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  • 1. August 29, 2011ACTIONBuySilitech Technology (3311.TW)Return Potential: 28% Equity ResearchSolid 2nd growth driver to offset keypad concerns; upgrade to BuySource of opportunity Investment Profile Low HighWe upgrade Silitech to Buy from Sell, and raise our TP to NT$95 (from NT$52). Growth GrowthWhile we still have structural concerns on its keypad business, given rising full Returns * Returns *touch design and thin form factor requirements for handsets, we believe it has Multiple Multipleleveraged its metal housing business (15% of 2H11 revenue) to turn industry Volatility Volatilityheadwinds to its favor. Its design win in the commercially successful Samsung Percentile 20th 40th 60th 80th 100th Silitech Technology (3311.TW)Galaxy S2 is a good precedent for more wins in the pipeline, driving further cost Asia Pacific Technology Peer Group Averagereduction and light weight trends in smartphones. Since we added Silitech to * Returns = Return on Capital For a complete description of thethe Sell list on 6/26/11, shares are up 9% vs. TAIEX -13% on better sales investment profile measures please refer to the disclosure section of this document.momentum; in the past 12months, Silitech is down 18% vs. the TAIEX -3%. Key data CurrentCatalyst Price (NT$) 74.00(1) Gradual improvement in yoy sales trends: As Silitech is guiding 3Q11 12 month price target (NT$) 95.00 Market cap (NT$ mn / US$ mn) 12,997.8 / 447.5sales +45% qoq (vs. GSe +22% previously), we believe its monthly and quarterly Foreign ownership (%) 20.4sales will improve yoy. Historically Silitech’s cash as a % of total market cap hashad an inverse correlation with its yoy revenue growth, thus we expect a yoy 12/10 12/11E 12/12E 12/13E EPS (NT$) New 8.24 6.52 7.25 7.06growth recovery to produce share price upside in the next 2-3 quarters; (2) more EPS revision (%) 0.0 35.4 72.2 84.3design wins in metal housing: Besides Samsung, Silitech is likely to secure EPS growth (%) 14.6 (20.9) 11.2 (2.6) EPS (dil) (NT$) New 8.24 6.52 7.25 7.06more tier-1 handset customers, paving the way for another strong year for the P/E (X) 9.0 11.4 10.2 10.5 P/B (X) 2.3 2.7 2.3 2.1metal housing business (GSe +94% yoy sales growth in 2012E), offsetting EV/EBITDA (X) 5.5 5.2 4.2 3.8keypad weakness; (3) new product announcements: Silitech guided for more Dividend yield (%) 5.8 8.2 6.2 6.9 ROE (%) 26.7 21.7 24.2 21.0new component products coming in 2012E, potentially accounting for 10-15% of CROCI (%) 52.2 56.7 55.3 51.7revenues in 2H12. We haven’t factored in this in our model, pending more clarityon product specifications and design-in status. Price performance chart 100 11,000 95 10,500Valuation 90 10,000We raise 2011-13E EPS 35-84% on higher sales and margins in the metal 85 9,500housing business. Our new 12-m TP of NT$95 on 3.2X NTM P/B (vs. NT$52 on 80 9,000 75 8,5001.6X previously on change in ROE estimates), implies 13X NTM P/E. 70 8,000 65 7,500Key risks 60 7,000 Aug-10 Nov-10 Mar-11 Jun-11Severe competition in the metal housing business; slow handset demand. Silitech Technology (L) Taiwan SE Weighted Index (R)INVESTMENT LIST MEMBERSHIPAsia Pacific Buy List Share price performance (%) 3 month 6 month 12 month Absolute 6.0 (0.9) (17.9) Rel. to Taiwan SE Weighted Index 25.1 14.5 (15.2)Coverage View: Neutral Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/26/2011 close.Robert Yen Goldman Sachs does and seeks to do business with companies+886(2)2730-4196 rob.yen@gs.com Goldman Sachs (Asia) L.L.C., Taipei BranchIris Wu covered in its research reports. As a result, investors should be+886(2)2730-4186 iris.wu@gs.com Goldman Sachs (Asia) L.L.C., Taipei Branch aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC see the end of the text. For other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S.The Goldman Sachs Group, Inc. Global Investment Research
