EAST ASIA SECURITIES COMPANY LIMITED
9/F, 10 Des Voeux Road Central, Hong Kong.
Dealing: 3608 8000 Research: 3608 8097 Facsimile:
3608 6132
HONG KONG RESEARCH
Analyst: Kevin Tam 27th March 2006
This
report has been prepared solely for information purposes and we are not
soliciting any action based upon it. Neither
this
document nor its contents shall be construed as an offer, invitation,
advertisement, inducement or representation of
any
kind or form whatsoever. The information is based upon information, which we
consider reliable, but accuracy or
completeness
is not guaranteed. Opinions expressed herein are subject to change without
notice. At time of this report,
East
Asia Securities Company Limited has no position in securities of the company or
companies mentioned herein, while
its
group companies may from time to time have interests in securities of the
company or companies mentioned herein.
Main Board H-share Listing
-
Research
上海先進半導體製造股份有限公司
Advanced
Semiconductor Manufacturing Corporation Limited [Stock Code: 3355]
Joint Global Coordinators, Joint Bookrunners,
Joint Sponsors and Joint Lead Managers
: Goldman
Sachs (Asia) L.L.C.
BOCI Asia
Limited
Sector : Semiconductor & Semiconductor
Equipment
Business : Manufacturer of analog
semiconductors
Total share offer: 406,662,000 H shares
(27.5% of the enlarged share capital)
Public Offer: 40,668,000 H shares (10%)
Placing: 365,994,000 H shares (90%)
Greenshoe: 60,998,000 H shares (15%)
Price: HK$1.36 - HK$1.85 per H share
Market Cap of the H shares:
HK$1.46
billion - HK$1.98 billion
Pro Forma FY2006E P/E: N/A
Adjusted NTA per share: HK$1.06 -
HK$1.18
Group Staffing: 1,492
HK Public Offer period:
27th March 2006
- 30th March 2006
Receiving bank: Bank of China (Hong Kong)
Share registrar: Computershare Hong Kong
Investor
Services Limited
Listing date: 7th April 2006
Business of ASMC
ASMC is a
leading dedicated analog foundry
focusing
primarily on the manufacturing of analog
semiconductors
and higher bipolar content-based
mixed
signal semiconductors. According to IC
Insights,
ASMC is one of the world’s top ten
foundries
(digital and analog) in 2004 in terms of
sales.
Products of ASMC include both standard
and
application-specific semiconductors,
designed
by customers for use in various endmarket
applications,
including computing,
communications
and consumer electronics.
ASMC’s
client portfolio includes some of the
world’s
leading integrated device manufacturers
(IDMs)
and fabless semiconductor companies,
such as
Semtech, the Philips Group, Datang
Microelectronics,
Texas Instruments, Fairchild
Semiconductor,
National Semiconductor, AOS,
California
Micro Devices, and Monolithic Power
Systems.
ASMC now
operates two wafer fabrication
facilities
in Shanghai, one of which manufactures
5-inch
& 6-inch wafers and the other 8-inch
wafers.
Major Shareholders after Listing (Assuming the over-allotment option is not
exercised)
Philips
Electronics China 27.65%
Shanghai
Chemical Industrial Park Investment Enterprise 24.74%
China
Orient Asset Management Corporation 12.05%
Shanghai
Belling 5.81%
ASMC
Compensation Trust [interest via Lanmax
International] 2.25%
70.25%
2
EAST ASIA
SECURITIES COMPANY LIMITED
Use of Proceeds
Net
proceeds from the offer are estimated to be HK$519.6 million.
