KINSUSINTERCONNECT3189.TTNVNDRTAKEAWAYS28NMRAMPONTRACK1214

1、10.64.32812758limitedflashnotetelecoms, media & technologyelectronic equipmentequity taiwanneutral (v)abcglobal researchkinsus interconnect (3189 tt)n(v): ndr takeaways 28nm ramp on tracktarget price (twd)85.00 currency, gold price and piotek weigh on profitabilityshare price (twd)forecast divid

2、end yield (%)potential return (%)79.60 doubts over 28nm qualifications being erased, as qualcommramps in 4q12 and mediatek in 1q13note: potential return equals the percentagedifference between the current share price andthe target price, plus the forecast dividend yield remain n(v). twd85 target pri

3、ce unchanged after loweringperformanceabsolute (%)relative (%)1m-8.3-4.03m-4.8-7.912m-11.8-13.72013e eps by 9% but rolling forward to 2013eindexricbloombergmarket cap (usdm)market cap (twdm)taiwan weighted in3189.tw3189 tt1,21435,502the usual suspects weigh on profitability. substrate revenue in 3q1

4、2 fell 1.2% q-o-q(vs. management guidance for low single-digit growth) and was impacted by customsclearance related shipment delays at the end of september. but as this revenue is simplydeferred into october, management now sees 4q12 substrate revenue flattish (vs priorguidance for a 5% q-o-q declin

5、e). substrate gross margin fell 130bps to 32% in 3q12 on aenterprise value (twdm)free float (%)note: (v) = volatile (please see disclosure appendix)23 october 2012tse-yong yao*analysthsbc securities (taiwan) corporation+8862 6631 2861tse-.twview hsbc global research at:http:/*employed by a non-us af

6、filiate ofhsbc securities (usa) inc, and is notregistered/qualified pursuant to finraregulationsissuer of hsbc securities (taiwan)strengthening twd and rising gold prices, but management expects a rebound to 33% in4q as product mix (rising flip chip csp) improves. managements greatestdisappointment

7、was the continued challenges in improving piotek, its 51%-ownedconventional pcb subsidiary. continued losses drove 3q eps of twd1.5, below ourestimate of twd1.85 and consensus twd1.74.erasing doubts over 28nm qualifications. for much of 2012, investors have been concernedthat kinsus was falling behi

8、nd competitors in qualifying 28nm devices for qualcomm. butwith qualcomm 28nm chipsets ramping aggressively in 3q-4q (driving 10% q-o-q overallhandset growth), this overhang is set to subside. management also sees healthy handsetdemand in the seasonally slow 1q13, as mediateks 28nm 6588 chipset roll

9、s out.remain neutral (v). while management is sounding increasingly confident on handsetand basestation demand (both high margin), it expressed disappointment on the lack ofprogress in turning around piotek. it expects 7-8% y-o-y substrate revenue growth for2013 with product mix improvement driving

10、100bps of gross margin improvement. forpiotek, management sees 10% y-o-y revenue growth (off a low base) but expects losses tocontinue. as a result, we lower our 2013e revenue by 3% to twd24bn (+7.9% y-o-y) and2013e eps by 9% to twd7.08. our target twd85 remains unchanged as we roll forwardto a 12x

11、2013e pe (we previously used a 12x forward 12-month eps of twd7.07).report:corporation limitedsummary of consolidated estimate changesdisclaimer &disclosuresthis report must be readrevenue (twdm)y-o-y%_ 2012e _ _ 2013e _previous new consensus previous new consensus22,506 22,238 21,063 24,757 23,

12、991 22,863-1.1% -2.3% -7.4% 10.0% 7.9% 8.5%with the disclosures andthe analyst certifications inthe disclosure appendix,and with the disclaimer,which forms part of itgross margin %operating margin %eps (twd)roepesource: bloomberg, hsbc estimates24.3%13.5%6.6913.0%11.9x23.2%12.1%6.1712.1%12.9x25.5%14

13、.2%6.4712.2%12.3x25.1%14.8%7.8213.9%10.2x24.0%13.3%7.0812.8%11.2x26.9%16.7%7.4413.4%10.7xkinsus interconnect (3189 tt)electronic equipment23 october 2012management ndr takeawayswe spent the past one and a half weeks with kinsus management, meeting investors in hong kong andthe us.our thoughts: holdi

14、ng up well in an increasingly challenging tech spacegiven the significant contributions of both the pc and apple supply chains into the taiwan tech space,we sensed a certain lack of enthusiasm for taiwan tech in our investor meetings. but against thisbackdrop we also sensed a relatively more positiv