  • 2. August 29, 2011 Silitech Technology (3311.TW) Silitech Technology: Summary FinancialsProfit model (NT$ mn) 12/10 12/11E 12/12E 12/13E Balance sheet (NT$ mn) 12/10 12/11E 12/12E 12/13ETotal revenue 13,835.4 12,955.1 14,328.5 14,606.9 Cash & equivalents 5,499.8 5,341.4 6,404.0 7,403.1Cost of goods sold (10,739.5) (10,325.3) (11,342.6) (11,603.3) Accounts receivable 3,280.4 3,434.2 3,565.0 3,581.9SG&A (879.6) (902.2) (992.6) (1,051.1) Inventory 653.3 613.7 595.9 600.4R&D (341.4) (343.6) (387.5) (392.1) Other current assets 147.9 170.1 190.7 209.7Other operating profit/(expense) 0.0 0.0 0.0 0.0 Total current assets 9,581.4 9,559.3 10,755.6 11,795.0ESO expense -- -- -- -- Net PP&E 3,150.8 3,042.3 3,042.2 3,090.2EBITDA 2,401.3 1,955.3 2,158.9 2,102.2 Net intangibles 36.2 36.2 36.2 36.2Depreciation & amortization (526.4) (571.3) (553.2) (541.9) Total investments 78.5 166.5 166.5 166.5EBIT 1,874.9 1,384.0 1,605.7 1,560.3 Other long-term assets 125.9 89.8 89.8 89.8Interest income 26.6 45.9 53.6 67.9 Total assets 12,972.9 12,894.1 14,090.2 15,177.8Interest expense (32.1) (41.2) (43.4) (47.0)Income/(loss) from uncons. subs. 17.2 2.0 0.0 0.0 Accounts payable 3,247.9 3,037.6 3,146.5 3,340.0Others 76.7 102.6 56.3 57.4 Short-term debt 240.1 429.2 429.2 429.2Pretax profits 1,963.4 1,493.2 1,672.2 1,638.7 Other current liabilities 1,901.7 2,274.7 2,598.8 2,847.6Income tax (485.6) (324.2) (370.2) (370.3) Total current liabilities 5,389.7 5,741.5 6,174.5 6,616.8Minorities (10.0) 3.4 2.1 2.0 Long-term debt 1,371.2 1,694.2 1,694.2 1,694.2Net income pre-preferred dividends 1,467.7 1,172.5 1,304.2 1,270.3 Other long-term liabilities 347.5 354.5 381.1 422.5Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 1,718.7 2,048.7 2,075.4 2,116.8Net income (pre-exceptionals) 1,467.7 1,172.5 1,304.2 1,270.3 Total liabilities 7,108.4 7,790.2 8,249.9 8,733.6Post-tax exceptionals 0.0 0.0 0.0 0.0Net income 1,467.7 1,172.5 1,304.2 1,270.3 Preferred shares 0.0 0.0 0.0 0.0 Total common equity 5,774.8 5,017.1 5,755.7 6,361.5EPS (basic, pre-except) (NT$) 8.24 6.52 7.25 7.06 Minority interest 89.7 86.8 84.6 82.7EPS (basic, post-except) (NT$) 8.24 6.52 7.25 7.06EPS (diluted, post-except) (NT$) 8.24 6.52 7.25 7.06 Total liabilities & equity 12,972.9 12,894.1 14,090.2 15,177.8EPS excl. ESO expense (basic) (NT$) 9.93 7.65 8.35 8.12EPS excl. ESO expense (dil.) (NT$) 9.93 7.65 8.35 8.12 BVPS (NT$) 32.43 27.90 32.00 35.37DPS (NT$) 4.30 6.06 4.56 5.08Dividend payout ratio (%) 52.1 92.9 62.9 71.9Free cash flow yield (%) 14.6 12.7 15.3 15.4 Ratios 12/10 12/11E 12/12E 12/13EGrowth & margins (%) 12/10 12/11E 12/12E 12/13E CROCI (%) 52.2 56.7 55.3 51.7Sales growth 27.9 (6.4) 10.6 1.9 ROE (%) 26.7 21.7 24.2 21.0EBITDA growth 18.9 (18.6) 10.4 (2.6) ROA (%) 12.0 9.1 9.7 8.7EBIT growth 28.6 (26.2) 16.0 (2.8) ROACE (%) 59.9 60.4 75.1 91.9Net income growth 16.2 (20.1) 11.2 (2.6) Inventory days 18.4 22.4 19.5 18.8EPS growth 14.6 (20.9) 11.2 (2.6) Receivables days 85.4 94.6 89.1 89.3Gross margin 22.4 20.3 20.8 20.6 Payable days 95.8 111.1 99.5 102.0EBITDA margin 17.4 15.1 15.1 14.4 Net debt/equity (%) (67.3) (64.1) (74.4) (83.0)EBIT margin 13.6 10.7 11.2 10.7 Interest cover - EBIT (X) 344.2 NM NM NMCash flow statement (NT$ mn) 12/10 12/11E 12/12E 12/13E Valuation 12/10 12/11E 12/12E 12/13ENet income pre-preferred dividends 1,467.7 1,172.5 1,304.2 1,270.3D&A add-back 526.4 571.3 553.2 541.9 P/E (analyst) (X) 9.0 11.4 10.2 10.5Minorities interests add-back 0.0 0.0 0.0 0.0 P/B (X) 2.3 2.7 2.3 2.1Net (inc)/dec working capital 502.6 (331.5) (1.3) 177.9 EV/EBITDA (X) 5.5 5.2 4.2 3.8Other operating cash flow 264.4 615.2 553.7 470.5 EV/GCI (X) 3.3 2.4 2.1 1.9Cash flow from operations 2,761.2 2,027.5 2,409.7 2,460.6 Dividend yield (%) 5.8 8.2 6.2 6.9Capital expenditures (282.1) (335.3) (368.8) (405.7)Acquisitions (4.8) (234.2) (184.3) (184.3)Divestitures 4.8 0.0 0.0 0.0Others (193.8) 