CPT joins TFT-LCD funding rush

Taiwanese flat panel producer returns to GDR market.

Chunghwa Picture Tubes (CPT) returned to the GDR market for the first time since October 2003 on June 21 with a $308.5 million deal via ABN AMRO Rothschild and Citigroup.

The greenshoe was exercised in full enabling the group to issue a total of 28 million units at $11.02 each. This represented a 6% discount to the stock's NT$14.7 close earlier the same day.

The discount was in line with the 6.7% level the group managed back in 2003, but wider than the 4.7% discount Chi Mei Optoelectronics achieved just over a week ago. However, CPT is a much weaker proposition than Chi Mei and it is testament to an improvement in market conditions that it was able to clear the market so easily.

Books closed two times covered after an overnight bookbuild that ran on slightly longer than expected. About 65 accounts participated, of which 47% were from Asia, 37% from Europe and 15% from the US.

Bankers were particularly pleased with a deal, which they believe shows evidence of increasing order sizes and a return of the hedge fund community to Asia's primary markets.

The deal will dilute existing investors by 10.2%.

Year-to-date CPT is down 0.69%, though it has climbed back off lows around the NT$12.55 level in mid-March. Pre-deal, the group was said to have been trading at roughly 1.1 times forward book in line with other tier 2 manufacturers such as Hannstar and Quanta Display. The three always trade at a big discount to Chi Mei and Au Optronics, which are both trading around the two times level.

Investors are currently betting the cycle is turning after three quarters of poor results. In the first quarter, for example, CPT recorded a pre-tax loss of NT$3.7 billion versus a loss of NT$4.5 billion during the fourth quarter of 2004.

Similarly the group's gross margin improved from minus 21% to minus 18%. CPT has less exposure to the LCD TV market than some of its rivals, generating just 2% of its revenues from this source during the first quarter.

Monitors accounted for 79% and notebooks 19%, compared to 77% for monitors in the fourth quarter and 22% for notebooks. By panel size, the company is currently shipping: 50% as 17"; 38% as 15"; 10% as 15.4"; 1% below 15" and 1% above 15".

The company recently said it is planning to raise prices of its 15" and 15.4" notebook panels by $15 in July to $140 and $145 respectively.

Proceeds are being used to fund the inevitable capex expansion. CPT is in the process of ramping up its second 4.5 G plant and is beginning mass production at its 6G plant this month. Both will have a maximum capacity of 90k substrates per month.