SSB Report Part #1
by: TG2898 3/13/00 2:21 pm
Msg: 11876 of 11880
Hope this works...I can't get the number columns to straigten properly...Oh well...
--SUMMARY:--Amkor Technology--Semiconductors * Amkor hosted an upbeat analyst meeting on Friday, with the outlook for Q1 seasonally positive and 2000 exceedingly positive. * The company formally announced its acquisition of Anam's K1-3 facilities. After earlier estimating the deal would be accretive by about $0.15 (not in our numbers), we now estimate it will be neutral on an operating basis but add $0.45-0.50 to cash EPS in 2000 and $0.60-0.65 to 2001. * Amkor will begin reporting earnings on a cash basis. Given the deal and the new reporting method, we are raising our 2000 EPS est. from $1.20 to $1.68 (operating earnings unchanged; $0.48 from additions to cash EPS) and 2001 EPS from $1.65 to $2.30 ($0.04 from accretion; $0.61 from additions to cashvEPS). * We retain our 1H rating & raise our price target from $56 to $80, what we believe is a very reasonable 35x our 2001 est. Amkor remains our Top Pick for 2000.
Current Rank........:1H Prior:No Change Price (03/10/00)....:$50.75 P/E Ratio 12/00.....:30.2x Target Price..:$80.00 Prior:56.00 P/E Ratio 12/01.....:22.1x Proj.5yr EPS Grth...:22.0% Return on Eqty 99...:N/A% Book Value/Shr(00)..:5.40 LT Debt-to-Capital(a)47.9% Dividend............:$N/A Revenue (00)........:2413.00mil Yield...............:N/A% Shares Outstanding..:136.9mil Convertible.........:Yes Mkt. Capitalization.:6947.7mil Hedge Clause(s).....:# Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION:------------------------------------------------------------------
SSB Report (Part #2)
by: TG2898 3/13/00 2:25 pm
Msg: 11877 of 11880
Amkor Analyst Meeting Very Upbeat
On Friday, Amkor held a widely attended analyst meeting at its facility in Phoenix, Arizona. Management presentations were very upbeat, with the company's outlook for Q1 and 2000 very positive. It is clear that demand continues to far exceed the company's ability to ramp package and test capacity, and probably will continue to do so through this calendar year. In fact, the company's limits may be set by the rate at which foundries and IDMs (independent device manufacturers) can ramp wafer output. We reta in our forecast of essentially flat Q1 revenues at $540 million, which is stronger than the seasonal norm.
*Salomon Smith Barney is advising Amkor in the pending acquisition of Anam's K1-3 facilities.
Demand is being driven by three factors: 1) IDMs (independent device manufacturers) are accelerating their outsourcing for backend services. Management believes the outsourcing market could grow exponentially in the next 3-5 years. Outsourcing is currently estimated at about $5 billion, or about 20% of the $25 billion of the package/test TAM (total available market). Over the next 3 years, that TAM should double to $50 billion (in line with semiconductor growth). If outsourcing grows from 20% to 30% of the TAM, as management believes it could, the backend outsourcing market could grow from $5 billion currently to $15 billion over that period of time, implying an annual growth rate of 44%. Management believes outsourcing could be as much as 50% of TAM within five years. Though that forecast may be optimistic, but it does clearly demonstrate why we believe the semiconductor outsourcing market, both front and backend, should grow significantly faster that the overall market in coming years. As the leader in backend outsourcing and an increasingly important player in front-end outsourcing, Amkor should be a major beneficiary of that trend. Benefits from Anam Acquisition Greater than Anticipated Amkor management has discussed with investors for the past six months the potential acquisition of the remaining package and test facilities from Anam (0183.KS, $12.76), K1, K2, and K3. Production from these facilities at one time represented 60% of Amkor's sales. Last May the company bought K4, the newest of the facilities, for $582 million. These assembly and test operations represent about 40% of Amkor's revenue and contributed about 11.5% gross margins. The primary benefits regarding the acquisition are as follows:
** Greater profits captured.
Amkor will acquire Anam's fabs K1, K2, and K3, which last year ran 34% gross margins, compared to an average 26% gross margin for the company's other facilities, including K4, P1, P2, and P3. Operating expenses will likely rise slightly, and the company will likely assume higher interest expenses. Even so, we believe the deal will be significantly accretive on a cash basis, adding about $0.48 to cash EPS in 2000 and $0.60-65 in 2001 (we have modeled in about $0.61). Increasingly, investors are looking to cash earnings, rather than post-amortization operating earnings, as the indicator or core value and growth.
SSB Report (Part #3)
by: TG2898 3/13/00 2:28 pm
Msg: 11878 of 11880
** Gaining a foothold in the foundry business.
Amkor completes the acquisition of some 43% of Anam's outstanding shares for about $500 million (including the October 1999 payment of $41.6 million), which immediately gives it direct ownership in the foundry business. Currently, the Buchon foundry is producing about 22,000 8-inch wafer starts per month, going to 30,000 starts/month by yearend. Though acquiring 43% of Anam will cost Amkor more in this round than in the original workout (Anam's stock has tripled since last fall), this still represents c onsiderable value. On a market cap/wafer start basis, Chartered is valued by the market at about $12,000/wafer, while TSMC is valued at about $25,000/wafer. Amkor bought its share of Anam for only $5,675/wafer.