56.8 0.0 0.0Cash flow from investments (475.9) (512.6) (553.1) (590.0)Dividends paid (common & pref) (765.4) (1,089.1) (820.7) (912.9)Inc/(dec) in debt (117.0) 512.1 0.0 0.0Common stock issuance (repurchase) (158.5) (1,103.4) 0.0 0.0Other financing cash flows 175.8 7.0 26.7 41.4Cash flow from financing (865.1) (1,673.4) (794.1) (871.5) Note: Last actual year may include reported and estimated data.Total cash flow 1,420.2 (158.5) 1,062.6 999.2 Source: Company data, Goldman Sachs Research estimates. Analyst Contributors Robert Yen rob.yen@gs.com Iris Wu iris.wu@gs.com Goldman Sachs Global Investment Research 2
  • 3. August 29, 2011 Silitech Technology (3311.TW)Metal housing – potentially changing the industry landscape The commercial success of the Galaxy S2 smartphone may have profound implications for the casing industry  Samsung’s fast selling Galaxy S2 smartphone (3 mn units sold in 55 days, according to Samsung) has been widely regarded as a strong commercial success. Based on Samsung’s promotion materials, the company is emphasizing its vivid display and thin-and-light form factor as the main selling points.  Contrary to the growing industry trend of unibody metal casings, Samsung actually used a plastic casing for its flagship smartphone, but adopted an inner magnesium-alloy metal housing to improve the solidness and durability of this phone.  While the unibody metal casing undoubtedly provides consumers with a sense that the phones have the appearance of a high-quality product that feels solid in their hands, the strong sales of Galaxy S2 seem to suggest that consumers also want their smartphones to be super-thin and light weight, in addition to providing a positive software user experience (Exhibit 1). Exhibit 1: The slim form factor and lighter weight could also be one of the decision- making factors in consumers’ purchase of smartphones HTC Sensation Samsung Galaxy S II Retail price £402.5 £471.9 Weight 148g 116g Thickness 11.3mm 8.5mm Potential shipment in 2011E 4-5 mn units 24-26 mn units Casing/inner parts cost US$10-15 US$5-10 Casing/inner parts supplier Catcher Silitech Suppliers GM 40-45% 20-25% *Retail price - Amazon UK, as of Aug 26 Source: Company data, Goldman Sachs Research estimates.  As smartphones get more complicated in terms of hardware and mechanical design, embedding more components and functionalities, it’s very critical for OEMs to look for ways to drive costs down, and simultaneously deliver light weight and thin form factors, without significant sacrifice of solid build quality.  Thus, the mg-alloy metal housing seems to be emerging as a strong alternative solution to outer metal casing design. This is the reason Silitech management is very confident in gaining further design wins from more tier-1 customers in the pipeline. Putting the metal housing business in perspective – the major source of upside  We previously underestimated Silitech’s efforts to ramp up its metal housing business. We focused too much on its keypad business which is under severe structural replacement pressure from full touch-screen designs and performance improvements in virtual keypads.Goldman Sachs Global Investment Research 3
  • 4. August 29, 2011 Silitech Technology (3311.TW)  We still expect Silitech’s keypad business to trend down yoy in 2011E-2013E, but we believe its mg-alloy metal housing business is strong enough to provide a 2nd growth driver for the company. We now expect metal housing sales to account for 22% of total revenues in 2012E and 29% in 2013E, up from 13% in 2011E (Exhibit 2).  