European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

As of 22 January, <a href="https://www.smartkarma.com/entities/globalwafers-co-ltd" target="_blank" data-smartkarma-citation="entities:17916:1" rel="noopener">Globalwafers (6488 TT)</a> revised the terms of the offer for <a href="https://www.smartkarma.com/entities/siltronic-ag" target="_blank" data-smartkarma-citation="entities:21741:1" rel="noopener">Siltronic AG (WAF GR)</a>  and increased the bid price to €140 per share.
On 23 January, GlobalWafers announced that the offer price has been increased to €145, due to alongside purchases by GlobalWafers at such price.
<ul>
<li>The minimum acceptance threshold has been lowered to 50%.</li>
<li>The acceptance period has been extended to 10 February.</li>
<li>GlobalWafers said the offer is "final".</li>
<li>All other Ts&amp;Cs remain unchanged.</li>
</ul>
Shareholders who tender their shares will obtain €145 per share + €2 as FY 2020 dividend, in total €147 (I have just confirmed this with Siltronic's IR).
The 16% offer increase (vs. the initial €125 per share) by GlobalWafers represents a last push to ensure success of the takeover offer.
<ul>
<li>Since the last offer, GlobalWafers has accumulated a 4.53% stake, which along with the irrevocable undertaking from Wacker (i.e. 30.8%) represents 35.33%.</li>
<li>Obtaining acceptances from 22.7% of the float should not be difficult.</li>
</ul>
On 25 January, Siltronic opened at €144 is trading mid-morning at €141.45 (with over €42 million traded).
<ul>
<li>This represents a gross spread of 3.77%, including €2 dividend (before considering any withholding tax), c. 15% annualized assuming completion in three months. </li>
<li>Recommendation is Long Siltronic, the bid is very likely to succeed plus the shares are supported by good prospects for the semiconductor industry.</li>
</ul>

As of 22 January, Globalwafers (6488 TT) revised the terms of the offer for Siltronic AG (WAF GR)  and increased the bid price to €140 per share.
On 23 January, GlobalWafers announced that the offer price has been increased to €145, due to alongside purchases by GlobalWafers at such price.

The minimum acceptance threshold has been lowered to 50%.
The acceptance period has been extended to 10 February.
GlobalWafers said the offer is "final".
All other Ts&amp;Cs remain unchanged.

Shareholders who tender their shares will obtain €145 per share + €2 as FY 2020 dividend, in total €147 (I have just confirmed this with Siltronic's IR).
The 16% offer increase (vs. the initial €125 per share) by GlobalWafers represents a last push to ensure success of the takeover offer.

Since the last offer, GlobalWafers has accumulated a 4.53% stake, which along with the irrevocable undertaking from Wacker (i.e. 30.8%) represents 35.33%.
Obtaining acceptances from 22.7% of the float should not be difficult.

On 25 January, Siltronic opened at €144 is trading mid-morning at €141.45 (with over €42 million traded).

This represents a gross spread of 3.77%, including €2 dividend (before considering any withholding tax), c. 15% annualized assuming completion in three months. 
Recommendation is Long Siltronic, the bid is very likely to succeed plus the shares are supported by good prospects for the semiconductor industry.


On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from <a href="https://www.smartkarma.com/entities/wacker-chemie-ag" target="_blank" data-smartkarma-citation="entities:21742:1" rel="noopener">Wacker Chemie Ag (WCH GR)</a> and others for €3.8 bn.
<ul>
<li>Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.</li>
</ul>
The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.
<div>
Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)
</div>
The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).
<ul>
<li>Company's compiled consensus TP is €127.23.</li>
<li>On this basis, I doubt that GlobalWafers will raise the offer.</li>
<li>That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.</li>
</ul>
<div>
The main issues regarding the closing of the transaction will be:
<ul>
<li>Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.</li>
<li>Uncertainty regarding Covid.</li>
<li>Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).</li>
</ul>
Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.
<div>
Siltronic opened at €126.7 on 20 December.
</div>
</div>
<div>
<ul>
<li>0.2% below GlobalWafers' offer, including dividend.</li>
</ul>
Recommendation: I would wait for share price weakness to set up a position.
</div>

On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from Wacker Chemie Ag (WCH GR) and others for €3.8 bn.

Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.

The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.

Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)

The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).

Company's compiled consensus TP is €127.23.
On this basis, I doubt that GlobalWafers will raise the offer.
That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.


The main issues regarding the closing of the transaction will be:

Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.
Uncertainty regarding Covid.
Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).

Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.

Siltronic opened at €126.7 on 20 December.




0.2% below GlobalWafers' offer, including dividend.

Recommendation: I would wait for share price weakness to set up a position.


Asia and Global Semiconductor and Tech Research

Andrew Lu

Equity Bottom-Up

TSMC (Taiwan Semiconductor Manufacturing) / Equity Bottom-Up

TSMC (Taiwan Semiconductor Manufacturing) (2330 TT)

TSMC (Taiwan Semiconductor Manufacturing)

<h2>Summary</h2>Despite much in line 1Q18 guidance (8-10% q/q sales decline, 49.5-51.5% gross margin, 38-40% operating margin), most of the incremental new messages from TSMC should drive 18 bull analysts (18 buys and 14 holds) to stay positive on the company and some of 14 bear analysts to change the side. We are positive on lower capex density (although raises sales growth to 10-15% from 5-10% y/y) with room to raise cash dividends to NT$10 per share within the next few years. We are positive on much…

SummaryDespite much in line 1Q18 guidance (8-10% q/q sales decline, 49.5-51.5% gross margin, 38-40% operating margin), most of the incremental new messages from TSMC should drive 18 bull analysts (18 buys and 14 holds) to stay positive on the company and some of 14 bear analysts to change the side. We are positive on lower capex density (although raises sales growth to 10-15% from 5-10% y/y) with room to raise cash dividends to NT$10 per share within the next few years. We are positive on much…

