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6121 ubs

  1. 1. ab Global Equity Research Taiwan Industrial, Diversified UBS Investment Research 12-month rating Buy Simplo Technology Unchanged 12m price target NT$280.00/US$9.71 Prior: NT$240.00/US$8.32 Increasingly positive outlook Price NT$249.50/US$8.65 Tight Li-polymer supply works in favour of Simplo RIC: 6121.TWO BBG: 6121 TT We expect Simplo to benefit from tight Lithium-polymer battery cell supply as 12 July 2011 higher Li-polymer cell prices could help expand Simplo’s ASPs, while the company’s close relationship with cell makers and secured major order allocation Trading data (local/US$) from Apple should help it secure polymer cell supply during tightness situation. 52-wk range NT$264.50-156.50/US$9.20-4.88 Market cap. NT$63.6bn/US$2.20bn EV business endorsed by China’s aggressive promotion plan Shares o/s 255m (ORD) Chinese government is spending over RMB100bn over the next ten years to Free float 76% promote electric vehicles and we believe Simplo could benefit from this aggressive Avg. daily volume (000) 1,981 plan through its partnership with centrally controlled state-owned enterprise China Avg. daily value (m) NT$439.6 Potevio as Simplo’s JV with China Potevio could be the major battery supplier in this initiative, and we expect further re-rating opportunities when there are more Balance sheet data 12/11E positive data points on EV business coming through. Shareholders equity NT$17.6bn Reiterate Buy on multiple catalysts P/BV (UBS) 3.6x We continue to be positive on Simplo backed by continuously strong momentum at Net Cash (debt) (NT$1.45bn) tablet PC battery pack shipments and ASP support from tight lithium polymer Forecast returns battery cell supply, while the company’s EV business is on track for financial Forecast price appreciation +12.2% contribution from H211E. Forecast dividend yield 2.2% Valuation – NT$280 price target based on 16x 2011E PE Forecast stock return +14.4% We’re raising our 2011E/12E/13E earnings estimates by 11%/15%/16% after Market return assumption 6.8% factoring in higher shipment growth and ASPs for tablet PC batteries under tight Forecast excess return +7.6% supply situation. We lift our price target to NT$280 (from NT$240) based on unchanged 16x 2011 PE. EPS (UBS, NT$) 12/11E 12/10 From To Cons. Actual Q1E 2.58 2.42 - 2.59 Q2E 3.73 4.13 3.73 4.28 Q3E 4.47 5.11 4.47 3.49 Highlights (NT$m) 12/09 12/10 12/11E 12/12E 12/13E Q4E 4.65 5.30 4.65 3.16 Revenues 34,253.15 38,699.42 50,578.84 63,086.51 71,871.25 12/11E 15.43 17.12 15.43 EBIT (UBS) 3,325.66 3,998.70 5,000.47 6,649.01 7,606.20 12/12E 18.94 21.77 18.94 Net Income (UBS) 2,457.92 3,329.89 4,361.34 5,546.31 6,359.09 EPS (UBS, NT$) 10.61 13.07 17.12 21.77 24.96 Performance (NT$) Net DPS (UBS, NT$) 5.00 5.00 5.50 8.05 10.23 300 Stock Price (NT$) Rel. Taiwan Weighted Price 200 250 Profitability & Valuation 5-yr hist av. 12/10 12/11E 12/12E 12/13E 200 150 EBIT margin % 9.2 10.3 9.9 10.5 10.6 150 100 ROIC (EBIT) % - 30.8 30.7 32.7 31.5 100 50 EV/EBITDA (core) x 10.1 11.5 13.4 10.6 9.6 50 PE (UBS) x - 13.3 14.6 11.5 10.0 0 0 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 10/10 01/11 04/11 07/11 Net dividend yield % 4.8 2.9 2.2 3.2 4.1 Price Target (NT$) (LHS) Stock Price (NT$) (LHS) Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Rel. Taiw an Weighted Price (RHS) Valuations: based on an average share price that year, (E): based on a share price of NT$249.50 on 12 Jul 2011 17:36 HKT Source: UBS www.ubs.com/investmentresearch Patrick Chen Arthur Hsieh Analyst Analyst patrick-p.chen@ubs.com arthur.hsieh@ubs.com +886-2-8722 7388 +886-2-8722 7348 This report has been prepared by UBS Securities Pte. Ltd., Taipei Branch ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 8. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be 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.