While we believe it will still be difficult for Silitech to achieve strong earnings growth in 2012E due to weakness in the core keypad business, we believe its current valuation has not captured the potential earnings power from the metal housing business in the next 1-2 years. The inverse correlation between Silitech’s cash as a % of total mkt cap and its yoy revenue growth suggests there could be more upside in the share price in the next 2-3 quarters, in our view (Exhibit 3).Exhibit 2: We believe the significant ramp up of Silitech’s Exhibit 3: Cash as a % of market cap could start to trendmetal housing business could help offset weakness in its down, implying share price upside, in our viewcore keypad business Silitech’s cash as % of market cap vs. quarterly sales yoySilitech’s revenues breakdown by product Silitech estimated product mix Silitechs cash as % of market cap Silitechs quarterly sales yoy 60% Light metal casing/inner parts Office appliance parts Automotive parts Handset keypads 50% 100% 1% 3% 3% 2% 6% 13% 90% 7% 22% 40% 2% 29% 80% 7% 2% 30% 7% 70% 1% 8% 20% 60% 50% 10% 89% 87% 40% 79% 69% 0% 30% 61% 2007/03 2007/05 2007/07 2007/09 2008/03 2008/05 2008/07 2008/09 2009/03 2009/05 2009/07 2009/09 2010/01 2012/03 2012/05 2012/07 2012/09 2007/01 2008/01 2009/01 2012/01 2007/11 2008/11 2009/11 2010/03 2010/05 2010/07 2010/09 2011/03 2011/05 2011/07 2011/09 2012/11 2010/11 2011/01 2011/11 20% -10% 10% -20% 0% 2009 2010 2011E 2012E 2013E -30%Source: Company data, Goldman Sachs Research estimates. Source: Company data, Datastream, Goldman Sachs Research estimates.  The addition of such a strong second growth driver suggests to us that the worst is over for Silitech’s share price (as long as the global consumer demand outlook doesn’t worsen from here). Thus, we are raising 2011/12/13E EPS by 35%/72%/84% mainly to reflect higher sales and GM assumptions for Silitech’s metal housing business.  Silitech is currently trading at 2.3X NTM P/B on 22-24% ROE. Valuation looks undemanding vs. the historical average P/B of 3.5X on 30% ROE. We expect the gradual yoy recovery of sales momentum to act as a share price driver.  Our new 12-m TP of NT$95 is based on 3.2X NTM P/B derived from Silitech’s historical PB-ROE valuation matrix (previously NT$52, 1.6X on change of our ROE estimates), implying c.13X NTM P/E.Goldman Sachs Global Investment Research 4
  • 5. August 29, 2011 Silitech Technology (3311.TW)Exhibit 4: We revise up 2011/12/13E EPS by 35%/72%/84% mainly to reflect higher sales and GM/OPM assumptionsSilitech Technology (3311.TW)P&L (GAAP, NT$mn) 2011E New 2011E Old Diff. 2012E New 2012E Old Diff. 2013E New 2013E Old Diff. Revenues 12,955 11,991 8% 14,328 11,439 25% 14,607 11,171 31% Gross profits 2,630 2,295 15% 2,986 2,073 44% 3,004 1,944 54% Operating profits 1,384 1,076 29% 1,606 957 68% 1,560 868 80% Pretax earnings 1,493 1,132 32% 1,672 997 68% 1,639 913 79% Net earnings 1,172 866 35% 1,304 757 72% 1,270 689 84% EPS (fully diluted, NT$) 6.52 4.81 35% 7.25 4.21 72% 7.06 3.83 84%Ratio analysis Gross margin (%) 20.3% 19.1% 20.8% 18.1% 20.6% 17.4% EBIT margin (%) 10.7% 9.0% 11.2% 8.4% 10.7% 7.8% Tax expense (as % of EBT) 21.5% 23.6% 22.0% 24.0% 22.5% 24.5% Net margin (%) 9.1% 7.2% 9.1% 6.6% 8.7% 6.2%Return analysis ROA (%, annualized) 9.1% 6.5% 9.7% 5.5% 8.7% 4.9% ROE (%, annualized) 21.7% 15.0% 24.2% 12.8% 21.0% 11.1%Key assumptionsNT$mn 2011E New 2011E Old Diff. 2012E New 2012E Old Diff. 2013E New 2013E Old Diff.Handset keypads & FPC 10,198 9,691 5% 9,893 8,735 13% 8,933 8,272 8%Automotive parts 849 1,021 -17% 1,039 1,227 -15% 1,241 1,348 -8%Office appliance parts 278 292 -5% 236 287 -17% 217 263 -17%Light metal casing/inner parts 1,630 987 65% 3,161 1,190 166% 4,216 1,288 227%Total revenues 12,955 11,991 8% 14,328 11,439 25% 14,607 11,171 31%Source: Company data, Goldman Sachs Research estimates.Exhibit 5: Silitech’s upward-trending ROE implies Exhibit 6: Silitech is trading at 10X NTM P/E, belowpotential share price upside historical average of 12X (X) P/E (X) Silitech (3311.TW) 12-m forward P/E chart Silitech (3311.TW) P/B vs. ROE9.0 Fwd P/B (L) Avg. P/B (L) ROE (R) Avg. ROE (R) 50% 30.0 Fwd P/E "Avg P/E" "+2 Std Dev" "-2 Std Dev"8.0 45% 25.0 40%7.0 35% +2 Std Dev: 20.3X6.0 20.0 Avg: 30% 30%5.0 25% 15.04.0 Current: 10.0X Avg: 3.5X 20% Avg: 12.4X3.0 10.0 Current: 2.3X 15%2.0 10% 5.0 -2 Std Dev: 4.5X1.0 5%0.0 0% 0.0 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11Source: Datastream, company data, Goldman Sachs Research estimates. Source: Datastream, company data, Goldman Sachs Research estimates.Goldman Sachs Global Investment Research 5
