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Post Info TOPIC: UTAC
KK


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UTAC - CIMB
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27 Jun 07

Affinity Equity & TPG Capital offers S$1.20 per share

Affinity Equity and TPG Capital has offered to acquire UTAC for S$1.20 per share in a cash deal valued at S$2.2bn. The offer price represents a 20% premium to the volume weighted average price per UTAC share of S$1.00 over the one calendar month from 23 May 2007 to 22 June 2007. Acquisition of UTAC shares will be implemented through a special purpose vehicle, Global A&T Electronics. The share scheme must be approved by a majority in number of at least 75% in value of shares held by UTAC shareholders at a court-convened meeting. Affinity and TPG have received irrevocable undertakings from certain UTAC shareholders representing about 17.2% of UTACs current issued share capital.

Valuation and recommendation

We recommend holding out for a better offer. While we expect short-term investors to accept the offer, we recommend longer term investors to hold out for a better offer. The offer price of S$1.20 per share values UTAC at 1.63x CY07 P/B and 4.6x CY07 EV/EBITDA. The offer is at an 11% discount to Temaseks offer for STAT on CY07 P/B basis and 16% discount on CY07 EV/EBITDA basis. We believe UTAC deserves a similar take-over valuation as for STAT given UTACs fragmented shareholder base (four largest shareholders on record are Solomon Technology: 9%, Morgan Stanley: 5.1%, JPMorgan Chase: 5%, Fidelity: 4.5%), a superior ROE (UTAC: 13.2%, STAT: 7.1% for CY07) and stronger earnings growth prospects. UTAC has traded between 1.0-1.9x P/BV since its IPO in 2004.

Maintaining Outperform and raising target price to S$1.32 from S$1.10. Given the takeover situation, we raise our target price to S$1.32 based on 1.8x CY07 P/BV. This pegs UTAC at similar valuation to Temaseks offer for STAT.

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KK


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UTAC - BT
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27 Jun 07

Affinity Equity, TPG Capital team up to buy Utac

$1.20 in cash per share buyout to be effected by scheme of arrangement

AFFINITY Equity Partners and TPG Capital have teamed up to acquire United Test and Assembly Center Ltd (Utac) in a deal that values the company at up to $2.2 billion.

The proposed acquisition, announced late last night, is in cash at $1.20 per Utac share, and will be effected by a scheme of arrangement. Utac has entered into an agreement to implement the scheme with Global A&T Electronics, a special-purpose company formed by Affinity and TPG.

Under the scheme, all issued ordinary shares in Utac held by Utac shareholders will be acquired by Global A&T Electronics. Upon completion of the scheme, Utac will be delisted.

The $1.20 per share price reflects a premium of 20 per cent to Utac's six-month volume weighted average price and a 78.3 per cent premium to Utac's net asset value per share based on Utac's unaudited accounts for the three months ended March 31, 2007.

Utac non-executive chairman Charles Chen said: 'The proposed acquisition provides an opportunity for Utac shareholders to realise their investment in Utac shares for cash at a premium to historical closing share prices of the company.'

Affinity's managing partner David Lai said: 'We have a high regard for the track record of Utac and its current management team. A key objective for us is to retain the team after the close of offer.'

The share scheme must be approved by a majority in number representing at least 75 per cent in value of the shares held by Utac shareholders present and voting at a court-convened meeting.

Affinity and TPG have received irrevocable undertakings from certain Utac shareholders representing about 17.2 per cent of Utac's current issued share capital to, among others, vote, or procure the voting of all their shares in favour of the scheme.

Utac independent directors have appointed ANZ Singapore as the independent financial adviser.

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KK


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26 Apr 07

Utac posts 12.8% drop in earnings to $18m for Q1

SEMICONDUCTOR testing firm United Test and Assembly Centre (Utac) yesterday reported a 12.8 per cent fall in earnings for the quarter ended March 31 - to US$18 million from US$20.7 million a year earlier. And this was despite 74.2 per cent growth in revenue to US$179.8 million. Utac said that the fall in earnings was due to lower test utilisation, slight price erosion and higher depreciation charges.

The dynamic random-access memory (DRAM) market experienced more severe price erosion than expected, it said. While Utac expects DRAM volumes to stay healthy, it also expects continued erosion in the current second quarter. 'To mitigate this, we have intensified our cost improvement programmes,' said group president and chief executive Lee Joon Chung.

Earnings per share for Q1 were 1.2 cents, down from 1.4 cents in Q1 2006.

Besides higher sales, Utac said revenue growth was due partly to the acquisition of Utac Thai, previously known as NS Electronics Bangkok. Utac said its Q1 performance was 'in line with seasonality and slower industry inventory digestion' and was 'comparatively stronger' than overall industry performance.

Utac's memory segment had the largest share of revenue for the quarter - US$74.2 million or 41.3 per cent.

While the flash memory market was weak in the first two months of the year, it picked up in March. And Utac says the outlook for the second quarter 'is much improved'.

For the mixed-signal and radio-frequency segments, which made up 39.6 per cent of total Q1 revenue at $71.3 million, Utac expects demand to grow gradually 'and possibly accelerate in the second half of the year'.

Utac's packaging business under Utac Thai will soon see business from six of Utac Singapore's mixed-signal test services customers. Utac says the ramp-up will be gradual but should accelerate when a third plant in Thailand is ready in the second half of the year.

Utac expects Q2 revenue to be 'flattish', within 3 per cent higher or lower than Q1 revenue.

Utac's shares closed half-a-cent higher at 91.5 cents yesterday.



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KK


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UTAC - CIMB
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26 Apr 07

Keeping the faith

Below expectation. UTACs 1QFY07 earnings of US$18m were 10% below our expectation due to associate losses. UTACs performance was in-line at the operating level, with revenue and EBITDA margins meeting our expectations. The 2.4% qoq revenue contraction was within management guidance.

