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Technology Stocks : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (2384)	1/28/1998 3:42:00 PM
From: Mark Oliver	Read Replies (2) \| Respond to of 9256

Here's a recent answer regarding suspension competition posted via the good work of Gus. To: Donald carlson (693 ) From: A.S.Ong Yiu Tuesday, Dec 30 1997 11:30PM EST Reply # of 755 From the archives of the Singapore Business Times -- a look at Magnecomp, one of only 4 suspension makers. It only has about 10% share of the global market (compared to HTCH's ~70%), but it holds the distinction of being the only suspension maker with operations in Thailand and China. 27 Dec 1997 Magnecomp gains from regional woes But investors should not expect to make a fast buck from its IPO given the adverse timing By Annette Pau WHILE US drive suspension maker Magnecomp International, the latest initial public offer, is worth a second look by investors, the timing of its issue might just be its undoing, electronics analysts say. The group last week offered 50 million shares to raise US$25.2 million (S$42.1 million) in a mainboard US-dollar listing. Its 40 million placement shares are already taken up by financial institutions. After deducting five million shares for employees and business associates, the public offer tranche of five million shares is small. The offer closes on Jan 5. The offer statistics are not unattractive. At 55 US cents on a prospective price-to-earnings multiple of 8.5 times for FY97, the issue is hardly demanding for the high precision company which makes zero-defect components crucial to drives (hard, removeable, floppy or optical). Its three immediate competitors Hutchinson Technology, NHK Springs and KR Precision are trading at PEs of 12-16 times. Of the four in high precision manufacturing, Magnecomp is the only one with operations in Asia (Thailand and China) - and hence a competitive edge in low production costs. Trendfocus, a US research firm specialising in the drive industry, says its strong time to market and cost strategies are "absolute musts" to compete in products costing about 50-70 US cents apiece on average. Russell Tan of DBS Securities likes the company for the high barriers to entry it enjoys. "It seems to have quite a large advantage, with Hutchinson and NHK stuck in high-cost areas (their home countries -- the US and Japan). Also, KRP seems to be doing rather badly in Thailand," he says. Magnecomp has gained from the regional financial turmoil, as it bills customers mostly in US dollars, while costs are in regional currencies (baht and yuan) and US dollars. Eddy Tan of Vickers Ballas also notes that Magnecomp is in a segment where there are far fewer suppliers than customers (four suppliers versus 24 read-write head makers). "The market is captive in a sense," he says. Looking ahead, Magnecomp will benefit from the continuing growth in drive shipments. Growth next year is still forecast at about 18-20 per cent, up from the 126-130 million drives shipped this year,even though pricing pressures have been felt throughout the industry for some time. It has also made moves to diversify and vertically integrate its businesses, taking on metal stamping activities and etching some of its suspension components. This will help supplement its core suspension business and also provide for more control over supply and new business. Vickers' Mr Tan says Magnecomp will be able to expand its market share in its core business, depending on how quickly it can ramp up production volumes to become a better second source to head makers. The company is looking to a 15 per cent market share in the next two years -- up just five points from its present 10 percent. Group sales grew from US$26.1 million to US$46 million in FY96, while earnings fell on recent extensive capital expansion, from US$1.9 million to US$1.6 million. Net profits of US$9.7 million on sales of US$76.1 million are expected for FY97. The positive factors notwithstanding, market observers say an under-subscription of its public tranche is not altogether unlikely, as retail investors badly burned by recent stockmarket woes may not yet return to the market so quickly. Interest in IPOs has been on the wane in recent months, reflected in the debut and trading performances of recent new offers. Two factors in particular work against Magnecomp: its US-dollar listing, and its link with the disk drive industry, fraught with inventory and over-capacity glitches. At least two analysts said the industry's woes are likely to spill over to component suppliers eventually. Furthermore, retail investors have never been too kindly disposed to US-dollar listings, although in an environment of a strengthening US dollar versus the Sing dollar, there could be an argument to buy US dollar listings. Be that as it may, investors should not expect to make a fast buck from this issue, analysts say. asia1.com.sg