Lead manager Lehman Brothers completed a $269.8 million GDR for Taiwanese flat panel manufacturer Quanta Display Industries (QDI) yesterday (Thursday). Roadshows were originally scheduled to run for a week-and-a-half, but after building an order book of just over $1 billion within the first day, the company decided to accelerate the deal and price early.
A total of 26.1 million GDS units were priced at $10.34, representing an 8.08% discount to the stock's NT$19 close in Taiwan. There are a ratio of 20 shares per unit and an additional 3.9 million GDS unit greenshoe. The new deal will account for 20% of the company's market capitalization.
The offering had been marketed on an 8% to 10% discount range and what is immediately striking is the tight discount achieved compared to the 20% level rival TFT-LCD manufacturer Hannstar priced at in mid-July. Since then, however, the Taiwanese government has changed the rules to make debut GDR's immediately fungible rather than after three months. QDI is one of the first beneficiaries of the change, which makes its transaction all the more appealing to hedge funds that can arbitrage the differential.
Observers say there were about 100 accounts in the book and a geographical split, which saw 25% placed in the US and the balance split pretty equally between Europe and Asia.
One of the most interesting aspects of the transaction is the fact that Taiwan's smallest TFT-LCD manufacturer could attract such investor interest. Tech bankers and industry participants have long believed the smaller players will get squeezed out of the market as investors veto ever more expensive capex plans and a lack of investment returns.
QDI is currently Taiwan's smallest producer of flat screen panels, but the group holds two key advantages. Firstly because it was a latecomer to TFT-LCD, it does not have a lot of legacy capacity sitting on its books.
The group only has one 3.5G fab and a nascent 5G fab, which is just ramping up capacity and should produce 30,000 glass substrates per month by the end of 2003 and 60,000 by the end of the first quarter of 2004. As it does not have legacy capacity, it does not need to blend margins from less efficient fabs and should report better headline numbers.
Secondly, QDI has two very strong shareholders. Quanta Computer provides one of the company's key customers for monitor flat screen panels and this will dominate production from its 5G fab during 2004. The world's largest flat screen TV manufacturer, Sharp, also holds a 5.9% stake.
Observers say QDI is aiming to progressively move capacity at the 5G fab towards 23" and 26" panels used for TV screens. However, they say the company is unlikely to announce plans for a 6G fab, since this will compete with Sharp, which has already embarked on detailed plans of its own.
"The idea is to complement Sharp," says one commentator. "Therefore QDI will either jump to 7G, or a modified version of 6G."
Year-to-date, QDI is up 64% lagging the performance of the industry leader AU Optronics, which is now up just over 140%. The company also traditionally trades at a discount to both AUO and Chi Mei.
It is currently trading at 1.7 times price to book, compared to 2.5 times for AUO and 2.3 times for Chi Mei. But it is marginally ahead of other second tier players such as Hannstar, which is trading at 1.4 times and Chunghwa Picture Tubes at 1.6 times.