Notable weakness in DRAM and analog. DRAM and analog were particularly weak, with revenue declining qoq by 2% and 7% respectively. DRAM was affected by ASP pressure, as well as reduced testing times. Analog slowdown was due to weaker customer orders, including Texas Instruments, one of its largest analog customers. MSLP sales did relatively better, with revenue flat qoq.

Margin pressure from lower tester utilisation. Utilisation for wire-bonders and testers fell to 75% (4QFY06: 80%) and low-60% (4QFY06: 65%) respectively during 1QFY07.

Strengthening MSLP outlook balanced by DRAM uncertainty. Management guided for -3% to 3% qoq growth for 2Q07. MSLP inventory levels are lean and pick-up in order momentum was noted from the second week of April. Customers are also indicating concerns with capacity availability. However, MSLPs rising strength is likely to be offset by weak DRAM outlook in 2QFY07. UTAC should remain affected by low DRAM prices through reduced test times and some ASP pressure.

2H07 bet still on. UTAC is still poised to ride on 2H07 strength, especially in the MSLP segment where lean inventory meets seasonal demand. In addition, UTLs third plant remains on track for production runs from July 07. Six of UTAC MSLP customers have completed or is in the process of qualifying UTL for QFN packaging services.

Maintain Outperform with unchanged target price of S$1.10. Our target price is based on 1.5x CY07 P/BV. UTAC offers an attractive risk-reward exposure to seasonal 2H07 strength for the semiconductor sector. It is trading at a 1.2x CY07 P/BV, close to trough level of 1.0x P/BV and offers high operating leverage to 2H07 demand pick up through its test business. Buy on weakness.

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KK


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UTAC - BT
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19-Apr-2007

Utac shares fall after UBS cuts rating

SHARES of United Test & Assembly Centre Ltd (Utac), Singapore's second-largest provider of computer chip-testing services, fell the most in a month and a half after UBS AG cut its rating on the company to 'neutral'. The stock declined 4.2 per cent, the biggest drop since March 5, to 91 cents at the close of trading yesterday. By comparison, the benchmark Straits Times Index declined 0.4 per cent.

UBS cut its rating on the stock from 'buy', citing weak pricing for memory chips, and lowered its 12-month share price target to $1.05 from $1.10.

Carlyle Group's withdrawal of its offer for Taiwan's Advanced Semiconductor Engineering, the world's largest provider of chip-testing and assembly services, may damp speculation that Utac may be a takeover target, UBS analysts Robert Lea and William Dong wrote in a report dated Tuesday. - Bloomberg

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KK


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UTAC - Lim and Tan
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3-Apr-07

A Cheaper Alternative 

  • DRAM prices rose by an average of 8% within a single day yesterday. Some attributed the boost to Hong Kong-based players stocking up prior to the Easter holiday as the major reason.
  • We believe that DRAM prices have already fallen 50% YTD, close to cost of production. Historically, this suggests that downside from here would be limited. If prices were to fall further, major producers would reduce their production levels orhold inventory.
  • While there would likely be margin pressures for UTAC given the sharp decline in DRAM prices, demand (volumes) remain strong on the back of upgrading of hardware in compliance with the requirements of Microsoft Vista. Management expects volume growth to more than compensate for the margin pressures.
  • Major foreign brokers are expecting a bottoming in DRAM prices and a pick up sometime in 2H2007 due to seasonal factors and pick up in demand for Vista. As a result, most have upgraded the DRAM sector recently.
  • Besides benefitting from a better DRAM environment going forward, UTAC is also seeing better indications from key customer in the set top box business segment (Broadcom) due to lower inventory levels and pick up in demand.
  • At 1.3x book and 10x PE, UTAC is cheap compared to STATS (19x PE and 1.9x book) and ASE (14x PE and 2x book). In line with STATSs independentcommittees view, we maintain that Temaseks offer price is fair and shareholders should accept the offer and switch to UTAC.


-- Edited by KK at 20:31, 2007-04-03

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KK


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UTAC - CIMB
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26-Mar-2007

CIMB-GK tech conference

UTL is a key growth driver. Management is confident of strong growth contributions from UTL (NSEB acquisition in Jun 06), especially from the QFN packaging business. Several UTAC mixed-signal customers are qualifying UTL for QFN packaging.

DRAM concerns. Management believes that prices should bottom by 2Q07. As for ASP erosion, management conceded that there may be some but the decline should not mirror that of DRAM selling prices. Testing capacity remains balanced while volume from customers is healthy. More importantly, DRAM customers remain profitable at the current price of around S$3.70 for 512 MB DRAM, against a cost of S$2.80, including depreciation.

M&A developments in the OSAT sector. Management is not actively seeking buyers. It highlighted that given its fragmented shareholding, with the largest shareholder, Solomon Systech, owning 9%, price would be more important in enticing the shareholders to sell. Management views the recent private equity-led ASE and STAT deals as positive in terms of greater assurance of sustained capex discipline among the largest OSAT players. This is because private-equity investors are likely to exact greater financial discipline from their investment interests. Competition-wise, UTAC views itself as a niche player. For example, UTAC is focused on testing while the four largest industry players are focused on assembly.

Valuation and recommendation

Maintain Outperform with unchanged target price of S$1.10. Our target price is based on UTAC’s mid-cycle valuation of 1.5x CY07 P/BV. We continue to like UTAC for its emerging earnings growth clarity and compelling risk-reward proposition. Downside should be limited by the current 1.2x CY07 P/BV. UTAC remains our top pick in the semiconductor sector.

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KK


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8-Feb-2007

Clarity emerges

• Emerging clarity on growth is a key stock catalyst for 2007. After a strong start in 1Q06, UTAC was subsequently de-rated in 2006 as its outlook was clouded by a heavy capex programme, customer inventory corrections and specific issues at key customers. UTAC’s recent 4Q06 results point to improving clarity on its growth prospects going into 2007.

• Value of NSEB acquisition should begin to emerge in FY07. In addition to NSEB’s (now known as UTL) full-year earnings contribution to growth in FY07, the real growth potential lies in NSEB’s QFN packaging business, where it is considered one of the leading players. Several UTAC mixed-signal (MSLP) customers (including Broadcom, one of UTAC’s largest customers) are in the process of qualifying UTL by 1H07. UTL’s third production facility, which is scheduled to begin operations in early 2H07, should support these new business opportunities.