  • 6. August 29, 2011 Silitech Technology (3311.TW)Exhibit 7: Silitech’s quarterly financials (NT$mn; consolidated)Summary P&L (GAAP) 1Q2011 2Q2011 3Q2011E 4Q2011E 1Q2012E 2Q2012E 3Q2012E 4Q2012E 2009 2010 2011E 2012E 2013ENet sales 3,152 2,525 3,652 3,626 3,093 3,602 3,912 3,721 10,821 13,835 12,955 14,328 14,607 Cost of good sold (COGS) (2,512) (2,050) (2,916) (2,847) (2,453) (2,880) (3,097) (2,913) (8,301) (10,740) (10,325) (11,343) (11,603)Gross profits 640 475 736 779 641 722 815 808 2,520 3,096 2,630 2,986 3,004 Operating expenses (312) (266) (331) (338) (323) (346) (361) (350) (1,062) (1,221) (1,246) (1,380) (1,443) SG&A (228) (191) (240) (244) (233) (252) (261) (247) (750) (880) (902) (993) (1,051) R&D (84) (74) (91) (94) (90) (95) (100) (103) (312) (341) (344) (388) (392)Operating profits 328 209 406 441 318 376 454 458 1,458 1,875 1,384 1,606 1,560Non-operating income/(loss) 29 51 15 15 14 17 18 18 113 88 109 66 78Earnings before tax (EBT) 357 260 421 456 332 392 472 476 1,571 1,963 1,493 1,672 1,639 Income tax credit/(expense) (85) (41) (95) (103) (81) (70) (109) (110) (293) (486) (324) (370) (370) Extraordinary gain/(loss) - - - - - - - - - - - - - Minority Interests 1 2 1 1 0 1 1 1 (14) (10) 3 2 2Earnings after tax (EAT) 272 221 326 353 252 323 364 366 1,263 1,468 1,172 1,304 1,270EPS (NT$) 1.51 1.23 1.81 1.97 1.40 1.79 2.02 2.04 7.19 8.24 6.52 7.25 7.06EPS (NT$, fully diluted) 1.51 1.23 1.81 1.97 1.40 1.79 2.02 2.04 7.19 8.24 6.52 7.25 7.06Ratio analysis and assumptionsAs % of sales Gross margin 20.3% 18.8% 20.2% 21.5% 20.7% 20.0% 20.8% 21.7% 23.3% 22.4% 20.3% 20.8% 20.6% Operating expense ratio -9.9% -10.5% -9.1% -9.3% -10.4% -9.6% -9.2% -9.4% -9.8% -8.8% -9.6% -9.6% -9.9% Operating margin 10.4% 8.3% 11.1% 12.2% 10.3% 10.4% 11.6% 12.3% 13.5% 13.6% 10.7% 11.2% 10.7% Pre-tax margin 11.3% 10.3% 11.5% 12.6% 10.7% 10.9% 12.1% 12.8% 14.5% 14.2% 11.5% 11.7% 11.2% Tax rate (as % of EBT) 23.9% 15.6% 22.6% 22.6% 24.4% 17.9% 23.1% 23.1% 18.7% 24.7% 21.7% 22.1% 22.6% Net margin 8.6% 8.8% 8.9% 9.7% 8.1% 9.0% 9.3% 9.8% 11.7% 10.6% 9.1% 9.1% 8.7%QoQ growth (%) Sales -18.2% -19.9% 44.7% -0.7% -14.7% 16.4% 8.6% -4.9% Gross profits -19.4% -25.8% 55.1% 5.8% -17.8% 12.7% 12.9% -0.8% Operating profits -20.8% -36.3% 94.0% 8.8% -27.9% 18.1% 20.9% 0.9% Non-operating profits 47.2% 78.2% -70.1% -2.7% -5.8% 21.2% 7.0% -2.3% Pre-tax profits -17.7% -27.1% 61.9% 8.4% -27.2% 18.2% 20.3% 0.8% Net profits -21.6% -18.7% 47.5% 8.4% -28.8% 28.3% 12.7% 0.8% EPS (weighted averaged) -22.4% -18.7% 47.5% 8.4% -28.8% 28.3% 12.7% 0.8%Yoy growth (%) Sales 10.1% -20.5% -7.5% -5.8% -1.8% 42.7% 7.1% 2.6% 18.8% 27.9% -6.4% 10.6% 1.9% Gross profits -4.4% -34.3% -19.1% -1.9% 0.1% 52.1% 10.7% 3.8% 20.5% 22.9% -15.1% 13.5% 0.6% Operating profits -21.7% -54.0% -31.0% 6.5% -3.1% 79.7% 11.9% 3.8% 33.5% 28.6% -26.2% 16.0% -2.8% Non-operating profits 3500.0% 345.7% -73.3% -23.7% -51.2% -66.8% 18.9% 19.3% -52.6% -21.8% 23.6% -39.2% 17.9% Pre-tax profits -15.0% -44.2% -34.7% 5.2% -6.9% 51.0% 12.2% 4.3% 18.1% 25.0% -23.9% 12.0% -2.0% Net profits -5.4% -36.8% -32.5% 1.9% -7.5% 45.9% 11.5% 3.7% 13.0% 16.2% -20.1% 11.2% -2.6% EPS (weighted averaged) -6.4% -37.4% -33.2% 0.9% -7.5% 45.9% 11.5% 3.7% 10.5% 14.6% -20.9% 11.2% -2.6%Dividend policies Cash dividends (NT$ per share) 2.75 4.30 6.06 4.56 5.08 Payout ratio (%) 43.2% 60.6% 74.2% 70.0% 70.0%Source: Company data, Goldman Sachs Research estimates.Key risks: Samsung Galaxy S2 patent issue; intensifiedcompetitive landscape Samsung Galaxy smartphone patent issue  On Aug 23rd the Netherlands court in the Hague issued a preliminary injunction on Samsung’s three smartphones, Galaxy S, Galaxy S2, and Ace, for infringing Apple’s patent on photo management.  