TSMC Expects Stronger Sales but Lower Capex Density, Implying Room to Raise Cash Dividends

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

<ul><li>Strong sales momentum, improving asset turnover, and capable of funding growth internally relative to its sector</li><li>Wafer demand above supply should continue as top 5 players produce over 90% of supply and none plans to increase capacity before 2019, customers sign long-term agreements to secure supply at high ASP</li><li>JV with Ferrotec (6890 JP) in China to produce up to 450k 8” wafers per month starting from 150k wafers per month, about 20% expansion</li><li>Attractive at 18CE* PEG ratio of 0.2 versus Asian Info Tech at 0.8</li><li>Risks: Top producers’ capacity increases and new regulations for product certifications</li></ul>* Consensus Estimates

Strong sales momentum, improving asset turnover, and capable of funding growth internally relative to its sectorWafer demand above supply should continue as top 5 players produce over 90% of supply and none plans to increase capacity before 2019, customers sign long-term agreements to secure supply at high ASPJV with Ferrotec (6890 JP) in China to produce up to 450k 8” wafers per month starting from 150k wafers per month, about 20% expansionAttractive at 18CE* PEG ratio of 0.2 versus Asian Info Tech at 0.8Risks: Top producers’ capacity increases and new regulations for product certifications* Consensus Estimates

GWC (6488 TT): Tight Wafer Supply to Take Growth to New Heights

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Sino American Silicon Products / Event-Driven

This week I briefly look at: <a href="https://www.smartkarma.com/entities/3441" target="_blank" data-smartkarma-citation="entities:3441:1">Sino American Silicon Products (5483 TT)</a>'s inexpensive entry point into <a href="https://www.smartkarma.com/entities/17916" target="_blank" data-smartkarma-citation="entities:17916:1">Globalwafers Co Ltd (6488 TT)</a>; <a href="https://www.smartkarma.com/entities/51" target="_blank" data-smartkarma-citation="entities:51:1">Wharf Holdings Ltd (4 HK)</a> begins the year with a gallop after <a href="https://www.smartkarma.com/entities/52" target="_blank" data-smartkarma-citation="entities:52:1">Wheelock &amp; Co Ltd (20 HK)</a> increases its stake; and <a href="https://www.smartkarma.com/entities/17638" target="_blank" data-smartkarma-citation="entities:17638:1">Intouch Holdings Pcl (INTUCH TB)</a> goes from cheap to cheaper in response to <a href="https://www.smartkarma.com/entities/18019" target="_blank" data-smartkarma-citation="entities:18019:1">Thaicom Pcl (THCOM TB)</a>'s deadlocked negotiations with the government.These relationships trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% 'market capitalisation' threshold, whereby the value of the holding/opco held must be at least 20% of the parent's market cap.A detailed NAV for a number of these parent/holding relationships highlighted can be found in our holdco monitor.My comments on SAS, Wheelock and Intouch follow the weekly setup/unwind tables.(Market cap and liquidity noted below are in US$. Liquidity is assessed on a 3-month average)

This week I briefly look at: Sino American Silicon Products (5483 TT)'s inexpensive entry point into Globalwafers Co Ltd (6488 TT); Wharf Holdings Ltd (4 HK) begins the year with a gallop after Wheelock &amp; Co Ltd (20 HK) increases its stake; and Intouch Holdings Pcl (INTUCH TB) goes from cheap to cheaper in response to Thaicom Pcl (THCOM TB)'s deadlocked negotiations with the government.These relationships trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% 'market capitalisation' threshold, whereby the value of the holding/opco held must be at least 20% of the parent's market cap.A detailed NAV for a number of these parent/holding relationships highlighted can be found in our holdco monitor.My comments on SAS, Wheelock and Intouch follow the weekly setup/unwind tables.(Market cap and liquidity noted below are in US$. Liquidity is assessed on a 3-month average)

StubWorld - Set-Up & Unwind Extremes: Sino-American, Wheelock, Intouch

Taiwan

Globalwafers Co., Ltd. specializes in silicon wafer manufacturing and also provides solar wafers and crystal rods. The Company possesses a complete production line from ingot growth, slicing, etching, diffusion, polishing to epitaxy. Their products include Epi wafers, polished wafers, etched wafers, ultra thin wafers and deep diffusion wafers.

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Globalwafers (6488 TT)

GlobalWafers Ups Offer for Siltronic

On 25 January, Siltronic trades mid-morning €141.45 (over €42 mn vol.), gross spread 3.8% including divi (c.15% annual.) LONG Siltronic, bid likely...

Jesus Rodriguez Aguilar

GlobalWafers Cash Offer

The deal should benefit pricing power. I doubt that the offer will be raised. Siltronic trades 0.2% below the offer, including dividend. Wait for...

Jesus Rodriguez Aguilar

TSMC Expects Stronger Sales but Lower Capex Density, Implying Room to Raise Cash Dividends

SummaryDespite much in line 1Q18 guidance (8-10% q/q sales decline, 49.5-51.5% gross margin, 38-40% operating margin), most of the incremental new...

Andrew Lu

GWC (6488 TT): Tight Wafer Supply to Take Growth to New Heights

Strong sales momentum, improving asset turnover, and capable of funding growth internally relative to its sector Wafer demand above supply should...

A. Stotz Investment Research

StubWorld - Set-Up & Unwind Extremes: Sino-American, Wheelock, Intouch

This week I briefly look at: Sino American Silicon Products (5483 TT)'s inexpensive entry point into Globalwafers Co Ltd (6488 TT); Wharf Holdings...

David Blennerhassett

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