Taiwan's Wintek completes first GDR since 2004

The manufacturer of mobile phone screens raises $120 million at a 6.4% discount on the back of positive third-quarter earnings.
Wintek, which makes display screens for mobile phones and digital cameras among other things, has raised $120 million from a marketed follow-on sale of global depositary receipts (GDR) that was priced in the early hours of Wednesday morning.

This was the companyÆs first GDR sale since November 2004 and came after a better-than-expected third-quarter earnings report, which suggested that the business has turned a corner following the losses in the first half. However, sources say investors werenÆt entirely convinced yet that the performance will be sustainable and therefore demanded a fairly significant discount. The fact that the share price has risen 67% from a low in early May likely also played a role here and it wouldnÆt have made much difference that the stock fell about 2.2% during the roadshow.

Many investors also preferred to look ahead to fellow display maker InnoluxÆs larger GDR offering that is expected to kick-off next week and may raise more than $1 billion.

Still, WintekÆs offering attracted about 35-40 investors and attracted reasonably good demand. About 40% of the orders came from Asia, while Europe and onshore US investors accounted for approximately 30% each. In terms of types of investors, there was a slight bias towards hedge funds and the book also included a number of investors who hadnÆt previously held Wintek stock. This latter group came in with large orders and at a tighter discount than many of the existing investors who chose to participate.

The JPMorgan-led sale was preceded by a four-day roadshow that took the management to Singapore, Hong Kong, London and New York.

The company sold 20 million GDRs at a price of $6 apiece, which was equal to a discount of 6.4% versus the NT$41.80 close of WintekÆs common shares in Taiwan on Tuesday. Each GDR accounts for five common shares. According to investors, the bookrunners gave some soft guidance ahead of the final day of bookbuilding in the US on Tuesday that the deal was likely to price within a 5%-8% discount of that close.

Given the small size of the deal, the discount appears wide, but a source close to the transaction noted that the market was quite jittery on the day of the pricing after Ericsson reported earnings that were well-below analyst estimates. The Swedish provider of mobile phone systems also presented a pretty gloomy outlook for 2008, which caused some concerns about the mobile industry as a whole. Wintek, which was the number one supplier of mobile displays in the first half of 2007 in terms of volumes with a 13.7% market share, was obviously not immune to such concerns. Its major customers include Motorola, Nokia, Samsung and Apple.

On top of that, Federal Reserve chairman Ben Bernanke said in a speech on the same day that the slump in the US housing market could continue to affect the US economy into 2008.

Many investors were impressed by WintekÆs turnaround and its recent ramp-up of its thin-film transistor-liquid crystal display (LCD) screen business, through the acquisition of two third-generation plants from HannStar Display Corporation in the fourth quarter of last year and in August this year (the latter is expected to be completed towards the end of 2007). A positive post-earnings research note published by Credit Suisse at the end of last week helped attract attention to the improved performance and it likely didnÆt hurt that the Swiss firm raised its target price for the stock to NT$60 from NT$54.

Analysts Felix Rusli and Vivian Jang noted that the increase of TFT-LCD shipments from the first 3G plant bought from HannStar and strong seasonal demand had led to a sharp improvement in gross margins to 16% in the third quarter from 7% in the second. They also raised their earnings estimates for 2007 and 2008 because of the better-than-expected third-quarter results and a more favourable supply and demand situation for the industry as a whole and said that Wintek, which trades at an adjusted 2008 PE multiple just below 10, remains the cheapest handset component stock among the 13 that the firm covers.

However, according to one source, investors felt the companyÆs track record within the new business was still a bit short.

ôIf they show that they can execute their TFT-LCD plans and are able to deliver a couple more quarters of positive earnings, more investors will be ready to invest,ö the source says.

WintekÆs common shares fell 2.4% to NT$40.80 in Taiwan yesterday following the deal, underperforming the 0.3% decline in the broader market.
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