While our Samsung Electronics analyst Michael Bang believes the impact to Samsung’s mobile business is limited, given that it’s easy for Samsung to rework the design in question before the injunction deadline, we believe in the worst case scenario Silitech could still be negatively impacted by such an injunction, since Silitech is currently the second source of metal housings for various Samsung smartphones, including the Galaxy S2.  At this moment Silitech management is not seeing any material impact from this injunction, and believes the gradual ramp-up of its other metal housing customers could lower its reliance on Samsung.Goldman Sachs Global Investment Research 6
  • 7. August 29, 2011 Silitech Technology (3311.TW) Intensified competitive landscape in metal housing  While Silitech is one of the major players in the emerging mg-alloy metal housing business, this industry is still not seeing major competitive pressure, as the tier-1 mg-alloy casing companies (such as Catcher and Foxconn Tech) are mostly focusing on the outer casing business which represents a much higher addressable market and entry barrier than inner parts.  However, we can’t rule out the possibility that if the metal casing industry is facing an oversupply in capacity or a sudden trend shift in casing materials (which could make Catcher or Foxconn’s current equipment underutilised), the tier-1 casing companies could be eyeing this inner metal housing market. This could significantly intensify pricing competition.  Also, there are many inner metal housing companies in the industry, but most of them are focusing on aluminum housing which is even cheaper than mg-alloy housing but provides less rigidness of the whole frame. If there is a major breakthrough in the material technology and manufacturing in mg-alloy housing, the whole industry could also face severe pricing competition and eroding profit margins. Exhibit 8: Share price performance vs. peer group Closing prices as of Aug 26, 2011 Price as of Price as of Price performance 3 month price 6 month price 12 month price Company Ticker Primary analyst 08/26/11 06/26/11 since 06/26/11 performance performance performance Asia Pacific Technology Peer Group Silitech Technology 3311.TW Robert Yen 74.00 67.82 9.1% 6.0% -0.9% -17.9% AAC Technologies 2018.HK Robert Yen 14.18 17.38 -18.4% -24.1% -26.8% 5.8% Acer 2353.TW Henry King 28.85 47.95 -39.8% -48.4% -59.8% -61.5% Advanced Semiconductor Engineering 2311.TW Edward Yen 25.00 28.70 -12.9% -15.0% -16.3% 20.1% Advanced Semiconductor Engineering (ADR) ASX Edward Yen 4.24 4.91 -13.7% -16.2% -18.2% 28.5% AsiaInfo-Linkage ASIA Donald Lu, Ph.D 9.48 14.61 -35.1% -42.7% -52.3% -53.8% ASM Pacific Technology 0522.HK Donald Lu, Ph.D 75.60 106.80 -29.2% -27.7% -27.3% 20.4% ASUSTeK Computer 2357.TW Henry King 244.00 229.92 6.1% 8.2% 10.7% 36.6% AU Optronics 2409.TW Liang-chun Lin 12.25 19.75 -38.0% -47.3% -54.5% -55.7% Baidu.com, Inc. BIDU Catherine Leung 133.09 128.68 3.4% 2.7% 10.4% 70.0% BYD Electronic 0285.HK Robert Yen 2.25 3.31 -32.0% -42.9% -53.2% -44.6% Catcher Technology 2474.TW Henry King 218.00 184.50 18.2% 19.1% 75.8% 202.4% Changyou.com CYOU Catherine Leung 35.34 40.05 -11.8% -11.9% -6.0% 32.6% Cheng Uei Precision (Foxlink) 2392.TW Henry King 77.20 72.18 7.0% 17.8% 37.3% 39.5% Compal Communications 8078.TW Robert Yen 29.30 29.10 0.7% 6.7% 3.7% 15.8% Compal Electronics 2324.TW Henry King 27.05 33.80 -20.0% -19.9% -22.2% -25.2% Ctrip.com International CTRP Catherine Leung 38.50 39.31 -2.1% -10.1% -3.2% -1.0% Delta Electronics 2308.TW Robert Yen 80.10 100.00 -19.9% -27.2% -35.1% -28.8% Foxconn International Holdings 2038.HK Robert Yen 3.43 3.34 