Powertech packages GDR for international investors

Does Powertech GDR signal new onslaught of Taiwan tech deals?

Taiwan's Powertech Technology completed a debut $103.6 GDR yesterday (January 17), taking advantage of an 81.2% rise in its share price since the beginning of January last year.

The JPMorgan led deal comprised 15 million units, with an additional 1.75 million unit greenshoe. Pricing was fixed at $6.91 per unit, which represented a 4% discount to the stock's NT$115 close on Tuesday.

One unit equals two shares. Should the greenshoe be exercised in full, the deal will equate to 8.4% of the testing and packaging company's issued share capital.

Unusually for a Taiwanese tech deal, it comprised all old shares. None of the selling shareholders are said to have sold more than a third of their stakes, except for one individual investor who sold just over half his stake. The sellers included Li-Hon Investment, Li-Ton Investment, Silicon Storage Technology and Toshiba Memory Semiconductor Taiwan.

Powertech's share price rose 0.88% on Tuesday, although it is down from its all time high of NT$123 on January 6.

After embarking on a three day Asian roadshow last Friday, the company was able to build an order book that closed roughly two times covered with participation from about 30 investors.

"The big question on investors' lips is whether Taiwan will perform this year," says one observer. "It was obviously the big underperformer last year, although the tech sector has done well over the past three months rising by an average of 31% across Asia. At 14.5 times forward earnings, the sector is still trading at only a small premium to the regional average."

Powertech is currently trading at about 10 times 2006 earnings and analysts believe the stock still has upside given strong EPS forecasts for 2006.

Over the first nine months 2005, the company grew sales by 46% year-on-year equating to revenue of NT$8 billion and net profit of NT$2.6 billion. It is said to boast a net profit margin of more than 30% and an average return on equity of almost 40% since it went public in 2003.

"Historically, Powertech has been the back-end tester with the highest margins and return on equity in the industry and the existing shareholders are quite happy with the performance of the company. The only question was at what price they would want to top up their holdings," one observer said.

In a research note published last week, KGI Asia noted that Powertech will be the main beneficiary among the Taiwanese chip testing and packaging firms from the outsourcing trend of international memory makers, thanks to its dual focus on DDR2 (double data rate 2) and NAND Flash memory chips.

Last month the company said it would install three set of Advantest testing equipment during December and 12 more in the first quarter to meet the increasing demand from its customers, which include premium memory device makers Toshiba, Elpida, Hynix, Kingson and ProMOS.

Despite the extra capacity, production utilization would remain at 90-95% in the January to March period, it said.

KGI forecasts a 57% rise in Powertech's revenues and 32% growth in earnings per share this year. The securities house has raised its share price target to NT$143 from NT$120, equal to 24% upside from current levels.

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