
jason.wang@yuanta.com

Jenny Lo
Head of HK Sales Trading
+852 3969 9769
jenny.lo@yuanta.com

Sharon Chao Sales Trading

+886 2 2175 8915
sharon.chao@yuanta.com

Kerry Chen - Sales

+886 2 2175 8922
kerrychen@yuanta.com

Philip Kong Sales

+852 3969 9879
philip.kong@yuanta.com

Kate Jackson Sales

Trading
+852 3969 9767
kate.jackson@yuanta.com

Jason Lin - Sales

+886 2 2175-8998
jason.lin@yuanta.com

Michael Lin - Sales

+886 2 2175 8977
michael.lin@yuanta.com

Terence Lok Sales Trading

+852 3969 9728
terence.lok@yuanta.com

Carlos Ng Sales Trading

+852 3969 9712
Carlos.ng@yuanta.com

Joyce Wan Sales

+852 3969 9876
joyce.wan@yuanta.com

Paula Wong Sales

+852 3969 9832
paula.wong@yuanta.com

Sales of Non-Taiwan Equities

Franker Lin
Head of Foreign Equity
Department
+886 2 2175 8720
laiochenlin@yuanta.com

Lunghui Chen
Co-Head of Sales, Foreign
Equity Department
+886 2 2175 8730
lunghuichen@yuanta.com

Oscar Yang
Co-Head of Sales, Foreign
Equity Department
+886 2 2175 8733
oscaryang@yuanta.com