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   Jul.24, 2014

  •  A Transasia Airways aircraft crashes in Penghu

  King's Town Bank (京城銀 2809 TT, NR, NT$28.6)  Jul.17, 2014
Steadily improving performance in 1H14 even without one-off gain
  • King's Town Bank saw an exceptional 1H14 performance.
  • NIM continued to widen and would benefit if interest rates rise.
  • Net fee income rose 44% y-y.
  • A bad debt recovery case contributed NT$540m in gains.
  • Capital adequacy and asset quality remained at top tier levels.
  • We are positive on KTB given its exceptional performance.

  EPISTAR (2448 )    Jul. 02, 2014
ForEpi acquisition should lead to greater lighting market share
  • Event: Epistar will acquire Formosa Epitaxy. On June 30, Epistar announced it would acquire Formosa Epitaxy (ForEpi), the second largest chipmaker in Taiwan, via a swap of one Epistar share for every 3.448 ForEpi shares. This implies a price premium of 17.6% based on June 30 closing prices. Epistar will issue 174.6m common shares for the swap, implying share dilution of 15.7%. Epistar must obtain approval from the Investment Commission of the MOEA, after which it plans to close the deal on December 30, 2014. Formosa Epitaxy will be delisted afterwards.
  • We see it as a worthy deal with LT capacity benefits. The deal is slightly expensive at NT$13.0bn, or 1.01x ForEpi’s 1Q14 BV. Despite ST costs incurred to improve ForEpi, Epistar enjoys LT capacity benefits with full access to ForEpi’s monthly capacity of 300K+ LED 2”-equivalent wafers and 1.1K engineers (resources that would require spending over NT$13bn and 2-3 years to build from scratch). We forecast Epistar will have monthly capacity of 1,250K 2”-equiv. wafers and nearly 20% global market share after the deal. With greater capacity, Epistar can accelerate its penetration of the lighting market. We raise our 2015E sales and NI projections by 16.9% and 26.7% and expect post-acquisition EPS to reach NT$3.81.
  • San’an Optoelectronics will have no near-term impact on Epistar’s operations. San’an, which holds a 19.97% stake in ForEpi now, will have a 3.13% stake in Epistar’s post-acquisition capital. Four other major shareholders (WanHai, Everlight, UMC, and Lite-On Tech) together will have a combined 6.6% holding. Also, the re-election of the board of directors will be held in 2016. We will continue to monitor the potential risk of technology leaks.
  • Epistar will see stronger sales upside in 3Q14. In addition to a recent 10% expansion in four-element LEDs, Epistar has begun outsourcing orders to ForEpi as its capacity only accommodates 70-80% of its orders for high-end chips. We raise our 3Q14/2014 sales forecasts by 7.0% and 4.4% to reflect the change. We slightly cut our EPS forecast to NT$1.62 to reflect the forecasted 7% higher expenses which will offset the sales/GM improvement and the lower gain in ECB valuation which reflects the share price rebound in 2Q14.
  • We raise our ST rating to Buy and 12-month TP to NT$94.5 while sustaining a LT Buy. We've applied our target multiple of 1.6x to 2015E BVPS of NT$59.1 to reflect the company's strong potential of capturing a greater share of the lighting market. We suggest investors to accumulate on weakness.

Stock Info

 TAIEX 9499.36 
 Electronics Index 375.92 
 Financials Index 1101.69 

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