Chunghwa Picture Tubes (CPT) took an opportunistic view of market sentiment yesterday (Thursday) with the accelerated launch and pricing of a debut GDR via global co-ordinator Citigroup and joint bookrunner ABN AMRO.
A constant fixture on the fundraising circuit through good markets and bad, Taiwan's TFT-LCD producers are currently raising funds to complete their 5G capex plans and in some cases start financing the 6G and 7G plants that will manufacture panels for flat screen TVs. Right behind CPT, Chi Mei, Hannstar and CPT (for a third time this year) are all lining up new deals. Chi Mei, for example, is currently pre-marketing a $500 million debut GDR via JPMorgan, while Hannstar has just received regulatory approval for a $200 million convertible and CPT is preparing a $250 million credit-enhanced convertible via ABN and Chinatrust.
Timing of CPT's GDR was particularly fortuitous as it came on a day when the TWSE rose 2% and turnover went up 40%, as local and foreign investors marked the first day of the fourth quarter with an influx of fresh funds. After keeping books open for four hours, the leads recorded a 3.5 times oversubscription rate on a 5% to 10% discount range and 2.7 times at the final issue price.
The company sold eight million new shares and 9.6 million old shares at an issue price of $11.33 per GDS unit. This represented a 6.7% discount to the stock's NT$16.40 close in Taiwan. There is a ratio of 25 shares per GDS unit.
The selling shareholder was the Tatung group, one of the company's two major shareholders. As a result of the $200 million sale, Tatung's stake declines from 51.6% to 45.8%. There will be a 90-day lock-up.
About 75 accounts are said to have participated in the deal, with a distribution split, which saw 50% placed in Asia, 40% in Europe and 10% in the US.
At 6.7%, CPT has achieved the tightest discount for a Taiwanese GDR issue so far this year, beating rival manufacturer Quanta Display, which held the record for just five trading days after pricing a $269 million debut GDR via Lehman Brothers last week at an 8.08% discount
Both deals were driven by momentum players and despite the fact that CPT is up 137% year-to-date, it is still only just trading over its book value at 1.1 times 2003 book. The company had originally planned to do a convertible straight after a rights offering, which closed last week. However, given the longer time needed to process the CB, the company decided to take advantage of the strong market tone and leapfrog it with the GDR.
CPT is a company, which has never really been favoured by analysts, because it is smaller in scale and has legacy issues with its CRT (Cathode Ray Tube) operations. But it is a company, which may be about to surprise on the upside even if only for a few quarters.
In an interview with FinanceAsia last month, finance official James Wu explained the rationale for a funding strategy, which has broken away from the pack.
CPT is the only TFT-LCD producer not to construct a 5G fab. Instead, it opted for 4.5G, which cost only half as much (NT$16 billion for 70,000 substrates per month) and has not been plagued by any of the ramp up problems associated with 5G. CPT believes this will enable it to gain an early mover advantage before additional capacity from the stream of new 5G fabs puts pressure on prices.
Wu argues that as long as there is more than a 5% differential in yield rates between 4.5G and 5G, the former is more cost efficient. Currently, the differential is greater than 20%.
He also says that 5G is a waste of time, since it is not efficient for TVs, nor for notebooks, where screens need to be bright and thin. "With 4.5G, the glass is only 0.5mm thick compared to 0.7mm for 5G," he comments.
Instead, CPT is ploughing straight into 6G and will complete groundbreaking for a fab producing 60,000 substrates per month in the fourth quarter. It hopes to have it operational by early 2005.
Among all the Taiwanese producers, Chi Mei Optoelectronics (CMO) is the forerunner of flat screen TV market and also ships more of the current industry standard 30" TV panels than either Samsung or LG. How it intends to maintain this advantage will form the crux of its GDR marketing campaign.
Investor presentations for a 400 million to 450 million new share deal began on Monday. Roadshows are provisionally scheduled to run between October 8 and October 21, with BNP Paribas Peregrine, Daiwa and KGI Securities acting as co-leads.
At a current share price of NT$45, the company will raise about $500 million at the top end of the range and expand its share capital by 15%. CMO has traditionally traded at up to a 30% premium to its slightly larger rival AU Optronics. Having climbed 76.66% so far this year, it currently tops the sector at 2.6 times 2003 book.
Partly this is because the company has always had a smaller equity base. But it has also been accorded a premium because of the cost advantages associated with its superior in-house technological developments.
It has, for example, had in-house colour filters (one of the main stumbling blocks for 5G) from day one. Analysts say CMO has hugely benefited from the technology transfers it has derived from Japan (Fujitsu and IDT).
However, investors are now likely to ask whether the company can continue to benefit given that AUO recently acquired a 20% stake and board seat in Fujitsu. Yet CMO remains unfazed and in a recent interview with FinanceAsia, CFO Eddie Chen said the company hopes that TV will account for 15% of total revenues by the end of 2003, up from 5% at the beginning of the year.
CMO's 5G fab is scheduled to ramp up to 30,000 substrates per month by the end of the year and 120,000 substrates by the end of the first quarter of 2004. Chen says its super large capacity means CMO can sit back and evaluate whether it should move next into 5.5G, 6G or 7G. In anticipation of making a decision by the end of the year, groundbreaking for the new fab has already been completed and piling is about to start.
A special report analysing whether Taiwan's TFT-LCD producers need to merge in order to be profitable and survive has just been published in the September issue of FinanceAsia magazine.