Compal Electronics launches GDR

The notebook manufacturer is hoping to join an elite band of Asian issuers able to raise straight equity this year.
With Goldman Sachs as lead manager, the company embarked on roadshows in Hong Kong yesterday (Thursday) for a roughly $175 million GDR offering.

Should it be successful, Compal will rank second to Sunplus Technology as the only Taiwanese company able to complete straight equity so far this year. It will also number one of just 12 straight equity issuers in total from the region (ex Japan and Australia). Most of these latter deals have also been very small, with an average issue size of $235 million, or $116 million if CNOOC's jumbo IPO is stripped out of the equation.

The company and lead manager are consequently likely to take a cautious approach to a deal, which will only finish marketing on May 15. Presentations move to Singapore today (Friday), followed by three days in Europe and four in the US. Other syndicate members comprise ABN AMRO, Grand Cathay and WI Carr.

The issue has been reduced slightly from original expectations for a 170 million share deal, including 70 secondary shares. Now it will incorporate 100 million primary shares, with a 15 million greenshoe of secondary shares. One unit equals five shares and there is already an existing GDR, which tends to trade at a 5% premium to underlying.

Local analysts have a uniformly positive view of the stock, which has risen 27.8% year-to-date, versus a 14.063% rise for the Taipei Weighted Index. Says Teresa Chen of Deutsche Bank Taipei: "We have a target price of NT$67 ($2.04), so believe that the stock has about 18% of upside from its current NT$57 level.

"It's been a consistent outperformer," she adds, "and it should continue to trade well if the company follows through with its shipment projections."

During 2000, the company shipped 1.8 million units and has forecast that the total will increase to 2.6 million over the course of 2001. The second quarter has seen a 45% jump over the first quarter, with the company projecting a sequential increase of 18% for the third quarter.

The main reason for the sudden increase has been a ramp-up in business to Dell, which is shipping three new built-to-order lines. As Chen explains: "Most client companies had cleared their excess inventory by January and we started to see shipments increase across the board in February. This sector of the industry is also slightly different in that products are built-to-order, so excess inventory was never that large in the first place."

Compal is as Taiwan's second largest notebook manufacturer after Quanta Computer, which has a global market share of 14% against Compal's 9%.  It also tends to trade at a slight discount and has a current price/earnings ratio of 16 times 2001 earnings, against 18 times for Quanta.

Proceeds from the deal will be used to pay down debt incurred by Toppoly, the company's new LTP (low temperature polysilicon) technology for LCDs such as mobile phones and PDAs. Although the vast bulk of its revenues are still derived from notebooks, it is hoping to diversify more strongly into mobile computing. 
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