15、e stance on kinsus given the companys more limitedexposure to pc and broad-based handset exposure (accounting for over 50% of total substrate revenuewith apple directly accounting for only 2%). against this tepid growth backdrop, kinsus outlook for 7-8% y-o-y revenue growth in the substrate business

16、 appears relatively attractive.we also believe that management effectively erased concerns surrounding kinsus qualification status for28nm devices with qualcomm business ramping aggressively in 4q12 and mediatek set to ramp in 1q13.one remaining area of confusion though is kinsus market share at qua

17、lcomm. while kinsus expects4q12 handset business to grow by 10% q-o-q, we believe many investors expect qualcomm unit growthof 20-30%. when pressed, management was hesitant to comment on qualcomms outlook.our notes: near-term outlook, customer trends and long term technology trends3q12 update and 4q

18、12 outlook revenue fell 1% q-o-q (vs prior guidance of flat to up 5%) in 3q12, due to logistics issues caused bychinas golden week holiday and products not clearing customs. revenue has been pushed back tooctober, so management is now guiding for flattish 4q12 revenue vs prior guidance for a 5% decl

19、ine.october monthly sales should reach a record high (over twd1.57bn). gross margin declined 130bps q-o-q to 32% in 3q12 (versus flat q-o-q guidance), owing to a strongtwd and higher gold prices. management expects 4q12 to see gross margin improve to 33% given abetter product mix. around 50% of reve

20、nue is in usd and gold represents 15-20% of cogs. handset baseband revenue is strong in 4q12 (driven by qcom), and is expected to increase about10% q-o-q. all other business segments are expected to see revenue decline. management expectshandset baseband to remain healthy in 1q13 given mediatek and

21、spreadtrum demand. broadcomrevenue is less weak given the iphone ramp. power amplifier revenue remains weak due to inventorycorrection. power amplifier chipmakers ramped up volume for the iphone in 2q12 (earlier than therest of supplier chain). qualcomms recent weakness has been at the trailing edge

22、: 45nm productsprimarily go to htc and samsung and 65nm products go to china handset makers.piotek the subsidiary is the area of biggest disappointment. revenue did not increase as much asmanagement expected (twd1.1bn actual vs. expectation of twd1.2bn). net losses did not improve and a twd70m loss

23、is expected for 4q12. managements best-case scenario is for breakeven in 2h13.2abckinsus interconnect (3189 tt)electronic equipmentabc23 october 2012 investors asked if management is willing to sell the subsidiary. management said it was, but there hasnot been much interest and offer prices have bee

24、n very low. it sees the companys best option rightnow as being to continue trying to improve the business. pc related business still accounts for 80% of total revenue. it has made gains in the automotivesegment, which now accounts for 10-15% of revenue.2012 and 2013 outlook management is guiding for

25、 eps of around twd6.2 in 2012 and twd7 in 2013. it expects substrate revenues to grow 7-8% in 2013, while piotek revenue grows 10% off a low basein 2012. management assumes that qualcomm will not lose too much share to mediatek at the lowend. it does not expect to gain market share at qualcomm, just

26、 to hold it steady. management expects the handset baseband business to grow 10-15% pa in 2012 and 2013. management also expects basestation business (xlnx/altr) to grow 10-15% pa in 2012 and2013. however, it sees other end-markets growing at a slower pace. management expects gross margin to improve

27、 by 100bps in 2013 to around 34% on relativelystronger growth of higher margin baseband and basestation business. management expects capex to come to twd3bn in 2013 (same as 2012); this would be evenly splitbetween new capacity and upgrades. it sees an increase in capacity at its suzhou factory, as

28、itcontinues to move older manufacturing technology there, while keeping its leading edgemanufacturing capacity in taiwan. overall total capacity is expected to increase about 10% in 2013.apple management believes apples transition to tsmc at 28nm is unlikely. it expects transition at 20m,which shoul

29、d not happen until 4q13, thus not much upside to 2013 (managements 2013 forecasts donot factor in significant contributions from apple). kinsus has around 6 months of visibility intotransitions (i.e. it would see pilot run activity in 2q13 if apple moves to tsmc in 4q13). with the transition to tsmc

30、, management expects stats chipac and amkor to be the firstbeneficiaries of back-end packaging and testing, as they had engaged apple much earlier. management says there is no a6 business now and believes the company is more likely to get a smallamount of a6 business after the product is more mature

31、. apple accounts for 2% of total revenue and the company has a 10% share of apple orders.mediatek management said mediatek accounts for around 2% of total revenue, but this could reach 5% of totalrevenue in 2013. the 6577 chip (using 40nm technology) still uses wirebond, while 6588 (using 28nm techn

