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May.14, 2008
Event: Entering solar industry with trial production of GaAs solar cells (Neutral.)
Primasia Comment
Epistar Corp. has announced plans to enter the solar industry, according to media reports. Since some of its LED capacities are currently running at ultra-low utilization as a result of weak demand for four-element LEDs, Epistar says it will begin trial production of GaAs solar cells by the end of 2008. We take a neutral view on this news, as we don’t expect to see a meaningful earnings contribution in 2008.
Unlike current mainstream crystalline solar cells, GaAs solar cells are produced by similar processes and equipment as LEDs are, and conversion efficiency can reach 30% vs. 16%-17% for crystalline-based solar cells. However, we don’t expect this new business to bring meaningful earnings to Epistar this year, due to the long customer qualification period (around one year) and its small capacity of 1MW/year. In addition, while the price differential between GaAs solar cells and crystalline solar cells is around 3x, whether or not demand for GaAs LEDs will pick up remains uncertain.
Source: Primasia Investment Consultancy Co., Ltd.
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May. 13, 2008
Flush with cash, stable ops, 33% discount to NAV
- . Systex/Sysware merger consolidates its corporate structure. We see a better economy of scale brought on by the merger between Systex and Sysware. Although sales per share, operating profit per share and EPS declined upon the merger, book value per share increased. The new Systex now has a more complete product line, particularly in financial data services, and can better manage the group’s resources.
- . Growth driver in overseas markets. Since the Taiwan market is mature, Systex has extended its reach into China, Hong Kong, Vietnam, Thailand, Singapore and Malaysia. In 2007, sales from overseas markets accounted for 11%-12% of total sales. Although only its Hong Kong operations recorded profits in 2007, Systex is positive about overseas operations and targets 25% of total sales to come from these areas by 2010.
- . Flush with cash and almost zero debt. As of 2007, Systex had NT$2.7bn in cash and NT$6.24bn in marketable securities for a combined NT$27.9 per share, accounting for 46.5% of total assets. Another major component is its long-term investments, which accounted for 12% of 2007 total assets. We believe Systex is in a good position to execute more capital reduction and share buybacks, instead of more mergers or acquisitions.
- . 10% capital reduction and NT$1/share cash dividend leads to 6% yield. Systex’s board made a proposal to reduce capital by 10% in March 2008. Each outstanding share will get NT$1.0 in cash and 0.9 of a new share. Systex also decided to pay a cash dividend of NT$1.0 per share. With the capital reduction and cash dividend combined, yield will be 6% based on the company’s May 12 closing price. . 33% discount to NAV; 0.7x PB near all-time low. The counter currently trades at 0.7x of 2007 BVPS and 11x 2007 EPS. The PB ratio is at an all-time low. We also estimate that it trades at a 33% discount to its NAV, which we calculate under conservative assumptions. These assumptions include core business to be valued at 8x EBIT, lower than 10x in other models, and long-term investments to be valued at 0.8x BV.
Source: Primasia Investment Consultancy Co., Ltd.
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| TAIEX |
8989.53 |
| Electronics Index |
342.11 |
| Financials Index |
1183.19 |
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