• Maintain Outperform and target price of S$1.10. Our price target is based on UTAC’s mid-cycle valuation of 1.5x CY07 P/BV. UTAC is currently valued at 1.1x P/BV, near trough valuations. Key catalysts to our target valuation would include a demand recovery at key MSLP customers, growth at UTL’s QFN packaging business and strong seasonal demand in 2H07. Reiterate Outperform.

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KK


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UTAC - DBSVickers
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Extracts fm DBSVickers report dated 26-Jan-07,

Bold initiatives to pay off

Both sales and earnings exceeded expectations. UTAC had guided for 0% to 5% sequential sales growth for 4Q06 but stronger than expected demand drove sales higher. Sales expanded 14% q-o-q while earnings easily exceeded our forecast by c.15%. Strong memory sales (23% q-o-q growth, 41% of sales) and steady improvement in mixed signal logic (8% growth q-o-q, 39% of sales) and analog sales (8% growth q-o-q. 20% of sales) drove much of the improvement. The strong demand also drove utilisation levels higher and consequently profit margins for the Group due to the high business operating leverage.

Bullish outlook concurs with industry expectations. We are seeing and hearing a gradual improvement within the semiconductor industry. Inventory exercise looks to finally end for most in the current quarter. New products and applications on the horizon could provide a strong driver for much improved industry sales in the later part of the year. We argued earlier that UTAC’s earlier investments could pay off handsomely when demand returns. The prospects seem good in FY07 considering that UTAC has added both new customers and new capacity in 2006. It is planning to spend another US$260m (internally funded) to expand its capacity and we are positive on this direction.

Valuation’s more attractive than its local peer. We prefer UTAC to its local peer as the stock offers higher upside from current level. It also has a more diversified customer mix, covering DRAM as well. In view of its capex intention and our positive view of demand in the industry in later part of 2007, we have raised our earnings estimates for FY07 and FY08 by 8.2% and 5.8% approximately. The stock is trading at 1.4x FY07 expected NTA. Our target price of S$1.20 pegs the stock to approximately 2.0x P/NTA or 1.6x P/BV. This is a slight discount to the 2.2x P/NTA multiple that we have pegged STAT to in deriving its target price.

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KK


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UTAC
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BT, Published December 5, 2006

Utac to pump US$100m into Thai operations

New plant to have testing operations, distribution centre

SEMICONDUCTOR testing firm United Test & Assembly Center (Utac) said it is investing US$100 million over the next three years in Thailand, where it will consolidate its leadframe-based packaging business. The investment will include a 29,100-square-metre factory - its third in the country - which will have testing operations and a distribution centre. The new investment follows the company's acquisition of NS Electronics Bangkok (1993) in June for US$175 million. It has been renamed Utac Thai.

'Our Thailand operations are growing very strongly and have become a significant contributor to the group's growth over the past two quarters,' said group president and chief executive officer Lee Joon Chung in a news release yesterday. 'Moving forward, the group's strategy will be to consolidate leadframe-based assembly in Thailand, with Singapore concentrating on substrate-based packaging activities. 'The strategy to focus on the respective strengths and capabilities of our Singapore and Thailand operations reinforces the synergies between both sites.'

Utac Thai will lease the new building, which is near the existing plant in the Wellgrow industrial park of Chachoengsao province. The plant, expected to begin production in the second half of next year, will employ more than 1,000 people. Utac Thai has two other factories in the districts of Bangna and Wellgrow, just outside Bangkok city, with a total of 640,000 square feet of production space hosting 598 wirebonders and 340 testers, the company said.

In October, Utac said its acquisition of Utac Thai helped boost its third-quarter revenues by 34.4 per cent, compared with the US$120.5 million in sales recorded in Q2. Total Q3 revenue grew to US$162 million, from US$84.4 million a year ago due to higher sales from assembly and test services. Revenue for the year could be 70 per cent higher than that of FY2005, the company said.

Yesterday, Utac also said that US-based Legerity has hired it to test and assemble their new voice semiconductor solutions. Legerity makes voice integrated circuits (ICs) for analog/mixed-signal semiconductor and software technologies. Under the agreement, Utac will provide wafer sort and assembly services to Legerity at both the Singapore and Thailand operations. Utac said it has been chosen by Legerity as a second source for semiconductor test and assembly services for its next-generation subscriber line interface circuit (SLIC) and subscriber line access controller (SLAC) products.

In October, Utac said it expects 'continuing strength' in its memory and analog business segments, and is 'generally cautious' about the mixed-signal sector as its customers' inventory situation is still not clear. The Christmas season should help clear some of the stock, it added. Utac said it expects the memory market to remain strong with computer makers installing bigger RAMs in their products to make them ready for the upgrade to the new Microsoft operating system, Vista. It added that the outlook for the mixed-signal market is hazy, though it sees some bright spots in the 3G, Bluetooth, 802.11n wireless LAN and digital TV segments.



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KK


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UTAC - DBSVickers
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Extracts fm DBSVickers Report dated 20-Sep-06,

Now poised for re-rating

Earnings growth resumes. We expect earnings growth to resume in the current quarter after declining in 2Q06. This is first based on firm demand for both DDR1 and DDR2, which is evident in firming prices. Next, the resolution of certain order loading issues and product mix changes at its customers is largely done, and orders have resumed. Finally, with the picture at its mixed signal logic customers not as bad as expected and the contributions from UTL, we estimate earnings will expand > c.25% q-o-q in 3Q06.

Industry indicators are firming, seasonal uptick intact. Several electronics indicators have improved sharply since June. DRAM prices are firming, LCD panel prices are rising, and capacity utilization rates are rising; all indicative of healthy demand within the sector. At the same time, m-o-m sales at major Taiwanese technology/ electronics suppliers are also on the uptrend, and our ground checks with PCBA companies have indicated that demand is relatively strong for key sectors. In our earlier report, we highlighted UTAC’s aggressive expansion plan and warned that sustained downturn within the industry could hurt its earnings prospects. Given the improving outlook, we believe UTAC is positioned for strong growth throughout the rest of the year instead.

