Capital Group sells Siliconware chunk in block

The group's largest shareholder takes advantage of stock price momentum to offload one of its arm's stake.

The Capital Group has raised NT$13.5 billion ($452 million) from an accelerated block trade in Taiwan's Siliconware Precision Industries after Wednesday's close.

Capital Income Builder Fund and Capital World Growth Income Fund — two funds under Capital Research — sold 269.3 million shares at NT$50.20 per share. This represented the research arm's entire 8.6% stake.

Pricing represented a 6.9% discount to the company's close and the bottom end of an NT$50.20 to NT$51.8 range. 

Timing of the UBS-led deal was dictated by the company's ex-dividend date on July 16 and persuaded more income-oriented funds into the deal than would normally be seen in a tech offering. Close to 30 lines participated in total, with a roughly 80% and 20% split between international and local accounts. 

Seven percent is a relatively steep discount by Taiwanese standards and reflects the need to give investors some comfort following very strong stock price momentum so far this year. But given the deal only represented 20 days trading volume it also appealed to liquidity-driven investors.

As of Wednesday's close, Siliconware was up 51.27% year-to-date, outperforming the Taiwan Stock Exchange Weighted Index, which has climbed 10% over the same period.

At current levels, it is valued at 16.4 times 2014 earnings, according to Bloomberg data. This means it is now higher than its previous peak valuation in July 2013 when it hit 14 times forward earnings, before dropping to a trough of 10.8 times in January 2014.

However, there could still be further upside viewed from the perspective of longer cycles. Over the course of the three most previous cycles, Siliconware reached a peak valuation of 22 times and 34 times over the course of the past eight cycles. 

Capital's timing may have also been dictated by last week's very strong stock price performance, which saw Siliconware shoot up 14% in the space of six trading sessions. Profit taking then saw it drop 2.5% over the course of Tuesday and Wednesday, followed by a further 6.68% on Thursday. 

This stellar performance was driven by the company's second quarter results, which beat the company's previous guidance and analysts' expectations. Sales rose 21.4% quarter-on-quarter to NT$21.93 billion, above company guidance of 11% to 15%. 

Indeed, the company has been recording record high sales over each of the three preceding months as countries around the world ready themselves for the launch of 4G services. This has led to strong demand for its IC packaging and testing services. 

During the results presentation, Chairman Bough Lin said he expected the second half to be even stronger, with Apple scheduled to launch the iPhone 6 and China starting to roll out its 4G network. However, for investors the key is how much of that upside is already factored into current valuations. 

One potential drag is increasing capex spending. In order to keep pace with demand, Siliconware also said last week that it intends to increase 2014 capex from NT$14.7 billion to NT$18 billion.

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