Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Sino American Silicon Products / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sino-american-silicon-products-inc" target="_blank" data-smartkarma-citation="entities:3441:1" rel="noopener">Sino American Silicon Products (5483 TT)</a>  is a Taiwan-based company mainly engaged in the research, development, design, manufacture, and distribution of semiconductor wafer products with subsidiaries in both listed and unlisted companies including <a href="https://www.smartkarma.com/entities/globalwafers-co-ltd" target="_blank" data-smartkarma-citation="entities:17916:1" rel="noopener">Globalwafers (6488 TT)</a> , <a href="https://www.smartkarma.com/entities/parade-technologies-ltd" target="_blank" data-smartkarma-citation="entities:6987:1" rel="noopener">Parade Technologies (4966 TT)</a> , <a href="https://www.smartkarma.com/entities/actron-technology-corp" target="_blank" data-smartkarma-citation="entities:4989:1" rel="noopener">Actron Technology (8255 TT)</a> and <a href="https://www.smartkarma.com/entities/advanced-wireless-semiconduc" target="_blank" data-smartkarma-citation="entities:16559:1" rel="noopener">Advanced Wireless Semiconduc (8086 TT)</a> with only in Globalwafers - SAS owns more than 51%.
The large discount between SAS and its subsidiaries could be due to 1) lack of bulge-bracket coverage, 2) higher polysilicon price 3) and 3) weak 1H demand from the solar and the semiconductor from COVID-19 plague which caused investors to care less about the value dislocation between SAS and its subsidiaries.
With a somewhat certain 28-30% gain in the earning as early Q1 2022, investors should start slowly building positions in SAS as the risk-off beast may disturb the confidence in the equity market much longer than what investors would like. The second scenario of increasing stake in Parade Tech should be treated as a call option as when it happens, it is a bonus of another 24%. Thus the total upside could be around 54%. 
<div class="content-highlight">
Besides the above-mentioned reasons, <a href="https://www.smartkarma.com/entities/sino-american-silicon-products-inc" target="_blank" data-smartkarma-citation="entities:3441:1" rel="noopener">Sino American Silicon Products (5483 TT)</a> remains a smart way to gain exposure in Globalwafers which trades at 24x PER, compared to SAS that trades at 13x PER. The other factor is that Globalwafers dividend yield is 2.28% while SAS is 5.22%. 
</div>

Sino American Silicon Products (5483 TT)  is a Taiwan-based company mainly engaged in the research, development, design, manufacture, and distribution of semiconductor wafer products with subsidiaries in both listed and unlisted companies including Globalwafers (6488 TT) , Parade Technologies (4966 TT) , Actron Technology (8255 TT) and Advanced Wireless Semiconduc (8086 TT) with only in Globalwafers - SAS owns more than 51%.
The large discount between SAS and its subsidiaries could be due to 1) lack of bulge-bracket coverage, 2) higher polysilicon price 3) and 3) weak 1H demand from the solar and the semiconductor from COVID-19 plague which caused investors to care less about the value dislocation between SAS and its subsidiaries.
With a somewhat certain 28-30% gain in the earning as early Q1 2022, investors should start slowly building positions in SAS as the risk-off beast may disturb the confidence in the equity market much longer than what investors would like. The second scenario of increasing stake in Parade Tech should be treated as a call option as when it happens, it is a bonus of another 24%. Thus the total upside could be around 54%. 

Besides the above-mentioned reasons, Sino American Silicon Products (5483 TT) remains a smart way to gain exposure in Globalwafers which trades at 24x PER, compared to SAS that trades at 13x PER. The other factor is that Globalwafers dividend yield is 2.28% while SAS is 5.22%. 


Sino American Silicon (5483): Entry to Globalwafers and Others

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.


Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<a href="https://www.smartkarma.com/entities/sumco-corp" target="_blank" data-smartkarma-citation="entities:379:1" rel="noopener">Sumco Corp (3436 JP)</a>  reported its 3Q2019 results yesterday (06th November 2019) which saw revenue and operating income declining YoY as well as QoQ. However, the reported revenue and operating income beat company guidance as well as consensus estimates. The company is expecting 2019 revenue and EBIT to decline YoY while it expects earnings to recover from 2020.The current slowdown in the semiconductor silicon market follows two-years of strong growth in revenue and margins. The inventory adjustments in the memory segments are still continuing for 300mm wafers which accounts for a majority of 300mm wafer demand. That being said, the demand for logic/foundry remains solid.Sumco’s share price and valuation have significantly increased over the last 3-months with the recovery in the logic/foundry segment. However, the current FY2 PE multiple is at a significant discount to the multiple at the beginning of the semiconductor market recovery in 2016. With company earnings expected to recover in 2020, we believe the current multiple provides a good entry point.

