Small and mid-cap Asia, Thematic, Corporate Access, Glorious Day, Ltd.

Glorious Day Asia

Small and mid-cap Asia, Thematic, Corporate Access

Glorious Day, Ltd.

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Global Wafer (6488 TT): Purchase of Sun Edison Semi (Semi US) will move GWC to #3 global supplier and 17% market share, after Shin-Etsu and Sumco and ahead of Siltronics (Wacker Chemie). Semi wafer prices are set to show a modest rebound on industry consolidation and no material increases in industry capacity. Industry growth and market addressing synergies from the merger offset the lack of initial profit accretion.

Global Wafer (6488 TT): Purchase of Sun Edison Semi (Semi US) will move GWC to #3 global supplier and 17% market share, after Shin-Etsu and Sumco and ahead of Siltronics (Wacker Chemie). Semi wafer prices are set to show a modest rebound on industry consolidation and no material increases in industry capacity. Industry growth and market addressing synergies from the merger offset the lack of initial profit accretion.

Global Wafer Corp (6488 TT): Imminent Industry Consolidation a Positive; Company Visit Note Summary

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Smartkarma

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Sumco along with Nippon Steel and Mitsubishi Materials plan to undertake a combined primary cum secondary placement for ~US$1.2bn. We would take the deal given:-<ul><li>The deal scores well on our framework primarily due to it strong performance over the past six months, as the longer term track record of the company is bogged down by losses over 2010-12. However, since then the company has undertaken a turnaround plan and looks set to remain profitable.</li><li>Sumco was making losses over 2010-12 leading to the company undertaking restructuring in 2012, to cut costs and shut down some non-competitive businesses. The company registered its first revenue growth in three years in 2014 along with a pick-up in profits. Management expects the supply-demand situation to remain tight in 2015-16 leading to price hikes and hence, better profitability. The company is forecasting a 43% growth in profits in 1Q15 and analyst's expect profits to more than double over 2014-16.</li><li>As a part of the recapitalization and  restructuring undertaken in 2012, Sumco issued Class A shares to Nippon Steel, Mitsubishi Materials and Japan Industrial Solutions. As a part of this investment the Class A shareholders had the right to convert these shares into common stock (put option exercisable in May-15) and receive cash. Sumco plans to use half of the proceeds from the primary issuance for redeeming these shares and thus prevent a 25% dilution for common stock holders. While the balance of the proceeds will be used over the next five years to fund capacity expansion.</li><li>The deal was announced more than a month ago by the management as part of its mid-term plan, even though the put option on the class A shares has been known for a few years. The shares corrected by 20% before recovering by 7% and are still 14% below the undisturbed deal price. In effect,  the market has had enough time to digest the finer details of the deal, thus reducing the probability of a further negative reaction to the deal.</li></ul>Negatives:<ul><li>Most analysts remain negative on the stock, given the recent run-up in share price. Overall analyst have a binary view on the stock with target prices ranging from 1,300 to 3,000, even though on an aggregate basis they expect profits to double over 2014-16.</li><li>On the back of the deal the number of free float shares will nearly increase by 50% from the current 114m to over 187m shares. While on the one hand this will be positive for the index weightage of the stock, however, with this being a US$1bn+ deal it would require a lot of support from institutional investors. Although the stock has Wellington, Alliance Bernstein, Janus and Fidelity, amongst as its shareholders, hence, their support for the deal will play a large part for short-term returns.</li><li>The industry remains highly competitive and any industry wide increase in capacity could likely once again result in pricing pressure</li></ul>In addition, we would like to thank <a href="http://www.smartkarma.com/insight_providers/39" target="_blank">Travis Lundy</a> for helping us with the background context to the deal.

Sumco along with Nippon Steel and Mitsubishi Materials plan to undertake a combined primary cum secondary placement for ~US$1.2bn. We would take the deal given:-The deal scores well on our framework primarily due to it strong performance over the past six months, as the longer term track record of the company is bogged down by losses over 2010-12. However, since then the company has undertaken a turnaround plan and looks set to remain profitable.Sumco was making losses over 2010-12 leading to the company undertaking restructuring in 2012, to cut costs and shut down some non-competitive businesses. The company registered its first revenue growth in three years in 2014 along with a pick-up in profits. Management expects the supply-demand situation to remain tight in 2015-16 leading to price hikes and hence, better profitability. The company is forecasting a 43% growth in profits in 1Q15 and analyst's expect profits to more than double over 2014-16.As a part of the recapitalization and  restructuring undertaken in 2012, Sumco issued Class A shares to Nippon Steel, Mitsubishi Materials and Japan Industrial Solutions. As a part of this investment the Class A shareholders had the right to convert these shares into common stock (put option exercisable in May-15) and receive cash. Sumco plans to use half of the proceeds from the primary issuance for redeeming these shares and thus prevent a 25% dilution for common stock holders. While the balance of the proceeds will be used over the next five years to fund capacity expansion.The deal was announced more than a month ago by the management as part of its mid-term plan, even though the put option on the class A shares has been known for a few years. The shares corrected by 20% before recovering by 7% and are still 14% below the undisturbed deal price. In effect,  the market has had enough time to digest the finer details of the deal, thus reducing the probability of a further negative reaction to the deal.Negatives:Most analysts remain negative on the stock, given the recent run-up in share price. Overall analyst have a binary view on the stock with target prices ranging from 1,300 to 3,000, even though on an aggregate basis they expect profits to double over 2014-16.On the back of the deal the number of free float shares will nearly increase by 50% from the current 114m to over 187m shares. While on the one hand this will be positive for the index weightage of the stock, however, with this being a US$1bn+ deal it would require a lot of support from institutional investors. Although the stock has Wellington, Alliance Bernstein, Janus and Fidelity, amongst as its shareholders, hence, their support for the deal will play a large part for short-term returns.The industry remains highly competitive and any industry wide increase in capacity could likely once again result in pricing pressureIn addition, we would like to thank Travis Lundy for helping us with the background context to the deal.

Sumco (3436 JP) - Raising capital for capex and shares redemption. Take the deal

Japan

SUMCO Corporation manufactures silicon wafers for the semiconductor industry. The Company produces silicon wafers used to produce solar batteries as well as ultra-high purity quartz used to produce vessels for silicon manufacturing process. SUMCO markets its products worldwide.

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SUMCO Corp (3436 JP)

Global Wafer Corp (6488 TT): Imminent Industry Consolidation a Positive; Company Visit Note Summary

Global Wafer (6488 TT): Purchase of Sun Edison Semi (Semi US) will move GWC to #3 global supplier and 17% market share, after Shin-Etsu and Sumco...

Glorious Day Asia

Sumco (3436 JP) - Raising capital for capex and shares redemption. Take the deal

Sumco along with Nippon Steel and Mitsubishi Materials plan to undertake a combined primary cum secondary placement for ~US$1.2bn. We would take...

Sumeet Singh

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