Inflexion point and limited downside risks. With all signals firming, earnings growth resuming and current valuation near its low, we believe UTAC is at an inflexion point. We believe the market could be unjustifiably pessimistic on UTAC currently, but this should change given the expectation of better earnings in the current quarter with further room for improvement in 4Q06 which should result in valuations being brought in line with its peers.



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ahkian


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RE: UTAC
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Personal opinion, I think it will take some time for utac to "digest" NSEB.
They should have just concentrated on its current biz.
The whole semicon market is expecting a down turn in Q3, may not be a good time.
Current price looks attractive, but I will wait till it reach its all time low of $0.50+ :D


Even more interesting news at STATS - its bigger competitor.
- Retrenched 460 people recently, re-affirming itself as a hire-and-fire company!
- One of its top 3 customer - brcm is moving out, maybe partially or maybe totally, need to find out more
- Rumours about them buying Agere facility, Agere will become a fabless company.
- Its share price - $0.88, looks like the lowest, in 5 years ???  
It will be interesting if its share price reached the levels of UTAC at $0.5-$0.6



-- Edited by ahkian at 00:57, 2006-08-08

-- Edited by ahkian at 00:59, 2006-08-08

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KK


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BT, Published August 3, 2006

Three hurdles for Utac

AT FIRST glance, United Test and Assembly Centre (Utac) looks like a great buy. Its stock price has corrected by over 30 per cent to 69 cents from a high of $1.07 in late April and it recently reported a more than doubling of its second-quarter profits. Utac has also upped its revenue growth target for the year to 70 per cent and is expected to spend US$350 million on capital expansion, an increase from the US$200 million previously budgeted. What's not to like about a stock that almost every analyst has a 'Buy' on?

Three things. First, Utac, which tests a variety of semiconductor devices, may be riding out a broader downturn in demand. Second, there is potential new competition. And third, Utac's large capital expenditure may stem its free cash flow.

Utac's recent profit figures were partly boosted by its acquisition of NS Electronics Bangkok in May, which a Nomura report estimates to have contributed 12 per cent to revenues and 5 per cent to profits for the quarter. Some analysts, notwithstanding their bullish calls, judge the company's organic performance as below par.

According to Lee Joon Chung, Utac's CEO, the poorer performance is due to major customers temporarily cutting back orders. Hynix Semiconductor, which accounts for some 10 per cent of Utac's sales, shifted a plant from Korea to China and has yet to ramp up production at the new site. In addition, Infineon, another '10 per cent customer', is shifting output from DDRII memory chips to graphics DDR chips, which Utac is not yet qualified to test. Mr Lee believes these issues will be resolved in Q3 2006, but there could be a larger-scale trough - a Citigroup report said the bank's semiconductor team expects a downturn from Q4 2006 to Q1 2007, while Credit Suisse noted 'seasonally weak PC demand'. Downstream, in the United States, Dell and Advanced Micro Devices have reported disappointing earnings. Closer to home, Chartered Semiconductor has also disappointed, and STATS ChipPac is expecting lower Q3 2006 revenue.


On the competition front, two of Utac's Taiwan-based customers, Advanced Semiconductor Engineering and Powerchip Semiconductor Corp, are forming a joint venture, Power ASE Technology, which could threaten future orders. 'Existing orders from Powerchip are likely to stay at Utac' but 'incremental new orders are likely to go to the JV' and 'would certainly take away the upside from outsourced orders from Powerchip', said UBS.

Utac's capex, meanwhile, could be burning a hole in the company's pocket. The company's operating cash flow (OCF) in the second quarter was US$51.4 million, while US$77.4 million was spent on capex. Its free cash flow - the amount of cash Utac generated after spending to maintain and expand the business, measured by subtracting capex from OCF - was negative. As Citigroup points out, Utac's capex-to-sales ratio is 64 per cent, up from 43 per cent previously, and compares to less than 50 per cent at its competitors. As such, Utac's 'huge capex commitment raises questions on capex discipline' and FCF is likely to stay negative, the bank said. Of course, Utac has its reasons for upping its capex budget; by and large, this is a good thing. Up to US$50 million will be used to expand capacity at NSEB and the remainder to increase capacity to meet customers' growing needs. Nomura has noted that phone manufacturer Sitel has grown into Utac's fifth largest customer and that Utac 'is making significant inroads with a communications customers on 3G related chips'.

There is reason to believe that Utac will do better in the long run. But any turning point in the stock's performance is likely to hinge on visible market signals indicating the company has overcome current risks - chiefly, an improving macro picture reflected by higher semiconductor demand, reports from Utac of renewed or new orders, and positive updates on the NSEB acquisition. Investors would need to watch how the company's plans and attendant risks play out before hopping onto the stock.



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KK


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UTAC - CitiGroup
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Extracts fm CititGrp Report dated 10-Feb-06,

Testing the limit – initiating coverage at Buy


  • Initiating coverage at Buy (1M), with a 12-month target price of S$1.35 (42% upside potential) based on 2x 06E P/BV.
  • Diversified revenue mix: We like UTAC for its diversified exposure across Nand flash, DRAM and mixed signal testing, and think it will benefit from growth in end market. With DRAM cycle improving, coupled with the fast-growing NAND flash market, UTAC has re-rating potential.
  • Catalysts emerging: DDR2 migration, outsourcing in memory testing, Windows Vista and new customer additions, particularly in mixed signal testing, further underpins our positive view. Synergies arising from its merger with UTC (1Q05) will further drive earnings this year.
  • Strong earnings growth: Expect an earnings CAGR of 58% over 2006E-07E, along with high margins, improving ROE and free cash flow. The balance sheet also looks healthy and should turn net cash by 2007E.
  • Attractive valuations: UTAC is undervalued compared with regional/local peers yet has one of the highest ROE and ROIC in the sector. The sharp 36% rally over the past six months – coupled with a seasonal slowdown – poses the risk of a short-term correction, but we view these events as buying


