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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (13484)	2/22/2004 11:54:01 PM
From: The Ox	Respond to of 95656

China SMIC IPO To Raise Up To US$1.58 Billion - Source Sunday February 22, 6:54 pm ET HONG KONG -(Dow Jones)- Semiconductor Manufacturing International Corp.'s initial public offering will raise up to US$1.58 billion, a person close to the deal said Monday. Pricing for the share offer by SMIC, China's largest foundry, which makes chips based on customer designs, has been set at an indicative range of between HK$2.41 and HK$2.72 per share, the person said. The offer will consist of 4.545 billion shares in total, representing 25% of SMIC's enlarged capital. Of that figure, the company will sell shares amounting to about two-thirds of the offer, or 3.03 billion shares, enabling it to raise between US$936.2 million and US$1.06 billion. The remaining one-third of the IPO will come from old shares sold by existing shareholders. Institutional investors will be offered 95% of the IPO, leaving only 5% for retail investors. Subject to retail demand, allocation to this tranche may rise to as much as 20% if it is 100 times or more covered under the clawback mechanism. SMIC intends to list its shares in New York March 17 and in Hong Kong on March 18. The company will use the share sale proceeds to boost capacity and upgrade technology, according to its filing to the U.S. Securities & Exchange Commission, helping it to raise the stakes in its battle with the Taiwanese giants that dominate the made-to-order contract chip business. The price range represents between 17.9 times and 20.2 times the mainland Chinese firm's 2005 estimated earnings, another person familiar with the situation said, or 2.0 times to 2.3 times its 2004 book value. This indicates that SMIC, the world's fifth-largest contract chipmaker by sales in the first-half of 2003, is valuing itself at a P/E ratio more expensive than the world's largest and second-largest foundries Taiwan Semiconductor Manufacturing Corp. and United Microelectronics Corp. (NYSE:UMC - News) , respectively. However, in terms of price-to-book value, the valuation is on a par, or even slightly cheaper, than the two Taiwanese giants. TSMC's American Depository Receipts are trading around 12.1 times forecast 2005 earnings or 3.7 times the company's 2004 price-to-book value, according to Merrill Lynch research estimates, while UMC is trading about 9.9 times its forecast 2005 earnings or 2.2 times its 2004 book value. It is difficult to directly compare SMIC with the two Taiwanese companies because the Chinese firm lags behind them by a few generations of process technology. Instead, said Merrill Lynch Head of PacRim Semiconductor Research Daniel Heyler, investors will also consider the viability of SMIC's business model and prospective returns on invested capital when deciding whether to buy the stock. SMIC recorded a net loss of US$66.1 million in 2003, weighed down by depreciation and amortization charges amounting to US$233.9 million. The loss was, however, narrower than the US$102.6 million it recorded in 2002 as it increased output seven-fold. The chipmaker, founded nearly four years ago, posted a first quarterly net profit of US$10.9 million for the period between October and December, reversing a third-quarter net loss of US$8.5 million. SMIC's revenue may triple in 2004 as new operations come online and as the semiconductor industry rebounds, a person close to the deal said earlier. However, it may at best only break even or record a thin net profit because of heavy depreciation charges and higher research and development costs. While some analysts forecast a semiconductor sector downturn next year, SMIC expects its profit to improve starting in 2005 as it expands output to meet Chinese domestic demand for chips and as its global market share grows. The company will begin production at the 8-inch wafer fab it bought from Motorola Inc. (NYSE:MOT - News) in the first quarter, adding to its three existing 8-inch fabs. Its more advanced 12-inch fab in Beijing, which uses finer etching technology will begin operations in the fourth quarter or in early 2005. The larger the wafer size and the finer the production technology, the more chips can be cut from each wafer, resulting in lower average costs and higher margins. SMIC estimated in its listing document that by end-2005, its aggregate production capacity will have risen to about 3.5 times from where it stood at the end of 2003. It has budgeted US$1.95 billion in capital expenditure for this year and another US$1.37 billion for 2005, suggesting it may need to raise further funds, even after its billion-dollar IPO. Credit Suisse First Boston is the global coordinator of the deal while Deutsche Bank AG acts as the joint bookrunner with CSFB.