32、ology)will likely use flip chip (97% confidence) and ramp in 1q13.3kinsus interconnect (3189 tt)electronic equipment23 october 2012 management estimates flip chip (28nm) could drive 20% of overall mediatek smartphone unitdemand. management estimates that kinsus has only around 10% market share of me

33、diatekswirebond business but expects it to command around 50% market share in flip chip. unimicron haslong been the primary supplier for mediatek. mediateks flip chip asp and margin are lower than for its qualcomm business given lesschallenging specifications.qualcomm expects revenue from qualcomm t

34、o grow 10% q-o-q in 4q12. management does not believe kinsus is losing share and said the company began ramping 28nmbaseband for qualcomm/apple in july. kinsus and semco still primary suppliers (35-40% share each), unimicron third largest supplier(20% share). ibiden is not doing much business with q

35、ualcomm (potentially busy with apple andsamsung). qualcomm accounts for 17% of total revenue right now, down from 25-30% two years ago.technology trends lots of investors are focused on the impact of tsv and tsmcs silicon interposer technology. the key challenge is yielding high pin count devices (m

36、ore pins equals more laser drilling, whichraises the chance of failed parts). for silicon interposers, a substrate is still needed, albeit a less complicated one, which should impactasp and margin. substrate makers can only focus on embedded components and coreless designs (coreless enableshigher li

37、ne densities) as advanced options, but not as a direct replacement/alternative to tsv orsilicon interposers. with 20nm technology, line widths shrink to 16-18um vs. 20um for 28nm. this should lead to arounda 15% increase in asp.summary of estimate changessummary of parent level yearly estimate chang

38、es_ 2012e _ _ 2013e_abcpreviousnewconsensuspreviousnewconsensusrevenue (twdm)y-o-y%gross margin %operating profit (twdm)operating margin %net profit (twdm)eps (twd)roe17,7325.1%33.2%4,12023.2%2,9846.6913.0%17,5373.9%32.8%3,93222.4%2,7536.1712.1%19,34914.7%31.7%3,76019.4%2,9106.4712.6%19,0197.3%33.6%

39、4,48323.6%3,4867.8213.9%18,8007.2%33.6%4,41423.5%3,1577.0812.8%21,39610.6%32.0%4,18719.6%3,3647.4413.2%source: bloomberg, hsbc estimates4kinsus interconnect (3189 tt)electronic equipment23 october 2012summary of parent level quarterly estimate changes_ 3q12e _ _4q12e _abcpreviousnewconsensusprevious

40、newconsensusrevenue (twdm)q-o-q%gross margin %operating profit (twdm)operating margin %net profit (twdm)eps (twd)4,5832.0%33.7%1,07923.5%8261.854,440-1.2%32.0%93921.1%6701.504,90917.9%32.8%1,05221.4%7851.744,492-2.0%33.0%1,03123.0%7861.764,4400.0%32.9%98422.2%7111.594,777-2.7%32.6%1,01521.3%7561.68s

41、ource: bloomberg, hsbc estimatessummary of consolidated quarterly estimate changes_ 3q12e _ _ 4q12e _estimateactualconsensuspreviousnewconsensusrevenue (twdm)q-o-q%gross margin %operating profit (twdm)operating margin %net profit (twdm)eps (twd)5,8653.1%25.4%85414.6%8261.855,686-0.1%22.7%62811.0%670

42、1.505,3644.1%25.9%88316.5%7851.745,799-1.1%24.6%80613.9%7861.765,7110.4%23.2%67811.9%7111.595,317-0.9%26.1%84415.9%7561.68source: bloomberg, hsbc estimatessummary of consolidated yearly estimate changes_ 2012e_ _ 2013e _previousnewconsensuspreviousnewconsensusrevenue (twdm)y-o-y%gross margin %operat

43、ing margin %eps (twd)roe22,506-1.1%24.3%13.5%6.6913.0%22,238-2.3%23.2%12.1%6.1712.1%21,063-7.4%25.5%14.2%6.4712.2%24,75710.0%25.1%14.8%7.8213.9%23,9917.9%24.0%13.3%7.0812.8%22,8638.5%26.9%16.7%7.4413.4%source: bloomberg, hsbc estimatessummary of 3q12 product segment resultsmarket segment% of totalq-

44、o-q % product type% of totalq-o-q %wireless (baseband)data communication (basestation)consumernetworking (connectivity)memorypc34%27%15%21%2%1%-4.0%2.6%-7.4%3.8%-1.2%-1.2%pbgawirebond cspflip chip cspflip chip bga (bt)flip chip bga (abf)system in package13%10%28%8%22%14%-1.2%9.8%-13.5%12.9%8.7%-1.2%

