Taiwan's Sunplus and Via bring international equity

After strong run-ups in their domestic share prices, IC designers Sunplus and Via Technologies are planning international equity offerings.

Sunplus will begin roadshows for a debut GDR offering in just over a week, while Via is planning to launch a first ADR at the beginning of 2001 after pushing back its schedule slightly. For both companies, surging share prices have been a reflection of strong sales growth and an increasing awareness by investors that IC design companies make solid long-term investment plays.

UBS Warburg is lead manager of Sunplus's $200 million GDR, which will begin formal roadshows on September 18, for pricing towards the end of the month. The company, which moved over from Taiwan's OTC board at the beginning of the year, is offering 17.5 million units on a ratio of two shares per unit. With a 50/50 split between primary and secondary shares, there is also a 2.5 million unit greenshoe.

Alongside the lead, Barits Securities and ING Barings are senior co-leads, with SG Securities as co-lead and Capital Securities, Fuh-Hwa Securities and Taiwan International Securities as co-managers.

Bankers say that the company has attracted positive pre-marketing feedback because it offers improving fundamentals and also a fresh face among the huge pipeline of international equity offerings from Taiwan projected for the third and fourth quarters. Currently, only a handful of international funds are said to own the stock, with domestic institutions largely responsible for the recent run-up in the company's share price.

So far this year, the company's share price has risen 53%, with most of the rise occurring over the last three months according to local analysts. Having hit a year-to-date high of NT$192 on August 21, shares closed yesterday (Thursday) at NT$170, equating to a market capitalisation of NT$62.9 billion ($2.04 billion).

Analysts consequently caution that the new deal will have greatest appeal to long-term holders. "The stock has had a good run recently and for short-term investors, it's not one that we would recommend," says one Taipei-based specialist. "But for investors looking over a one to two year horizon, it still has plenty of value."

The largest consumer IC design company in Taiwan, Sunplus designs and manufactures LCD (liquid crystal display) controllers, microcontrollers, voice and music synthesizers and multimedia ICs. During the 1999 Financial Year, 35% of its revenues derived from LCD controllers, 35% from microcontrollers and 14% from multimedia applications such as chips for digital still cameras.

In August, the company announced that net income for the six months ended June 30, had risen 56.19% to total NT$823.94 million. And analysts comment that although consumer IC applications normally only have short product life cycles, Sunplus remains well placed because it has progressively built up a broad portfolio of technology applications.

Via plans for 2001 debut ADR

Meanwhile, Via Technologies, the world's second largest chipset manufacturer after Intel Corp, is planning a first international equity offering for the beginning of 2001, after pushing the prospective launch date back by a few months.

Having initially hoped to complete a debut $300 million Nasdaq ADR this autumn, the company is now planning to hire investment banks and submit an SEC filing at the end of the year. Says finance manager Miller Chen, "We decided to delay the ADR timetable at the end of August after we had to push back the schedule and amend terms for our purchase of PC graphic chip assets from S3 in the US."

The Nasdaq-listed company is selling IC designer Via its graphic chip manufacturing operations in a deal involving a cash payment of $208 million and the benefit of approximately $60 million in liabilities. The original agreement had been delayed because of accounting-related concerns expressed by the Taiwanese government.

Via, however, remains keen to broaden its appeal among international equity investors. "We want to raise our profile and enhance the company's reputation," Miller adds. "We also have a number of subsidiary companies in the US and want to get an ADR programme in place for our stock options scheme."

Since its domestic listing in March 1999, the company has grown rapidly to become one of Taiwan's top 20 companies by market capitalisation, recording phenomenal sales and profit growth in the process. From an initial share capital of NT$2 billion ($64.8 million ) and a listing price of NT$120 ($3.89), the company now has outstanding share capital of NT5.76 billion and is currently trading around the NT$466 mark, equating to a market capitalisaiton of NT$262 billion ($85 billion).

Threatening Intel's lead, the company share of the chipset market has grown from 25% to 41% since the beginning of the year. A chipset manages the flow of data between a processor and other computer parts such as the monitor. And where Intel really dominates - in the CPU sector - the company is also aggressively planning to expand its market share from a current level of 5% to 13% by next year and 25% the year after.

Soaring demand for the company's PC133 chipset, particularly from the Taiwanese motherboard manufacturers which produce over half the world's PC supply, has also resulted in August's sales figures tripling to NT$3.81 billion ($123 million). As a consequence, the company has just revised its profit forecasts for the year, predicting that it will achieve a net profit of NT$5.2 billion as of Financial Year End December 31, a 56.69% increase. "We are hoping to break the $1 billion mark in sales," Chen concludes, "In 1999, we managed $356 million."

Yet, despite the fact that the company is close to reaching most analysts' target share price, many houses still have a buy recommendation on the stock. Says SG Securities Eric Chen, "We have downgraded the company from a strong buy to a buy because it is reaching our target price of NT$480. But we can't think of a good reason to put a sell order on because third quarter sales and profits will definitely carry on moving up."

"Once a chipset manufacturer hits on a popular product, it will be good for an entire two to three year life cycle and the company can chase market share pretty quickly," he continues. "Over the period of the cycle, p/e ratios tend to go up pretty quickly. Via is trading up at the 23 times 2001 earnings level at the moment and we think there is room for a little more improvement, but only up to about 25 times."


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