Report date: November 10, 2014 Phoenix Semiconductor Philippines Corp (PSPC) to be listed on December 1, 2014 Recommendation: Cautious buy with target price of Php 3.81/share At the final offer price of Php3.15, PSPC PER of 8.03x is lower than the average of its competitors of 9.71x. PSPC current ratio for the 1H 2014 is 1.83x compare to 1.50 of IMI and 2.68 of PMPC. With interest bearing notes totaling to Php3,974 million, total debt to equity equates to 1.38x versus 1.68 of IMI and only 0.47 of PMPC. Excluding cash and cash equivalents, net debt to equity for PSPC, IMI and PMPC are 1.09x, 1.43x and (0.30)x. Global demand for semiconductor have been increasing over the last 27 years. For the 1st 9 months of 2014, worldwide billings increased by 9.80% to US$ 247,760 million (81% of 2013 total billings). 350,000,000.00 Semiconductor historical billings report in 000 US$ 300,000,000.00 250,000,000.00 200,000,000.00 150,000,000.00 100,000,000.00 50,000,000.00 Americas Europe Japan Asia Pacific Worldwide - 19861988199019921994199619982000200220042006200820102012 However, the Company is just beiing dependent on SAMSUNG, the Company s sole customer. The contract with Samsung is until February 2016, automatically extended for another year unless terminated or modified at least 3 months prior to expiration. If SAMSUNG decides to manufacture its semiconductor, PSPC profit could significantly to nil revenues. See SAMSUNG plans below.
SAMSUNG is a major supplier to other electronics firms, including its major rival APPLE. In order to meet the growing demand in memory chips, SAMSUNG announced on October 6, 2014 that it would spend about $15bn on a new semiconductor plant in South Korea. It is set to be the biggest single investment in a chip factory and construction will begin in the first half of 2015 with commercial operations expected to start in 2017. Company profile The Company was incorporated on January 27, 2010. It is engaged in the construction, ownership and operation of a plant for the manufacture, assembly, test and warehousing of semiconductor and memory devices. It started commercial operations on February 2011, with 5 year contract with SAMSUNG. The Company is 99.99% owned by STS Semiconductor and Telecommunications Co., Ltd. STS was spun off from SAMSUNG Electronics Co. Ltd. STS is a Korean Stock Exchange-listed company, established in 1998 and was later acquired by Bokwang Group in November 2002. The Company is just 1 of the five Outsourced Semiconductor Assembly and Test (OSAT) that provides outsourced service to SAMSUNG. The other 4 OSATs in Korea provides 1 or 2 production processes are Amkor Technology, Hana Micron, Inc., Signetics High Technology, Inc. STATS ChipPAC Ltd. PSPC however provides 3 production processes, which SAMSUNG may have difficulty to move to another supplier. Top management profile Byeongchun Lee President and Chief Executive Officer He graduated with Bachelor s Degree in Electronics from Korean Aviation University in 1985. His career started as test engineer in Samsung Electronics, a South Korean multinational electronics company headquartered in Suwon, South Korea. He assumed a succession of different positions in the company: Business Planning Group Manager, Senior Manager of Equipment Engineering Group, General Manager of Assembly Group and General Manager of Memory Chips Outsourcing Operation Group. After serving the company for 25 years, he then became the President of the Company. Dongjoo Kim Treasurer and Chief Finance Officer He graduated Cum Laude with Bachelor s Degree in Business Administration from Sogang University in February 1985. In 2006, he took up General Management Program (Short-Term MBA) in Korean Advanced Institute of Science and Technology (KAIST). His term paper, entitled A Comparative Study on Contents Business Model of the Global Media Group (Time-Warner, Walt Disney, News Corporation, Viacom) was awarded as The Best Term Paper. He started his career as finance staff in Fairchild
Semiconductor (Korea) Co., Ltd. in April 1986. He also worked with Samsung Corning Co., Ltd., Suwon Korea in 1989 as Strategic Planner and became the Finance Manager of said company in 1992. With his dedication and hard work, he became a Controller in Samsung Corning Deutschland, GmBH, a whollyowned subsidiary of Samsung Corning Co., Ltd. in Germany. He also worked in an entertainment industry as a Controller in CJ Media, Seoul Korea in 2002. CJ Media was a cable or satellite broadcasting contents provider in Korea and is a subsidiary of CJ Entertainment, the largest film distributor and investor in Korea. Before becoming the Vice President of the Company in 2010, he was the controller of STS in 2007 and a director in 2008. Kyuho Han Head Finance Team He finished his Bachelor s Degree in International Trade in