45、other5%-1.2%total100%-1.2% total100%-1.2%source: hsbc estimates5kinsus interconnect (3189 tt)electronic equipment23 october 2012valuation and risksour target price of twd85 is unchanged but is now based on a 12x multiple against 2013e eps oftwd7.08 (previously based on forward 12-month eps of twd7.0

46、7). the shares have historically tradedin a 7-17x range, and our target multiple is at the mid-point of this range.under our research model, for stocks with a volatility indicator, the neutral band is 10ppts above andbelow the hurdle rate for taiwan stocks of 9.5%. our target price of twd85 implies

47、a potential return of10.6% (including a forecast 2013 dividend yield of 4.3%), within the neutral band; therefore, we remainneutral (v). potential return equals the percentage difference between the current share price and thetarget price, including the forecast dividend yield when indicated.downsid

48、e risks to our rating and estimates include pricing and margin pressure as competitors, such asunimicron, nanya pcb and lg innotek, push more aggressively into the flip chip csp space and potentialmigration of wireless ic package designs to flip chip bga. upside risks include improving profitability

49、 of thecompanys piotek business unit, which produces conventional pcbs, primarily for the pc market.6abc0000kinsus interconnect (3189 tt)electronic equipment23 october 2012financials & valuationfinancial statementsvaluation dataabcyear to12/2011a12/2012e12/2013e12/2014eyear to12/2011a12/2012e12/

50、2013e12/2014eprofit & loss summary (twdm)ev/sales1.0revenueebitdadepreciation & amortisationoperating profit/ebitnet interestpbt16,8715,453-1,8023,651-4633,18822,2385,418-2,7382,681-222,65823,9915,948-2,7473,200-3412,86026,2376,680-2,7473,933-3253,608ev/ebitdaev/icpe*p/book valuefcf

51、 yield (%)dividend yield (%)5.21.54.9hsbc pbttaxationnet profithsbc net profit0-3902,7992,7990-4332,7532,7530-4253,1573,1570-5233,7453,745note: * = based on hsbc eps (fully diluted)price relativecash flow summary (twdm)133123133123cas

52、h flow from operationscapexcash flow from investmentdividendschange in net debtfcf equity3,942-1,933-1,972-1,338-1,1411,8675,044-3,224-3,238-1,3383742,4234,090-2,850-2,850-1,514-1,1311,2405,435-2,600-2,600-1,737-1,1992,8351131039383736311310393837363balance sheet summary (twdm)53532010201120122013in

53、tangible fixed assetskinsus interconnectrel to taiwan weighted indextangible fixed assets8,23016,09716,19816,051current assetscash & otherstotal assetsoperating liabilitiesgross debtnet debtshareholders fundsinvested capital14,4629,52027,3482,4021,772-7,74821,78710,77019,61012,67935,7064,5245,30

54、5-7,37424,18218,50321,35313,85337,5524,0735,347-8,50626,02519,62623,09715,09539,1484,1865,391-9,70427,43819,867source: hsbcnote: price at close of 19 oct 2012ratio, growth and per share analysisyear to12/2011a12/2012e12/2013e12/2014ey-o-y % changerevenueebitdaoperating profitpbthsbc eps15.012.620.61

55、0.714.131.8-0.6-26.6-16.6-19.47.614.79.412.322.926.218.6ratios (%)revenue/ic (x)roicroeroaebitda marginoperating profit marginebitda/net interest (x)net debt/equitynet debt/ebitda (x)1.731.613.412.432.321.611.8-35.6-1.41.515.312.07.124.412.1244.1-30.5-1.41.314.312.67.424.813.317.5-32.7-1.41

56、.317.014.08.825.515.020.6-35.4-1.5per share data (twd)eps reported (fully diluted)hsbc eps (fully diluted)dpsbook value6.286.283.0048.8054.227.087.083.3958.358.408.403.8961.527kinsus interconnect (3189 tt)electronic equipmentabc23 october 2012disclosure appendixanalyst certificationthe f

57、ollowing analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that theopinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect theirpersonal view(s) and that no part of their

58、 compensation was, is or will be directly or indirectly related to the specificrecommendation(s) or views contained in this research report: tse-yong yaoimportant disclosuresstock ratings and basis for financial analysishsbc believes that investors utilise various disciplines and investment horizons

59、 when making investment decisions, whichdepend largely on individual circumstances such as the investors existing holdings, risk tolerance and other considerations.given these differences, hsbc has two principal aims in its equity research: 1) to identify long-term investment opportunitiesbased on p

60、articular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,technical or event-driven techniques on a 0-3 month time horizon and which may diffe