  2. 2. Simplo Technology 12 July 2011Reiterate Buy on strong tablet PC momentumWe reiterate our Buy rating on Simplo and we raise our price target to NT$280(from NT$240) as we believe strong tablet PC shipment momentum is going towell support the company’s revenue momentum into H211E. Besides iPadbattery packs of which Simplo got an estimated 60% order allocation, Simplohas also started shipping tablet PC batteries for Amazon’s upcoming tablet PCamong other non-iPad tablets. While we expect strong momentum for tablet PCshipments, tight supply of Li-polymer battery cells should help support Simplo’sASPs for tablet PC batteries as Simplo could pass on the increased cell costs toits customers.Chart 1: Simplo Revenue Breakdown by products 100% 14% 27% 30% 80% 7% 4% 8% 5% 60% 5% 40% 78% 63% 58% 20% 0% 2010 2011E 2012E Lithium-ion battery pack Lithium poly mer EV battery pack Tablet PC battery packSource: UBS estimatesEV business on trackOn the EV business side, Simplo’s strategic partner China Potevio has signedagreements with 12 Chinese municipal governments including Shanghai,Beijing, and Shenzhen, to implement EV charging stations construction on alarge scale. China Potevio is aiming to roll out EV charging stations on a nationwide basis. As China Potevio is one of the member companies included in theState Assets Supervision and Administration Commission (SASAC) leadelectric vehicle industry alliance, we expect government support in such aninitiative of implementing service network for electric vehicles to increase theprobability of successful business roll-out.We expect 4% and 8% revenue contribution from Simplo’s EV business in2011E/2012E respectively, and with increasing positive data points to comethrough, there could be further re-rating opportunities. UBS 2
  3. 3. Simplo Technology 12 July 2011Chart 2: Structure of China EV Industry AllianceSource: SASACEarnings RevisionsWe’re raising our 2011/12/13 earnings estimates by 11%/15%/16% afterfactoring in more aggressive growth at tablet PC battery packs and higher ASPsfor Li-polymer battery cells under tight supply. We lift our price target toNT$280 by applying an unchanged 16x PE to revised 2011E EPS.Table 1: Simplo Earnings Revisions Old New %chgNT$mn 2011 2012 2013 2011 2012 2013 2011 2012 2013Sales 46,494 55,174 62,243 50,579 63,087 71,871 8.8% 14.3% 15.5%Gross profit 8,104 9,764 11,048 8,552 11,197 12,795 5.5% 14.7% 15.8%Operating profit 4,678 5,788 6,556 5,000 6,649 7,606 6.9% 14.9% 16.0%Pre-tax income 4,757 5,902 6,695 5,198 6,781 7,775 9.3% 14.9% 16.1%Net income 3,930 4,825 5,472 4,362 5,546 6,359 11.0% 15.0% 16.2%EPS (reported) 15.43 18.94 21.48 17.12 21.77 24.96 11.0% 15.0% 16.2%EPS (adjusted) 15.43 18.94 21.48 16.73 21.77 24.96 8.5% 15.0% 16.2%% marginGross margin 17.4% 17.7% 17.7% 16.9% 17.7% 17.8%Operating margin 10.1% 10.5% 10.5% 9.9% 10.5% 10.6%Net margin 8.5% 8.7% 8.8% 8.6% 8.8% 8.8%Source: UBS estimates UBS 3