(Assuming the over-allotment option is not
exercised, and at an Offer Price of HK$1.61 per Share, being the
midpoint of the Offer Price Range)
HK$ million
To repay
debt maturing from August 2006 to January 2007 271.5
For the
acquisition and/or upgrade of certain production equipment to increase 8-inch
production
flexibility and yield and reduce production time
54.2
To
increase overall 8-inch monthly production capacity from approximately 12,000
wafers as
at
December 31,2005 to approximately 14,000 wafers as at December 31, 2007
193.9
Financial Highlights
Year ended 31st December
2003 2004 2005
RMB’000 RMB’000 RMB’000
Sales
784,428 1,147,367 931,583
Gross
profit 258,284 320,120 70,957
Operating
profit 137,885 178,787 (88,991)
Net profit
133,105 182,650 (75,030)
Shareholders’
Equity 1,107,798 1,255,339 1,180,309
Strengths/Opportunities
�� ASMC is one of the world’s leading foundries focused on analog IC. ASMC
is now the only foundry that can
provide 8-inch analog fabrication of sizeable
capacity, i.e. over 10,000 wafers per month (wpm) and linewidth
of 0.25 micron. Competition in Analog IC foundry
business is less intense given its high level of entry
barrier, which is mainly attributed to the lack of
skilful design staffs and higher customisation requirements.
�� China overtook US and Japan as the largest IC
market in 2005. Moreover, it is expected the global analog
IC market to expand at a CAGR of 13.8% during
2006-08, mainly driven by the communications segment,
higher than the expected 10.6% CAGR for the overall
semiconductor market during the same period.
�� Fabless customers accounted for 64.4% of revenue in
FY05. Revenue from fabless customers has been
more stable than that from IDMs, because IDMs could
turn to internal production during market downturn
but fabless customers have to rely on external
suppliers.
�� Philips holds 27.65% stake (after listing) in ASMC
through Philips China. The strong tie with Philips not only
provides ASMC technology transfer, but also
contributed 16.3% of revenue in FY05.
�� It seems ASMC is eventually turning around. Fab 3
(8-inch) is currently at an utilisation rate of 48%, up
from 44% in 2005. Wafer shipments as of 28 February
2006 amounted to 27,494, compared to the 37,625
for the whole of 2005.
�� The IPO price range implies an 1.28X to 1.57X FY05E
price to book ratio. Valuation is fair compared to
industry leader TSMC (2330.TW), trading at
approximately 3X FY06E book value.
Weaknesses/Threats
× ASMC does not develop technology on its own. Instead,
the company relies on (1) technology transfer from
Philips, (2) technology agreements with customers
and (3) joint developments with customers to provide
technology.
× ASMC’s sales revenue dropped 18.8% in 2005, as
sales of 5-inch and 6-inch wafers fell due to a worldwide
cyclical slowdown. Gross profit also reported a
77.8% plunge in 2005, mainly owing to a sales slowdown
and a drop in average selling price of 6-inch
wafers. As a result, gross profit margin contracted substantially
from 32.9% in 2003 to 7.6% in 2005. Despite growing
sales in 8-inch wafers, we expect margin pressure to
remain in near term before any sharp pick-up in
sales transforming into margin enhancement, as other
business segments stayed sluggish.
× ASMC is highly geared with a pre-IPO debt to equity
ratio of 100% in FY05 and total debt amounted to
RMB 1,186 million, of which all are due within a
year. The estimated pro-forma post-IPO debt to equity ratio
is still a high 63%.
× Semiconductor is a highly cyclical industry.
Recommendation:
Unattractive
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EAST ASIA SECURITIES COMPANY LIMITED
Important Disclosure /
Analyst Certification / Disclaimer
This document is published by East Asia Securities
Company Limited, a wholly-owned subsidiary of The
Bank of East Asia, Limited (BEA). At time of this
report, East Asia Securities Company Limited has no
position in securities of the company or companies
mentioned herein the report, while BEA and / its
associated or affiliated companies may from time to
time have interests in securities of the company or
companies mentioned herein.
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views expressed in this report.
This report has been prepared solely for
information purposes and has no intention whatsoever to solicit
any action based upon it. Neither this report nor
its contents shall be construed as an offer, invitation,
advertisement, inducement or representation of any
kind or form whatsoever. The information is based
upon information, which East Asia Securities
Company Limited considers reliable, but accuracy or
completeness is not guaranteed. Opinions expressed
herein are subject to change without notice. Any
recommendation contained in this report does not
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