精元 (2387 )    May. 09, 2008
Partner uncertainty cleared

• . Extending alliance with Hynix. ProMOS announced that it has signed a strategic alliance agreement with Hynix (KR) to extend their existing partnership. Under the agreement, Hynix will license 50nm-class DRAM stack process technology to ProMOS, while ProMOS will offer finished DRAM products to Hynix. Meanwhile, Hynix is working with investors to buy an 8%~10% stake in ProMOS.
• . 1Q08 sales & margins dropped. Sales declined to NT$7.6bn (-12% QoQ and -56% YoY). Gross/operating margins were –71%/–86%, compared to –27%/–41% in 4Q07 and 36%/27% in 1Q07. Significant QoQ drops in margins were due to further ASP erosion in 1Q08 and higher wafer sales, hence lower backend costs, in 4Q07. In non-operating losses, it recorded an inventory loss of NT$835mn and a F/X gain of NT$637mn. Net income declined to –NT$8.1bn (-64% QoQ and –286% YoY), or –NT$1.2 per share.
• . Almost no capex & conservative bit growth in 2008. It expects bit growth rate to rise from less than 3% in 1Q to 12%~13% in 2Q as it conducted annual maintenance in February. Whole-year bit growth will be 40%~50%. In addition, 2008 capex will be lower than the previously estimated US$800mn as it put on hold its expansion plan for Fab4. The only funding needs will be a loan repayment of some NT$6bn by 1Q09 and a pilot run line for 54nm process in 2H08, which we estimate may require some NT$2bn.
• . Reiterate a Buy on signs of a DRAM price rebound. The counter trades at 0.8x 1Q08 BVPS, compared to its four-year historical range of 0.7x-1.4x. Even though we forecast ProMOS will report a net loss in 2008, we have seen signs of DRAM prices rebounding and we are nearing the traditional high season in 3Q and 4Q. Therefore, we reiterate our Buy rating and maintain TP at NT$10.0, based on 1.1x 2008 PB.

Source: Primasia Investment Consultancy Co., Ltd.