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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (26823)	6/16/2007 10:55:44 AM
From: gcrispin	Read Replies (1) \| Respond to of 78673

IMOS was recommended in Barrons today in the mid-year roundtable by Scott Black. How about another name, Scott? ChipMOS Technologies [IMOS] is a small Taiwan company that trades in the U.S. via American depositary receipts. It sells for 6.49, and there are 73.8 million fully diluted shares, for a market capitalization of $479 million. Semiconductor testing is 60% of revenue, and assembly 40%. ChipMOS has a broad base of customers, including Hynix, Samsung, National Semiconductor, Sharp, Toshiba and Fujitsu. It serves four different markets: DRAM, flash memory, liquid-crystal display and mixed-signal. Consumer electronics is a big driver of growth. In the past, the business has been cyclical. Earnings peaked at 79 cents a share in 2004, and return on equity at 18.8% Last year they did 74 cents and 16.7% ROE. Earnings will rebound this year. Book value is $8.55 a share, so the stock sells at 0.76 times book. There is almost no goodwill. The debt-to-equity ratio is about 0.5. Free cash flow could be about $50 million this year. ROE will come in around 11%-12% but is on track to get above 15%. Why the downturn? Revenue was up 31% in the first quarter, though earnings were down a few pennies as the average selling prices on test and assembly fell 5% to 10%. Conservatively, ChipMOS will do about $750 million in revenue this year. It could net $71 million after taxes, or 96 cents, fully diluted. If margins come back a little, it could do $1.04. The midpoint is $1, so let's use that. The stock trades for roughly 6.5 times earnings. It's cheap. And 39% of current capacity is booked through 2009 on long-term contracts. It would help if DRAM prices firmed a bit, but we own Micron [MU], and the same dynamics that might make that go up 15%-20% could push this stock up two or three points, or 35%-40%.