Sumco Corp (3436 JP)  reported its 3Q2019 results yesterday (06th November 2019) which saw revenue and operating income declining YoY as well as QoQ. However, the reported revenue and operating income beat company guidance as well as consensus estimates. The company is expecting 2019 revenue and EBIT to decline YoY while it expects earnings to recover from 2020.The current slowdown in the semiconductor silicon market follows two-years of strong growth in revenue and margins. The inventory adjustments in the memory segments are still continuing for 300mm wafers which accounts for a majority of 300mm wafer demand. That being said, the demand for logic/foundry remains solid.Sumco’s share price and valuation have significantly increased over the last 3-months with the recovery in the logic/foundry segment. However, the current FY2 PE multiple is at a significant discount to the multiple at the beginning of the semiconductor market recovery in 2016. With company earnings expected to recover in 2020, we believe the current multiple provides a good entry point.

Sumco 3Q Results: Earnings Beat Consensus; Current Valuation Provides a Good Entry Point

Sumco reported 2Q2019 results on Tuesday (06th August 2019) which saw the company revenue and operating profit decline on a YoY as well as on a QoQ basis. The reported revenue and operating profit for the quarter were well below Sumco’s own guidance as well as consensus estimates. The drop-in earnings were mainly due to declining demand for 300mm wafers while 200mm wafer has started showing signs of softening. Going into the second half of the year, the management does not expect a material recovery in the global semiconductor demand and as such expects the earnings during third quarter 2019 to decline compared to last year as well as the second quarter results. That being said, a look at the company’s historical earnings trend and the performance during past semiconductor downturns, the current earnings are way above the earnings at the bottom of the previous semiconductor cycle in 2015 and early part of 2016. Sumco’s share price has started declining since May 2018 even before the company earnings started declining or the company provided negative earnings guidance. The market is expecting the semiconductor demand to start recovering towards the end of 2019 and we expect the company earnings to start moving up going into 2020.We discuss the details below.

Sumco reported 2Q2019 results on Tuesday (06th August 2019) which saw the company revenue and operating profit decline on a YoY as well as on a QoQ basis. The reported revenue and operating profit for the quarter were well below Sumco’s own guidance as well as consensus estimates. The drop-in earnings were mainly due to declining demand for 300mm wafers while 200mm wafer has started showing signs of softening. Going into the second half of the year, the management does not expect a material recovery in the global semiconductor demand and as such expects the earnings during third quarter 2019 to decline compared to last year as well as the second quarter results. That being said, a look at the company’s historical earnings trend and the performance during past semiconductor downturns, the current earnings are way above the earnings at the bottom of the previous semiconductor cycle in 2015 and early part of 2016. Sumco’s share price has started declining since May 2018 even before the company earnings started declining or the company provided negative earnings guidance. The market is expecting the semiconductor demand to start recovering towards the end of 2019 and we expect the company earnings to start moving up going into 2020.We discuss the details below.

Sumco: 2Q2019 Earnings Drop but the Decline Is Still Better Than Previous Downturns

Germany

Siltronic AG manufactures hyperpure silicon wafers. The Company offers products including non-polished and epitaxial coated wafers with different diameter sizes. Siltronic caters its products worldwide for use in computers, smartphones, flat-panel displays, navigation systems, automotive engine control systems, and many other applications.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Siltronic AG (WAF GR)

Sino American Silicon (5483): Entry to Globalwafers and Others

Sino American Silicon remains a smart way to gain exposure in Globalwafers (24x PER), compared to SAS (13x PER). The other factor is that...

Henry Soediarko

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

Sumco 3Q Results: Earnings Beat Consensus; Current Valuation Provides a Good Entry Point

Sumco Corp (3436 JP) reported its 3Q2019 results yesterday (06th November 2019) which saw revenue and operating income declining YoY as well as...

Shifara Samsudeen, FCMA, CGMA

Sumco: 2Q2019 Earnings Drop but the Decline Is Still Better Than Previous Downturns

Sumco reported 2Q2019 results on Tuesday (06th August 2019) which saw the company revenue and operating profit decline on a YoY as well as on a QoQ...

Shifara Samsudeen, FCMA, CGMA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)