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(+) Strong IC substrate industry outlook (50.0)
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Related Research
Tripod (3044 TT) Apr. 06,06
PPT (2446 TT) Nov 24, 05’
Investment Keynotes
Company Background
Nan Ya PCB (NYPCB), a subsidiary of Formosa Plastics Group, was established in 1997
NYPCB is currently
and currently is the largest Flip Chip (FC) manufacturer in Taiwan. It currently focuses its
the largest FC
business on conventional PCB and IC substrate: FC (53% of 1Q06 revenue), wire bonding
manufacturer in
(20%), conventional PCB and others (27%). Currently NYPCB has 4 IC substrate factories
Taiwan
in Taiwan, and 2 conventional PCB factories in Kunshan, China. NYPCB’s current FC
capacity is around 25.3mn pcs per month, which is the highest compared with industry
peers in Taiwan.
PPT (2446 TT, NT$82.0, NR) 8mn / per month Intel, nVidia, ATI, VIA (2388 TT, NT$28.7, NR)
Kinsus (3189 TT, NT$137.0, NR) 2mn / per month Xilinx (XLNX, US$26.4, NR),
IC carrier, which is used to connect ICs to PCBs (Printed Circuits Board), can be divided
into two types: lead frame and IC substrate. IC substrate offers much higher number of
Input/Output (I/Os) than traditional lead frame methods such as DIL (Dual in Line), SoP
(Small Outline Packaging), and QFP (Quad Flat Pack). With increasing demand in higher
IC performance, the higher number of I/Os, and shrinking IC die size despite higher
performance requirements, IC substrate becomes mainstream of IC packaging technology.
DIL
BGA
2
SoP CSP
1 Flip Chip
QFP
0
10 50 90 130
IC substrate can be classified into three types by package forms: BGA (Ball Grid Array),
CSP (Chip Scale Package) and FC. BGA uses solder ball instead of traditional lead frame
to connect ICs and substrates. CSP is a single-chip-package technology, and size of CSP is
almost the same or only slightly larger than bare dies. FC is to “flip” the die and use
“bumping” to connect the front side of the die with the substrate. Currently, CSP, FC and
PBGA (Plastic Ball Grid Array, which is one kind of BGA package) are the three most
popular IC substrates.
◇ "Flip" the die and use "bumping" to connect the front side of the die
3) FC (Flip Chip Package)
with the substrate
◇ TAB involves bonding a gold bumped die to a single layer circuit built
on a flexible material, such as polyimide.
Interconnections 2) TAB (Tape Automated Bonding) ◇ TAB is used primarily in the flat panel display inductry to mount driver
Ics between the glass of the display and the input circuitry behind the
display.
◇ "Flip" the die and use "bumping" to connect the front side of the die
3) FC
with the substrate
PBGA Micro-processor, controllers, ASICs, gate arrays, memory, communications, networking, graphics
Global IC substrate market size is US$5.5bn in 2005, and will reach US$6.1bn in 2006,
up 10.9%YoY.
With growth of IC testing and packaging industry and improving IC packaging technology,
x global IC substrate production value has begun to increase since 2003. During 2006 to
2007, higher-performance IC demand from new consumer electronics products, such as
Intel’s Napa dual core CPU and game console, is expected to boost global IC substrate
demand. We estimate global IC substrate market size will reach US$6.1bn in 2006, up
10.9% from US$5.5bn in 2005, and will grow to US$6.8bn in 2007, up 10.3% YoY.
Higher-performance
9 Global IC Substrate Production Value (LHS, US$: bn ) Growth Y oY (RHS, %)
IC demand from
new applications 20.0% 23.7%
10.3% 20%
will boost global IC 10.9%
13.6%
substrate market 6 14.6%
size to US$6.1bn in
2006, up 10.9% YoY
10%
3
0 0%
2001 2002 2003 2004 2005 2006E 2007E
Japan, Taiwan and Korea will jointly account for 97.2% of global IC substrate market
in 2006.