2.7% -17.3% -38.2% -39.3% Foxconn Technology 2354.TW Henry King 89.70 112.86 -20.5% -28.4% -11.1% -4.9% HCL Technologies Ltd. HCLT.BO Balaji V. Prasad 362.30 493.00 -26.5% -27.3% -18.7% -12.0% Hon Hai Precision 2317.TW Henry King 64.20 88.73 -27.6% -30.4% -35.2% -40.7% HTC Corp. 2498.TW Robert Yen 767.00 1,009.52 -24.0% -32.6% -24.4% 28.0% Hynix Semiconductor 000660.KS Marcus Shin 17,950.00 27,900.00 -35.7% -42.3% -35.9% -20.6% Infosys Ltd. INFY.BO Balaji V. Prasad 2,204.55 2,862.10 -23.0% -20.7% -26.7% -20.2% Infosys Ltd. (ADR) INFY Balaji V. Prasad 47.66 62.36 -23.6% -22.7% -29.2% -18.8% Chimei Innolux 3481.TW Liang-chun Lin 11.40 22.20 -48.6% -58.8% -63.9% -66.5% Largan Precision 3008.TW Robert Yen 774.00 898.00 -13.8% -14.0% -4.6% 29.4% Lenovo Group 0992.HK Henry King 5.00 4.35 14.9% 15.5% 5.7% 11.6% LG Display 034220.KS Michael Bang 20,000.00 30,200.00 -33.8% -45.9% -45.1% -41.7% LG Electronics 066570.KS Michael Bang 57,500.00 82,600.00 -30.4% -41.1% -50.9% -40.6% Longtop Financial Technologies LFT 0.87 18.93 -95.4% -95.4% -97.1% -97.5% Mediatek 2454.TW Donald Lu, Ph.D 292.50 311.00 -5.9% -4.9% -12.4% -33.2% Mphasis MBFL.BO Balaji V. Prasad 347.80 437.85 -20.6% -22.6% -22.4% -44.2% NCsoft 036570.KS Seung Shin 325,000.00 275,000.00 18.2% 23.3% 39.5% 47.7% NHN 035420.KS Seung Shin 193,000.00 193,000.00 0.0% 2.1% 3.8% -0.5% E Ink Holdings Inc 8069.TWO Robert Yen 62.00 54.30 14.2% 0.0% 19.2% 33.3% Quanta Computer 2382.TW Henry King 56.20 65.50 -14.2% -7.1% -3.3% 12.5% Samsung Electronics 005930.KS Michael Bang 726,000.00 852,000.00 -14.8% -17.4% -21.6% -6.1% Shanda Games Limited GAME Catherine Leung 5.37 6.11 -12.1% -21.8% -11.7% -10.2% Shanda Interactive Entertainment SNDA Catherine Leung 32.92 37.14 -11.4% -22.0% -22.6% -19.7% Siliconware Precision Industries 2325.TW Edward Yen 24.90 35.70 -30.3% -30.8% -39.1% -18.0% Siliconware Precision Industries (ADR) SPIL Edward Yen 4.14 6.08 -31.9% -33.2% -38.3% -11.7% SINA Corporation SINA Catherine Leung 93.23 89.35 4.3% -16.8% 14.4% 126.1% Sohu.com SOHU Catherine Leung 73.04 68.47 6.7% -9.2% -11.4% 54.6% Tata Consultancy Services Ltd. TCS.BO Balaji V. Prasad 949.15 1,136.20 -16.5% -16.2% -14.6% 8.6% Tencent Holdings 0700.HK Catherine Leung 175.40 209.80 -16.4% -19.5% -12.1% 24.8% TPV Technology 0903.HK Liang-chun Lin 3.24 3.77 -14.1% -27.0% -28.9% -29.7% TSMC 2330.TW Donald Lu, Ph.D 67.90 72.90 -6.9% -8.5% -3.7% 15.5% TSMC (ADR) TSM Donald Lu, Ph.D 11.35 12.40 -8.5% -13.8% -7.6% 19.9% UFIDA Software Co. 600588.SS Evan Xu 23.90 20.41 17.1% 21.0% 11.1% 5.8% United Microelectronics Corp. 2303.TW Donald Lu, Ph.D 10.80 14.05 -23.1% -25.8% -29.9% -18.5% United Microelectronics Corp. (ADR) UMC Donald Lu, Ph.D 1.87 2.46 -24.0% -27.2% -34.6% -29.4% Wipro Ltd. WIPR.BO Balaji V. Prasad 319.25 423.45 -24.6% -26.5% -26.3% -20.2% Wipro Ltd. (ADR) WIT Balaji V. Prasad 9.53 12.87 -26.0% -30.7% -28.2% -26.4% Wistron 3231.TW Henry King 31.55 46.62 -32.3% -34.7% -37.4% -33.1% WNS (Holdings) Ltd. WNS Vincent Lin, CFA 10.01 8.98 11.5% 7.4% -1.3% 11.3% ZTE Corporation (A) 000063.SZ Donald Lu, Ph.D 18.93 22.45 -15.7% -10.9% -26.0% -1.1% ZTE Corporation (H) 0763.HK Donald Lu, Ph.D 19.88 27.05 -26.5% -25.1% -29.6% -13.7% Taiwan SE Weighted Index 7,445 8,533 -12.7% -15.3% -13.4% -3.2% Source: FactSet, Quantum Database.Goldman Sachs Global Investment Research 7
  • 8. August 29, 2011 Silitech Technology (3311.TW)Financial advisory disclosure Goldman Sachs is acting as financial adviser to Samsung Electronics in an announced strategic transaction.Goldman Sachs Global Investment Research 8