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KK


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UTAC - DBSVickers
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Extracts fm DBSVickers Report date 26-Jan-06,

Demand continues to power earnings momentum

UTAC reported 4Q05/ FY05 results that exceeded our expectations. It reported a 19% qoq improvement in 4Q05 sales and a 92% increase in annual sales to US$325.5m. Results were above its original guidance and earnings exceeded our estimates as we underestimated the strength of its operating leverage. The Group is guiding for a sequential improvement of another 3-8% while targets annual sales growth at 40% in FY06. The Group intends to spend about US$200m for expansion, compared to US$121.8m in FY05. We revised up our sales and earnings estimates by 59% and 67% respectively as we assumed increased machine counts and higher utilization due to the burgeoning demand. Maintain BUY with revised price target of S$1.25 based on a mid-cycle valuation P/B multiple of 1.9x.


  • Results exceeded expectations. UTAC achieved 19% sequential sales growth and 45% earnings growth. For FY05, Group registered 92% sales growth while earnings grew 245% over FY04. The memory segment grew the strongest, registering 160% growth made possible after the acquisition of UTC earlier. For 4Q05, UTAC registered a 91% sequential earnings growth attributed to improved utilization across the board. Its MSL segment grew 39.1%, driving utilization and profit margins sharply higher.

  • Sequential growth expected and target 40% sales growth for FY06. Outlook at UTAC remains bullish. The Group is guiding for an 11th sequential improvement in quarterly sales and expects growth of 3-8%. Sustained demand for DRAM, NAND Flash memory, communication and digital media products are driving utilization of its capital equipment across the board. UTAC is seeking to spend a further US$200m in FY06 to capitalize on the numerous growth opportunities it is currently seeing.

  • Further revisions to earnings and target price. The better than expected results have led us to review our assumptions as we underestimated the strength of the operating leverage. We have modeled higher machine counts given the Group’s plans to expand its capacity aggressively and higher average utilization rate. Although current outlook seems strong, we need to be watchful of the industry’s developments especially on competitors’ plans and the pricing environment. Our revised 1-yr target price for UTAC is S$1.25 based on mid-cycle valuation P/BV multiple of 1.9x.


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UTAC - Nomura
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Extracts fm Nomura Report dated 26-Jan-06,

4Q05 beat estimates; setting the benchmark


Investment Points


  • While UTAC’s 4Q05 earnings beat our estimates, the strong margin performance in the quarter sets a high FY06F benchmark; we are raising FY06F earnings by 13.0%, despite our figures already being the highest on the street.
  • 1Q06F revenue guidance is for growth of 3% to 8%; we believe this will be highest among peers, apart from being one of few that can deliver revenue growth q-q in 1Q06.
  • UTAC remains our strongest idea in our semiconductor assembly and test (SAT) coverage universe, predicated on the robust growth outlook and inexpensive valuation.

Overview


  • 4Q06 earnings of US$20.1m beat our expectation for US$17.8m; gross margins came in at 30.8% (+4.4pp q-q) and net margins at 20.0% (+7.5pp q-q). Growth in the quarter was strongest in mixed-signal and logic products (MSLP), followed by Flash, and DRAM.
  • UTAC is targeting FY06F revenue growth of 40% y-y and aggregate net margins of at least 20%. This sets a pretty high benchmark, but one we see as attainable.
  • While FY06F planned capex of US$180m to US$200m (with US$98m committed in 1H06F) may come across as aggressive, it reflects new customers/product engagements and is not symptomatic of the industry as a whole in our opinion.
  • Note: this is the seventh quarter of earnings growth q-q for UTAC, which we think is an amazing feat among SAT companies.

Risk


  • Apart from the high operating leverage that can exert tremendous downward pressure on margins during an industry downturn, the other risk would be UTAC over-investing in orders that fail to materialise.

Valuation


  • On our ROE-adjusted P/BV valuation methodology, we now have fair-value (FV) at S$1.55/share (from S$1.39), based on a historical P/BV of 1.10x (unchanged).
  • While our FV appears aggressive, we think this has to do with the street severely underestimating the earnings quality of UTAC; we see consensus playing catch-up.


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KK


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UTAC - Morgan Stanley
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Extracts fm Morgan Stanley Report dated 9-Jan-05,

Firing on All Cylinders

Upgrading rating, raising price target: Due to likely better profitability, and higher revenue growth from mixed signal and DDR2 business, we are raising our rating to Overweight-V with a price target of S$1.0.

Strong mixed signal testing business: We believe that UTAC has won new business at Broadcom (likely video iPod related), Synaptics, and Telechips, which has driven stronger -than-expected growth in 4Q05 and should drive further growth in 1H06.

DDR 2 recovery: Due to improved chipset supply and likely re-stocking by channel on DDR 2 chips, we expect DDR2 volumes to grow at Nanya and Hynix, both of which are UTAC customers.

Better profitability: Due to tightness at backend packaging, and to some extent, testing, the pricing environment has improved. Its impact on margin expansion is better than we expected.

Higher profitability and RoE: Due to higher revenue and margins, we now expect UTAC to achieve 11% RoE in 2006 and EPS of S$0.07. Further re-rating in the shares to 14x EPS and 1.5x P/BV for 2006E, imply S$1.0 share price.

Risks: Strong stock price performance in recent months indicates that some of the above-mentioned catalysts may already be reflected in the stock price.

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UTAC - DBSVickers
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Extracts fm DBSVickers Report dated 9-Jan-05,

In all the right places

UTAC is poised to record its tenth & seventh respective quarterly of sequential sales and earnings growth later this month. Favorable factors and a strong, focused management execution should have allowed UTAC to capitalize on rising demand for NAND flash memory, communication, consumer electronics products and soon automotive electronics. A disciplined approach towards capacity expansion and ability to start deriving synergies from its UTC acquisition should propel earnings higher in 2006. UTAC is in all the right places and firing on all cylinders. Reiterate BUY.