Asia is the main IC substrate production base in the world, among which Japan, Korea and
Taiwan accounted for 96.5% of global IC substrate market in 2005. Since IC substrate
manufacturers in Japan will focus their business on other higher profits products, the global
market share of Japanese IC substrate manufacturers is estimated to decrease from
63.4% in 2005 to 59.4% in 2006. Meanwhile, with the capacity expansion of Taiwanese
and Korean IC substrate manufacturers, especially on FC, the IC substrate market shares
of Taiwan and Korea are expected to increase. Taiwan IC substrate production value is
estimated to reach US$1.6bn in 2006, up 30.6% from US$1.2bn in 2005.
10.6% 11. 3%
estimated to 90%
2006
63.4% 59. 4%
30%
0%
2005 2006E
Table 8: 2001~2007 Taiwan IC Substrate Production Value with YoY and Global Market Share
Taiwan IC substrate
production value TWN IC Substrate Production Value (LHS, US$: bn) Y oY (RHS, %) TWN/WW (RHS, %)
2 60%
19.1%
will grow to
US$1.6bn in 2006, 30.6%
50%
up 30.6% YoY
1.5
43.6%
30.4% 40%
1 30%
25.0%
19.0% 20%
0.5
28.6%
22.5% 26.5% 10%
0 0%
2001 2002 2003 2004 2005 2006E 2007E
Due to higher technical entry barrier and huge capax requirement, FC was not the
mainstream of IC substrate before 2004. However, after 2H04, the IC packaging transition
to FC directed by global tier one graphic chip manufacturers, nVidia and ATI began to
boost FC demand tremendously. In 2006, with the growing demand in graphic chips, CPU /
MPU (Micro Processor Unit) chipsets and game consoles, we estimate global demand
value of FC will reach US$960mn in 2006, up 56.4% from US$614mn in 2005, and FC will
become the main growth momentum in IC substrate industry. As currently CSP is broadly
used on slim-type consumer electronics products and memory modules, it still weights
70.6% of total IC substrate products in 2006. However, FC will be used in much more
applications, such as Intel’s Napa dual core CPU and game console. Compared with the
2006 global market demand value growth on CSP and BGA, which is 35.5% and 8.8%
respectively, FC is the segment with the highest potential.
Global market Table 9: 2003~2007 Global IC substrate Market Demand Value by Package Type
demand value of FC Flip Chip CSP BGA ( Market Demand Value: US$ mn)
is expected to be
US$960mn in 2006, 9,000
up 56.4% YoY from 1,380
US$614mn in 2005
1,230
6,000
1,130
6,040
1,050 5,250
3,000 930
3,872
2,766
2,305
960 1,295
194 348 614
0
2003 2004 2005 2006E 2007E
Table 10: 2004~2007 Global IC Substrate Market Demand Value Growth Rate % by Package Type
90%
79.4%
76.4%
56.4%
60%
34.9%
30%
0%
2004 2005 2006E 2007E
Company Analysis
NYPCB’s product mix in 1Q06 is: FC(52~52% of revenue), WB (20%), conventional PCB
and others (27%). Due to 1) Intel’s Napa dual core CPU, Sony’s PS3 and Microsoft’s Vista
OS will be launced from 2H06 to 1H07 2) higher gorss margin for FC, and 3) more new
applications, NYPCB will keep focusing its business on FC manufacturing. We estimate FC
to account for 61.2% of 2006 revenues, and this weighting will keep increasing in 2007.
34.3%
NYPCB’s 2006 80%
46.6%
revenue 20.5%
60%
20.1%
17.9%
40%
61.2%
45.6%
20%
35.5%
0%
2004 2005 2006E
Main clients of NYPCB include Intel, ATI, nVidia and Microsoft. Intel is expected to account
NYPCB is currently for 40% of NYPCB’s 2006 revenue, and therefore is currently the major client of NYPCB.
Intel’s main FC FC is mainly employed on PC/NB’s CPU, north bridge chipsets, graphic chipsets, MPU and
supplier in Taiwan. game console. Since Intel is the global leading supplier of CPU, MPU and north bridge
chipsets, we believe NYPCB will benefit from being Intel’s main supplier on FC in Taiwan,
especially with the launch of Intel’s Napa dual core CPU in 4Q06.
