Rating: STRONG BUY Target Price: $44 Risk: HIGH QV: 2 (09/23)
EQUITY RESEARCH TOTAL RETURN / RELATIVE PERFORMANCE RETURN(%) VS.SP500(%)RESEARCH ANALYST: HANS MOSESMANN LAST MONTH: -22.00 -18.40 LAST REPORT: 09/26/00 LAST QUARTER: -29.10 -29.00 INDUSTRY RATING: SBUY YTD: 20.60 23.10 LAST YEAR: 92.80 71.20
EARNINGS SNAPSHOT MARKET PROFILE QUARTER EST FISCAL YEAR GROWTH SHS (MIL) BAL SHEET TRADE 2Q/SEP: $0.19 3/00A : $0.06 5 YR EST O/S: 41.24 BOOK: $22.11 EXCH: NASDYR AGO: $(0.01) 3/01E : $0.75 EPS: FLOAT: 24.9 DIVD: OPTS: DUE ON: 3/02E : $1.10 DIV: INSTL: 45% DEBT/CAP: 0.47%
We rate ALSC a STRONG BUY for the following reasons:
* We believe that Alliance is well positioned to take advantage of the
increasing levels of product demand in the SRAM, DRAM, and flash memory chip
markets. While competitors are facing production crunches from the intense
demand for chips, ALSC has ample production capacity thanks to its equity
ventures in two fabrication facilities (United Microelectronics and Chartered
Semiconductor (CHRT). These investments provide them with the ability to
support production for a $600 to $800 million company.
* Alliance has made great strides to improve both its visibility in the
marketplace and its marketing/sales strategies. They are enjoying the
strongest backlog levels in their history, currently in excess of $100 million,
which could lead to potential upside in top line, gross margin, and operating
expense lines. ALSC is currently "sold out" of its DRAMs through the December
quarter and is also beginning to experience some consistent yields in its flash
products. They expect their product mix to eventually become 45%SRAM, 45%DRAM
and 10% flash.
* Alliance also maintains a substantial private and public equity portfolio
containing some of the strongest players in the semiconductor industry. Their
holdings include 340 million shares of UMC, 2.14 million shares of Chartered
Semiconductor, 488,000 shares of Broadcom (BRCM), and 852,000 shares of Vitesse
Semiconductor (VTSS). This collection carries a market cap (as of 5/16/00) of
approximately $1.2 billion. ALSC also has roughly $130 million tied up in
private equity holdings through its venture capital division. We feel that
these holdings are underestimated in the valuation of ALSC's share price
(current market cap of $830 million), and could lead to a significant upside on
its appraisal.
* We continue to believe that Alliance is a great cycle play and we believe
that there is additional upside to our new numbers. Demand continues to be
strong for both their SRAM and legacy DRAM products and the company is
expecting upside to their original revenue guidance in this current quarter
(2Q/SEP).
* Our valuation of ALSC is based on a sum-of-the-parts analysis. The combined
public holdings can be valued at approximately $21 per share (applying a 25%
discount to $1.2 billion for lock-ups and volatility). The value of the
private holdings comes to approximately $3.00/share (applying a 35% discount to
$130 million value for illiquidity). To account for Alliance's operations, we
are applying a 23 times multiple to our FY02 calendar earnings per share
estimate of $0.90, which is a significant discount to other memory companies
trading on average around 29 times calendar 2001 estimates, and gets us to
roughly $20.00. Adding the sum-of-the-parts, ($21+ $3+ $20) results in our $44
target. |