  • What has changed? We have revised UTAC’s 2005 and 2006 earnings higher by 1.4% and 21.4% respectively and introduced our 2007 estimates. We have also revised our sales estimates higher by 2.2% as we revised upwards our testing utilization assumption for 2006 from 65% to 70%. The revision takes into account our expectation of a 77% and 26% increase in the number of testers for 2005 and 2006 respectively.

  • Why has it changed? 3 key factors influenced our assumptions review. First, we believe UTAC is deriving synergies from its earlier acquisition of UTC. Not only should it benefit from economies of scale, but also an expansion of service coverage at UTAC (Taiwan). Second, UTAC should continue to ride on the strong demand for NAND flash memory (+37% sales increase in 2006) and expand sales with Sandisk and possibly other new customers. Finally, UTAC has continued to secure new customers and new orders from its current customers within the memory, consumer electronics and communication segments. Bluetooth, a key product area, is finding its way into mobile phones. Shipments of Bluetooth enabled phones are expected to jump 82% in 2006 from the previous year.

  • Target price raised, reiterate BUY. We have raised our target price for UTAC to S$1.03 from S$0.88 previously backed by our revision in earnings estimate. The DCF-derived target price also pegs the stock to P/BV multiple of 1.65x FY06 earnings. We expect UTAC to see an ROE expansion to 9.1% from 7.2% in 2004 and should revert to net cash position in 2006. Key risks include a potential slowdown in demand of key product segments and service execution for critical customers. Owing to the high operating leverage nature of its business, earnings could be negatively impacted due to high depreciation cost which is about 30% of sales.


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ahkian


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RE: UTAC
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Very interestingly, I see some slack coming into 2006, maybe its the festive mood.
Remember semicon sector started 2005 on a very cautious note.
So Q1'06 could be better than Q1'05 but if better than Q4'05 then maybe we really going to have a bullrun!



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BT, January 5, 2006, 1.40 pm (Singapore time)

Utac CEO sees Q1 2006 earnings better than year ago

SINGAPORE - Singapore microchip testing firm United Test and Assembly Centre Ltd (Utac) said on Thursday that first-quarter 2006 earnings would be 'definitely better' than the year-ago quarter as demand for MP3 players and mobile phones remains bullish.

Utac became the world's fifth-largest chip testing and packaging firm after it acquired Taiwanese rival UltraTera Corp (UTC) early last year. It was listed on the Singapore Exchange in February 2004.

'In Q1 '06, the situation is much better than Q1 '05 - our Q1 earnings are definitely better than Q1 last year. There's a good chance Q1 will also grow over Q4 as our loadings are healthy and customers are still demanding a lot of capacity,' chief executive Lee Joon Chung said in an interview. He declined to give a more detailed forecast.

In the first quarter of 2005, Utac earned a net profit of US$3.9 million. Fourth-quarter results are due on Jan 25. -- REUTERS



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UTAC - UBS
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Extracts fm UBS Report dated 8-Nov-05,

Factoring in small pockets of uncertainty

Looking for a solid H205
We expect a firm H205 for UTAC. Q3 gross and operating margins trended up to 27% and 14%, above market expectations given rising utilisation and higher exposure to testing. Looking into Q4, UTAC guided for sales growth of 10-15% QoQ, and net profit to be >Q3's US$10.5m.

H106 outlook—Memory strong, logic less certain
We expect memory utilisation to remain firm in H106 on volume growth. Despite this, we remain concerned that its backend ASPs in 2006 could be influenced by memory price declines. For mixed-signal/logic, we remain cautious on seasonal slowdown in Q106, but believe this could be partly mitigated by cautious inventory build by customers. We believe the key lies in end-demand sell-through at year-end.

Adjustments to earnings forecast
We raise our 2005E net profit from US$30.8m to US$34.6m to reflect stronger Q3 results and a firm Q4 outlook. We lower our 2006E net profit from US$47.3m to US$42.7m to reflect our increased caution on memory ASP trend, as well as uncertain outlook in Q106 for logic. Our post-ex EPS forecasts have been adjusted from US$0.027 to US$-0.020 in 2005 and from US$0.018 to US$0.016 in 2006.

Valuation: Maintain Buy 2, but lowering PT to S$0.80
We maintain our Buy 2 as we remain positive on UTAC's strength in memory, despite possible seasonal slowdown at mixed signal/ logic in H106. Given our cut in 2006E earnings estimate, we lower our PT from S$0.90 to S$0.80, based on 1.3x 2006E EV/CE, ROCE of 9.5%, WACC of 8.5% and growth of 5.5%.



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UTAC - CIMB
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Extracts fm CIMB Report dated 27-Oct-05,

3Q05 results within expectations


  • Strong 3Q05 results, as expected. Annualised 9M05 net profit is 95% and 96% of our forecast and consensus respectively. 3Q05 net profit grew 45% qoq and 170% yoy on revenue growth of 9% qoq and 97% yoy. The strong revenue growth is attributed 90% to higher volumes in memory testing services, and 10% to a 5% rise in average selling prices due to tight capacity. 

  • Revenue growth driven by memory PAT services. Memory packaging and testing (PAT), which accounts for about 60% of total revenue, grew by 18% qoq to US$55m. Mixed signal PAT services declined marginally by 3% qoq. Memory revenue was driven by a 41% qoq surge in NAND-Flash testing, as well as increased take-up of the higher value DDR2 memory. We estimate that DDR2 memory PAT revenue contribution increased from 10% in 2Q05 to approximately 14% in 3Q05. 

  • Stronger 4Q05 likely. We expect net profit to grow 10% qoq on the back of a 15% increase in revenue. Revenue is expected to be driven by PAT of mixed-signal chips, coupled with greater take-up of the higher value DDR2. DDR2 is anticipated to contribute approximately 17% of the quarter’s revenue, up from 14% in 3Q05. However, lower EBITDA margins are expected for 4Q05 vs 3Q05 as we expect revenue to be driven by the lower value assembly services. 