  • 9. August 29, 2011 Silitech Technology (3311.TW)Reg ACI, Robert Yen, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company orcompanies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specificrecommendations or views expressed in this report.Investment ProfileThe Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group andmarket. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on compositesof several methodologies to determine the stocks percentile ranking within the regions coverage universe.The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:Growth is a composite of next years estimate over current years estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregateof various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividendyield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.QuantumQuantum is Goldman Sachs proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used forin-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.GS SUSTAINGS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus listincludes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage andsuperior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporateperformance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies management of theenvironmental, social and governance issues facing their industry).Disclosure AppendixCoverage group(s) of stocks by primary analyst(s)Robert Yen: Asia Pacific Technology.Asia Pacific Technology: AAC Technologies, Acer, Advanced Semiconductor, Advanced Semiconductor (ADR), ASUSTeK Computer, AU Optronics,BYD Electronic, Catcher Technology, Cheng Uei Precision (Foxlink), Chimei Innolux, China Wireless Technologies, Chipbond Technology Corp.,Compal Communications, Compal Electronics, Coretronic, Delta Electronics, E Ink Holdings Inc, Epistar, Everlight Electronics, Foxconn Intl Holdings,Foxconn Technology, Hon Hai Precision, HTC Corp., Kinsus Interconnect Technology, Largan Precision, Lenovo Group, Lite-On Technology, Nan YaPCB, Novatek Microelectronics, Pegatron, Powertech Technology, Quanta Computer, Radiant Opto-Electronics, Siliconware Precision, SiliconwarePrecision (ADR), Silitech Technology, SK C&C, TCL Communication, TPK Holding, TPV Technology, Tripod Technology, Unimicron, Wintek, Wistron,Young Fast Optoelectronics.Company-specific regulatory disclosuresThe following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companiescovered by the Global Investment Research Division of Goldman Sachs and referred to in this research.There are no company-specific disclosures for: Silitech Technology (NT$74.00)Distribution of ratings/investment banking relationshipsGoldman Sachs Investment Research global coverage universe Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 32% 54% 14% 52% 41% 37%As of July 1, 2011, Goldman Sachs Global Investment Research had investment ratings on 3,167 equity securities. Goldman Sachs assigns stocks asBuys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell forthe purposes of the above disclosure required by NASD/NYSE rules. See Ratings, Coverage groups and views and related definitions below.Goldman Sachs Global Investment Research 9
  • 10. August 29, 2011 Silitech Technology (3311.TW)Price target and rating history chart(s) Silite ch Technology (3311.TW) Stock Price Currency : Taiw an Dollar Goldman Sachs rating and stock price target history 10,000 140 63.72 104 70 53 58.02 107.92 120 70.58 101 9,000 73.52 28.43 100 8,000 57.84 80 7,000 60 100.99 100 80 6,000 40 81.19 20 111.88 5,000 109.9 0 4,000 Aug 12 Apr 26 Stock Price Index Price S N A S O N D J F MA MJ J A S O N D J F MA M J J A S O N D J F MA M J 2008 2009 2010 2011 Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 6/30/2011. Rating Covered by Robert Yen, Jul 1, 2008 NA Jun 26, 2011 to S f rom N Price target as of Aug 12, 2008 Price target at removal Not covered by current analyst Taiw an SE Weighted Index The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.Regulatory disclosuresDisclosures required by United States laws and regulationsSee company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manageror co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. 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