Sungkyunkwan University in 1996. He took up training for derivatives and other subjects from U.S. Corning in 2006. His career started in Samsung Corning Co., Ltd., a manufacturer of electronic core parts in South Korea and operates as a subsidiary of Samsung Corning Precision Glass Co., Ltd. In Samsung Corning Co., Ltd, he became an Associate of Human Resource Team in 1996. After two years, he became the Finance Team Assistant Manager. It was in 2003 when he became the Manager of Finance Team. He also became the Manager of Accounting Team in 2005. Before heading the finance team of the Company, he was the Senior Manager of Finance team of Secretarial Office in Bokwang Group in 2006 and STS in 2009. Company s statement of operations 2014E 1H 2014 2013A Revenue 9,618,684,000.00 4,809,342,000.00 9,179,574,000.00 COS 8,394,202,000.00 4,197,101,000.00 7,968,698,000.00 Gross profit 1,224,482,000.00 612,241,000.00 1,210,876,000.00 OPEX 159,330,000.00 79,665,000.00 164,510,000.00 Operating income 1,065,152,000.00 532,576,000.00 1,046,366,000.00 Other income(charges) (207,884,000.00) (103,942,000.00) (369,132,000.00) Net income before tax 857,268,000.00 428,634,000.00 677,234,000.00 Provision for income tax 61,224,100.00 27,321,000.00 82,115,000.00 Net income after tax 796,043,900.00 401,313,000.00 595,119,000.00 EPS 0.39 0.20 0.30
Company s statement of financial condition 1H 2014 2013 Cash & cash equivalents 1,032,817,000.00 1,011,571,000.00 Trade receivables & other receivables 948,863,000.00 925,593,000.00 Merchandise inventory 582,466,000.00 507,297,000.00 Other current assets 542,515,000.00 43,144,000.00 Total current assets 3,106,661,000.00 2,487,605,000.00 PPE 4,717,184,000.00 5,032,695,000.00 Other noncurrent assets 402,234,000.00 762,304,000.00 Total Noncurrent assets 5,119,418,000.00 5,794,999,000.00 Total assets 8,226,079,000.00 8,282,604,000.00 Trade payable 743,819,000.00 701,191,000.00 Short-term loans 908,435,000.00 908,435,000.00 Other current liabilities 50,026,000.00 59,058,000.00 Total current liabilities 1,702,280,000.00 1,668,684,000.00 Long-term loans 3,065,683,000.00 3,515,161,000.00 Other noncurrent liabilities 8,196,000.00 6,372,000.00 Total noncurrent liabilities 3,073,879,000.00 3,521,533,000.00 Total liabilities 4,776,159,000.00 5,190,217,000.00 Stockholders equity - parent excluding RE 1,970,099,000.00 1,970,099,000.00 Retained earnings 1,479,821,000.00 1,122,288,000.00 Total stockholders equity 3,449,920,000.00 3,092,387,000.00 Total liabilities and equity 8,226,079,000.00 8,282,604,000.00 Use of proceeds from initial public offering Firm offer shares Oversubscription Timing Phase1 Facility/Existing Facility for Samsung Acquisition of machinery & equipment 51,465,749.00-4Q 2014 Building improvements 1,296,404.00-4Q 2014 Phase 2 Facility for non-samsung client Acquisition of machinery & equipment 160,488,891.00 75,300,477.00 4Q 2014/ 1Q to 4Q 2015 Construction of building & structure 345,821,722.00 160,013,515.00 4Q 2014/ 1Q to 4Q 2015
Expansion plans Since SAMSUNG wants to have an exclusive production line, 9% of the firm shares will be used to acquire machines like mounter, printed circuit, tester, auio visual inspectin machines. Currently the Company produced 65-67 million unit server chips per month for its sole customer SAMSUNG (Phase 1). About 91% of the proceeds will be used to increase its production capacity for its prospective clients. These include acquisition of machineries and construction of buiding. The capacity is about 40 million units per month. Dividends Policy The Company has a policy of declaring 20% of its net income as dividends. Target price computation IMI PMPC PMPC Market capitalization 14,036,730,647.07 381,255,444.00 7,331,322,949.65 Closing price - Nov 7 8.59 4.50 2014 estimated EPS 0.62 0.80 0.39 PER 13.79 5.63 Average PER 9.71 Target price 3.81 Final offer price 3.15 % return 20.85% Notes: IMI Integrated Micro-Electronics, Inc. PMPC Panasonic Manufacturing Phils. Corp. BSP exchange rate used for IMI = P44.4993 (ave for the 1H 2014)
IB Gimenez Securities recommendation matrix Criteria > +18% within the next 12 months or double its earnings within the next four years 0 to +18% returns within the next 12 months or fairly valued with probable plans to meet the expected earnings 0 to -18% returns within the next 12 months or with possible indicators to missed the expected earnings > -18% returns within the next 12 months or might significantly dropped the earnings within the next four years Recommendation Buy Hold+ Hold- Sell Sources: Phoenix Semiconductor Philippines Corporation (PSPC) prospectus Dong Joo Kim PSPC CFO/Vice President Philippine Stock Exchange (PSE) Bangko Sentral ng Pilipinas (BSP) World Semiconductor Trade Statistics (WSTS) National Statistical Coordination Board (NSCB) IB Gimenez estimates