  • Raising FY05 forecast. We are raising our FY05 net profit forecast by 10%, on a 1% increase in expected revenue. However, we are leaving our FY06-07 estimates unchanged as we believe the strong growth is not sustainable. 

  • NEUTRAL maintained. We have maintained our target price of S$0.56 based on a 12x CY06 P/E. This compares with an average of 10x FY06 P/E for its global peers. We have tagged UTAC’s P/E target at 20% above the average because of: i) steadier revenue from its broader product base and less volatile mixed signal and logic processors vs its peers; and ii) strong balance sheet and FCF. Still, we believe UTAC’s share price has largely factored in the strong growth.


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UTAC - Lim and Tan
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Extracts fm Lim and Tan Report dated 27-Oct-05,

Results And Outlook Surprised Positively S$0.605-UTAC.SI


  • 3Q2005 net profit rose a better than expected 197% yoy and 44% qoq to US$10.5mln on the back of 97% yoy and 9% qoq increase in sales to US$84.4mln. Net margin improved from a quarter and year ago’s 10% to 12.5% while EBITDA margin improved to a record 44%.

  • The key growth drivers were strong demand for test business which resulted to the expansion of margins, and the flash memory business posted a 41% qoq growth as a result of the introduction of Apple’s latest MP3 player which used flash. The DRAM segment saw a 28% qoq increase reflecting the migration from DDR1 to DDR2. The mixed signal logic segment saw a strong improvement in utilization rates from 40% to 60% as a result of strong demand from MP3 players and Bluetooth devices.

  • Operating cash flow rose from US$17mln a year ago to US$34mln, more than offsetting the US$26mln capex for the quarter. After repayment of US$11mln, financial position remains strong with cash of US$47.5mln versus debts of US$74mln. With shareholders funds of US$508mln, gross gearing is only 14% while net gearing is 5%. This is more than sufficient to cover their capex of US$19mln for 4Q2005.

  • Looking ahead, management expects 4Q2005 sales to increase 10-15% qoq to US$93-97mln while profit would be at least US$10.6mln, underpinned by the same growth drivers mentioned above. This would put full year sales at US$318mln to US$322mln and net profit at a minimum of US$32.2mln. This is above current consensus estimates of US$30mln.

  • The company has also proposed to cancel 36.5mln shares held by UTAC (Taiwan) through a selective capital reduction exercise which would reduce the company’s share capital by 2.44%.

  • We are upping our net profit estimate upwards from US$30mln to US$33mln.

  • At 60.5 cents per share, market cap is S$907.8mln, forward PE is 16x, price to sales is 1.6x and price to book is only 1x. We expect the company to continue to surprise on the upside going forward, and with undemanding valuations, we maintain BUY.


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UTAC - DBSVickers
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Extracts fm DBSVickers Report dated 27-Oct-05,

Results & guidance above expectations : Maintain Buy

UTAC reported 3Q05 results that were above expectations. Sales came within its earlier guidance at 9.1%, while higher than expected level of utilization resulted in a 45% sequential increase in earnings. The Group remains bullish on its prospects in 4Q05 and sees sales growth between 10% and 15%. UTAC also expects 4Q05 earnings to equal that achieved this quarter. Utilization of memory testers during this quarter remained strong at about 80% level while MSLP improved from about 55% in 2Q05 to about 60%. Maintain BUY with price target of S$0.88 based on a slight discount to comparable peers’ valuation.



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UTAC
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Car Park Full can hv many reasons,


  1. Many analysts visiting to cover result briefing
  2. Many customers having severe problems and visiting to complain
  3. Many creditors visiting to collect payment

Hahaha :D

PS. I think UTAC is a good stock to buy. Too bad mkt sentiment is weak. Such good results, still don't rise.



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Looks like a fantastic quarter for UTAC.
The past few weeks I have been camping there.
This week, if I visit them in the afternoon, their parking lot is full house!


Still this business is highly cyclical.



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Extracted From UOBKH.

United Test & Assembly Center
3Q05: Ninth consecutive quarters of sequential growth

UTAC 3Q05 results were 23.5% above our net profit forecast of US$8.5m. The company achieved net profit of US$10.5m (+45% qoq, +196.8% yoy) on revenue of US$84.4m (+9.1% qoq, +97.2% yoy). This is the ninth consecutive quarter of sequential revenue growth, demonstrating gain in market share.

Growth driven by the testing business. Capacity utilisation for memory testing remains high at 80-85% despite adding new equipment. Capacity utilisation for mixed-signal testing improved from 55-60% in 2Q05 to 60-65% in 3Q05. ASP for mixed-signal testing increased by 5% due to capacity constraint for selective test platform and contribution from new products. Testing revenue grew 12.5% qoq and accounted for 64% of sales in 3Q05 (8% wafer sort, 56% final test) against 62% in 2Q05.

Memory testing outperformed. Testing for DRAM increased 13.2% qoq to US$45.6m and accounted for 52% of sales in 2Q05 (3Q05: 54%). DDR2 DRAM expanded from 20% of DRAM revenue in 2Q05 to 28% in 3Q05 with contribution from key customers Nanya and Infineon. Testing for NAND flash expanded from 9% of sales in 2Q05 to 11% in 3Q05 with remarkable sequential growth of 41% boosted by introduction of Apple iPod nano. The strength from key NAND flash customers SanDisk and ST Microelectronics is likely to continue into 4Q05.

Achieved double-digit net margin. EBITDA margin held steady at 43% in 3Q05. Net margin crossed the double-digit threshold from 9.4% in 2Q05 to 12.5% in 3Q05 due to economies of scale. Cash flow from operations was US$34m for 3Q05 alone. UTAC is in a slight net cash position of US$14.1m as at Sep 05 if we include marketable securities of US$40.5m.