Others
Intel
38%
40%
Microsof t
nVidia ATI
4%
9% 9%
2006E 2007E
As a member of Formosa Plastic Group, NYPCB can get strong internal support for raw
materials, such as CCL and epoxy. Since raw material weights 45% of total IC substrate
production cost, NYPCB has strong competitiveness in IC substrate industry compared with
its main competitors. We thus believe NYPCB’s cost down ability is strong enough to
enhance gross margin. NYPCB’s gross margin is estimated to grow 14.4 ppt. from 21.1% in
2005 to 35.5% in 2006.
21.1%
20%
10% 9.5%
6.2%
0%
2003 2004 2005 2006E
According to NYPCB, the CAPEX plan is: NT$6.4bn~NT$6.8bn in 2006, NT$7.1bn in 2007,
NT$6.4bn in 2008. Since NYPCB has NT$20bn cash injection from IPO, we believe
NYPCB has very strong cash flow structure in 2006.
Due to 1) growing demand in FC, 2) improving FC weight in NYPCB’s revenue from 45.6%
in 2005 to 61.2% in 2006, and 3) cost down competitive advantage in raw material sourcing,
we believe NYPCB’s revenue will trend up quarterly in 2006. We estimate NYPCB’s
consolidated revenue in 2006 will reach NT$44.0bn in 2006, up 72.9% YoY, with net profit of
NT$12.9bn, up 199.9% YoY, and EPS of NT$21.5.
NYPCB is currently traded at PER 16.3x. We give NYPCB 19x PER for its robust growth
momentum and strong cost down competitive advantage, and target price at NT$407.0,
implying 16.3% upside potential. We therefore recommend an Outperform for NYPCB.
NYPCB’s revenue is
Rev enue (LHS: NT$ bn) Y oY (RHS: %)
estimated to be 50 100%
72.9%
NT$44.0bn in 2006,
up 72.9% YoY 40 80%
30 60%
39.8%
19.0%
20 40%
10 20%
D
0 0%
2003 2004 2005 2006E
17.5x P/E
350
15.3x P/E
10.8x P/E
210
8.6x P/E
4.1x P/E
70
0
Apr-05 Jun-05 Aug-05 Nov-05 Jan-06 Apr-06
9.20x P/B
350
7.94x P/B
5.42x P/B
210
4.17x P/B
140
2.91x P/B
70 1.65x P/B
0
Apr-05 Jun-05 Aug-05 Nov-05 Jan-06 Apr-06
Balance Sheets
Current assets 7,375 8,241 11,196 19,446
Long-term investments 2 2 - 4
Fixed assets 8,658 9,599 13,299 20,223
Other assets 936 852 190 329
Total assets 16,971 18,694 24,685 40,002
Current liabilities 3,823 5,298 7,981 11,132
Long-term liabilities 4,376 4,145 3,581 6,191
Total liabilities 8,199 9,444 11,563 17,323
Common stock & preferred stock 4,826 4,874 5,166 8,931
Retained earnings 3,946 4,376 7,956 13,748
Total shareholders' equity 8,771 9,250 13,122 22,679
Total liabilities & equity 16,971 18,694 24,685 40,002
Key Ratios
Gross margin (%) 6.2 9.5 21.1 35.5
Operating margin (%) 1.2 5.0 16.5 30.4
Net profit margin (%) 0.7 3.4 16.8 29.2
Return on shareholders' equity (%) 1.3 6.9 38.4 71.9
Return on assets (%) 0.7 3.5 19.8 39.8
Current ratio (%) 192.9 155.5 140.3 174.7
Long-term debt/Equity (%) 46.2 39.3 22.4 22.4
Total debt/Equity (X) 0.93 1.02 0.88 0.76
Interest coverage (X) 2.09 6.95 34.82 64.29
Op. cash flow per share (NT$) 0.54 4.58 6.73 7.81
This information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. It is
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position in or with respect to the securities mentioned herein. This firm (or one of its affiliates) may from time to time perform investment banking or other
services or solicit investment banking or other business from, any company mentioned in this report. All opinions and estimates included in this report
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