** ASI balance sheet dramatically cleaned up.
Though Amkor gains more direct exposure to the fortunes of Anam Semiconductor with this purchase, the balance sheet of the post-workout company is dramatically improved. The company reduced its long-term debt by about $1.2 billion through a combination of converting about $167 million in debt to equity, selling K1, K2, and K3 to Amkor, and selling the additional 32% (for a total of 43%) of its equity to Amkor. As a result, total liabilities and shareholder's equity will go from a negative $230 million to a positive $1.3 billion. For all practical purposes, Anam is now a wafer foundry as its other electronics and construction businesses have been sharply downsized. Wafer foundry sales to Amkor represented about $270 million of the $286 million in revenues last year.
Amkor the Gold Standard in the Industry
Amkor is widely recognized by customers and competitors alike as one of the most innovative suppliers in the backend package and test market. The company is indisputably the market pioneer and leader, with greater than 30% share. But we believe it is also the leader in offering new and innovative package types and expanding its services to include turn-key solutions.
** New package types. The company is working closely with a number of large systems companies, including Ericsson, Nokia, and Cisco, to develop SiP (system-in-a-package). These multichip packages actually use the package as a backplane, becoming a sub-system in their own right, increasing performance while reducing cost. SiP may combine DRAM and a processor, Flash and SRAM memory, or some other combination of logic, memory, mixed signal and discrete devices. Though less than 5% of revenues currently, this could be a several hundred million dollar business in a couple of years.
SSB Report (Part #4)
by: TG2898 3/13/00 2:32 pm
Msg: 11879 of 11880
** Turnkey operations.
Amkor management is seeking to increase its front-end foundry business to provide the most comprehensive turnkey services in the industry. The first step is acquisition of 43% of the Buchon foundry; Buchon is one of the most advanced fabs in all of Asia. Amkor will revise upward its capital spending plan this year from $300 million to $400 million, with much of the increase intended to bring that facility up from 22,000 to over 30,000 wafers by yearend. In addition, the foundry has begun to expand its customer base to include services for firms other than Texas Instruments, including Atmel, Alcatel, Ericsson, and Toshiba, among others. Amkor is also looking to acquire other facilities, perhaps a fab shell that is not yet filled out, either in Asia or Europe. Finally, over the longer term it will likely further build out the Buchon facility.
Financial Implications of the Recent Acquisitions
The purchase of the K1, K2, and K3 facilities will have a significantly positive impact on EBITDA. As a result of the acquisition, the company is guiding analysts upward on virtually all financial ratios. Gross margin targets are moving from 21-22% to 25-28% (including new amortization), operating expenses rise marginally from 7-9% to 8-9%, operating income from 12-14% to 16-18%, while tax rate falls from 22% to 20% due to local tax benefits. The result is EBITDA rises from 21-23% to 33-35%. Amortization from the acquisition of K1, K2, and K3 will be the difference between the purchase price of $950 million and estimated fair value of $432 million, resulting in $518 million to be amortized over a 10 year period (about $50 million per year taken in the COGS line). In addition, the investment in ASI will amount to $199 million amortized over a five-year period (about $40 million per year), recorded in after-tax Affiliate line. We anticipate aggregate interest income for the company will rise from about $19 million per quarter to about $35 million per quarter. In the event the company's stock continues to perform well, Amkor will likely issue new equity to pay down the recent debt incurred.
New Guidance on Financial Targets
1999A Pre-Acquisition Post-Acquisition Gross Margin 17.4% 21-22% 25-28% Operating Expense 8.2% 7-9% 8-9% Operating Income 9.2% 12-14% 16-18% Tax rate 25.3% 22% 20% EBITDA 18.1% 21-23% 33-35%
Compelling Valuation
On a valuation basis, Amkor is very inexpensive relative to its outsourcing peers both in the backend and front end. AMKR trades at about 22 times our new 2001 Cash EPS, a significant discount to ST Assembly Test and ASE Test, at 54x and 34x respectively. Chartered and Taiwan Semi are trading at 54x and 42x, respectively. With the details of the recent acquisition becoming clearer, and so long as the semiconductor group remains healthy, we would expect Amkor to minimally trade at 35 times our 2001 Cash EPS estimate of $2.30, which would imply a stock price of $80.
Valuation Table
Price to 2000 EPS Price to 2001 EPS
Amkor Technology 30.2x 22.1x ST Assembly Test 80.1 54.1
ASE Test 42.9 34.2 Chartered Semi 119.1 54.7 Taiwan Semi 62.5 42.1 Average 67.0 41.4 |