Bullish guidance. UTAC guided sequential revenue growth of 10-15% in 4Q05. This will be driven by higher capacity utilisation of 65-70% for mixed-signal testing due to demand for MP3 (SigmaTel and Telechips) and bluetooth (Broadcom) applications. UTAC will continue to benefit from the migration to DDR2 DRAM and expects a third of DRAM revenue from DDR2 DRAM in 4Q05. There will be higher contribution for packaging mainly from the Singapore plant. UTAC has started to offer turnkey services (testing plus packaging) for DRAM customers in Taiwan. Ramp up for packaging usually takes four months and the impact from more packaging activities in Taiwan is expected in FY06.

We have raised our FY05 net profit forecast by 12.2% to US$33.2m due to strong growth momentum moving into 4Q05. Management has consistently delivered on their guidance. The stock has been unfairly penalised by the market in recent months, as business momentum remains strong. Maintain BUY with target price of S$0.91 (previous: S$0.87) based on EV/EBITDA of 6x.

SINGAPORE

United Test & Assembly Center (UTAC SP)

BUY
Current Price: S$0.605
Target Price: S$0.91

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Wednesday October 26, 6:03 PM
Singapore's UTAC Q3 net profit nearly triples

SINGAPORE, Oct 26 (Reuters) - Singapore microchip testing firm United Test and Assembly Center Ltd. on Wednesday reported a 197 percent jump in third-quarter net profit, driven by demand for chips used in cellphones, computers and MP3 music players.

UTAC said it expected revenue in the fourth quarter to rise 10-15 percent from the third quarter, bringing full-year sales to between US$317.7 million and $322.0 million. The company reported net profit of US$10.53 million for the three months ended Sept. 30, compared with $3.5 million in the year-earlier quarter and $7.3 million in the June quarter.

It became the world's fifth-largest chip testing and packaging firm after it acquired Taiwanese rival UltraTera Corp (UTC) earlier this year. It was listed on the Singapore Exchange in February 2004. UTAC, with a market value of about US$550 million, competes with Taiwan's Advanced Semiconductor Engineering Inc. and Siliconware Precision Industries Co. Ltd. , as well as with Singapore-based STATS ChipPAC Ltd. .

Revenue for the quarter nearly doubled to $84.4 million due to increased demand for chip testing and packaging services from customers. Dynamic random access memory (DRAM) chips, used in personal computers, account for over 50 percent of UTAC's sales. Mixed-signal and logic chips, which go into mobile phones and consumer gadgets, account for about 40 percent.

UTAC's customers include SigmaTel Inc. , which makes chips for MP3 music players, as well as South Korea's Hynix Semiconductor Inc. , Taiwan's second-largest memory chip maker Nanya Technology Corp. , and Europe's top chip maker, Germany's Infineon Technologies AG .

According to Reuters Estimates, the company is seen reporting a consensus net profit of S$48.4 million ($28.55 million) for calendar year 2005, more than double the 2004 figure of US$13.6 million. Full-year consensus revenues are seen at S$532.7 million ($314.3 million), up 85 percent from 2004.



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UTAC - CIMB
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Extracts fm CIMB Report dated 25-Oct-05,

Strong 3Q05 expected

Strong 3Q05 results expected.UTAC is expected to announce 3Q05 results on Wednesday, 26 Oct, followed by an analyst briefing. We conservatively forecast net profit growth of 20% qoq to US$8.8m on 12% revenue growth to US$86.7m. 3Q05 EBITDA margin is expected to rise to 36% from 33% the last quarter. This will be on the back of customers experiencing a strong quarter as a result of: 1) volume ramps as end-demand strengthened; and 2) increased ASP due to a short supply of DRAM and NAND-Flash (Figure 1).

Key DRAM customers post strong results. Nanya and Hynix, which account for about 30% of UTAC’s revenue, reported revenue growth of 38% and 26% qoq respectively for 3Q05. We believe 15% to 20% pts of this growth came from higher ASP for DRAM, while 10% to 15% of the growth reflected volume ramp-up.

Volume ramp of mixed signal and logic processors (MSLP). We expect UTAC’s testing and packaging of higher-value MSLPs to be a key driver of its EBITDA. The key customer for MSLP, Broadcom, achieved 15% qoq revenue growth, driven by its mobile and wireless business which increased 47% qoq in 3Q05. Broadcom was a key beneficiary of strong smartphone sales during the quarter.

Results to lag customers’.Overall, we do not expect UTAC’s results to come in as strong as its key customers’, which are benefiting from higher ASP. UTAC mainly benefits from volume ramps and not so much from higher prices. The ASP of assembly and test of memory chips tends to be relatively stable despite fluctuating prices for memory chips.

Valuation and recommendation

We maintain our NEUTRAL rating and target price of S$0.56 based on 12x CY06 P/E. This compares with the average of 10x FY06 P/E for its regional peers. We tag a 20% premium to UTAC to reflect its: 1) broader product base derived from less-volatile mixed signal and logic processors; and 2) strong balance sheet and FCF.



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Extracts fm CIMB Report dated 20-Oct-05,


  • Beneficiary of surge in demand for DDR2 and NAND memory. UTAC is a leading packaging and testing (PAT) subcontractor in the memory and mixed-signal space. Being one of the seven subcontractors for DDR2 PAT, UTAC is a key beneficiary of the global ramp up in DDR2. DDR2 packaging currently contributes to about 12% of UTAC’s revenue. NAND testing services contribute to about 9% of its revenue. We expect the memory segment to post revenue growth of 53% CAGR between FY04 and FY07. 
  • Riding the communications wave. UTAC provides higher-value testing and packaging services for mixed-signal and logic processors (MSLP) used in communications devices and digital audio players. This segment currently contributes to 40% of UTAC’s revenue. Its revenue is expected to grow by 48% CAGR between FY04 and FY07. 
  • All priced in; initiate coverage with NEUTRAL rating. At 12x CY06 P/E, UTAC is trading at a 20% premium to the regional average of 10x. We believe its shares have priced in its potential. We believe a 20% premium or 12x CY06 P/E (S$0.56 target price) is fair for UTAC. We do not foresee any catalysts for the stock given: 1) its premium valuations; 2) the market has largely priced in a recovery for the semiconductor industry; and 3) high oil prices could affect longer-term demand for semiconductors.


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