  4. 4. Simplo Technology 12 July 2011Table 2: Simplo Quarterly Financials(NT$mn) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11E 3Q11E 4Q11E 2010 2011E 2012E 2013ESales 8,289 9,853 10,273 10,284 9,472 12,120 14,077 14,910 38,699 50,579 63,087 71,871Gross profit 1,502 1,875 1,769 1,851 1,297 2,120 2,497 2,639 6,998 8,552 11,197 12,795Operating Profit 825 1,170 1,023 980 682 1,219 1,520 1,580 3,999 5,000 6,649 7,606Total Non-Op 47 39 69 7 53 48 49 47 164 197 132 168Pre-tax profit 873 1,209 1,093 988 734 1,267 1,569 1,627 4,162 5,198 6,781 7,775Tax (272) (218) (203) (182) (119) (215) (267) (277) (874) (877) (1,234) (1,415)Net Profit 602 991 888 848 657 1,052 1,303 1,350 3,330 4,362 5,546 6,359EPS (NT$) 2.36 3.89 3.49 3.33 2.58 4.13 5.11 5.30 13.07 17.12 21.77 24.96DPS (NT$) 5.5 8.0 10.2 11.7Key Ratios 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11E 3Q11E 4Q11E 2010 2011E 2012E 2013ESales qoq growth (%) (13.7) 18.9 4.3 0.1 (7.9) 28.0 16.1 5.9Gross Profit qoq growth (12.5) 24.9 (5.7) 4.6 (29.9) 63.4 17.8 5.7(%)EBIT qoq growth (%) (17.6) 41.7 (12.5) (4.2) (30.4) 78.8 24.7 3.9Net Profit qoq growth (18.0) 64.6 (10.4) (4.6) (22.5) 60.0 23.8 3.7(%)Gross margin (%) 18.1 19.0 17.2 18.0 13.7 17.5 17.7 17.7 18.1 16.9 17.7 17.8EBIT margin (%) 10.0 11.9 10.0 9.5 7.2 10.1 10.8 10.6 10.3 9.9 10.5 10.6Pretax margin (%) 10.5 12.3 10.6 9.6 7.8 10.5 11.1 10.9 10.8 10.3 10.7 10.8Net margin (%) 7.3 10.1 8.6 8.2 6.9 8.7 9.3 9.1 8.6 8.6 8.8 8.8Sales yoy growth (%) 21.0 19.4 7.6 7.1 14.3 23.0 37.0 45.0 13.0 30.7 24.7 13.9Gross Profit yoy growth 29.4 32.3 10.1 7.8 (13.7) 13.0 41.1 42.5 18.6 22.2 30.9 14.3(%)EBIT yoy growth (%) 29.3 43.7 17.4 (2.1) (17.4) 4.2 48.6 61.2 20.2 25.1 33.0 14.4Pre tax yoy growth (%) 33.1 54.5 17.3 (3.3) (15.8) 4.8 43.6 64.7 22.7 24.9 30.4 14.7Source: Company, UBS estimatesChart 3: Simplo Forward PE Band Chart 4: Simplo Forward PB Band 20.0x 4.0x 300 300 17.0x 270 270 14.0x 240 240 3.0x 11.0x 210 210 2.5x 180 8.0x 180 2.0x 150 150 120 120 90 90 1.0x 60 60 30 30 0 0 Apr-05 Jan-05 Jul-05 Oct-05 Apr-06 Apr-07 Jan-06 Jul-06 Oct-06 Jan-07 Jul-07 Oct-07 Apr-08 Jan-08 Jul-08 Oct-08 Apr-09 Apr-11 Jan-09 Jul-09 Oct-09 Apr-10 Jan-10 Jul-10 Oct-10 Jan-11 Jul-11 Oct-11 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 (NT$) (NT$)Source: Taiwan Economic Journal, UBS estimates Source: Taiwan Economic Journal, UBS estimates UBS 4
  5. 5. Simplo Technology 12 July 2011 UBS 5
  6. 6. Simplo Technology Income statement (NT$m) 12/08 12/09 12/10 12/11E % ch 12/12E % ch 12/13E % ch Revenues 30,736.16 34,253.15 38,699.42 50,578.84 30.7 63,086.51 24.7 71,871.25 13.9 Operating expenses (ex depn) (27,429.50) (30,687.37) (34,304.02) (45,144.82) 31.6 (55,928.43) 23.9 (63,669.50) 13.8 EBITDA (UBS) 3,306.67 3,565.78 4,395.40 5,434.02 23.6 7,158.08 31.7 8,201.75 14.6 Depreciation (426.48) (240.12) (396.70) (433.55) 9.3 (509.07) 17.4 (595.55) 17.0 Operating income (EBIT, UBS) 2,880.18 3,325.66 3,998.70 5,000.47 25.1 6,649.01 33.0 7,606.20 14.4 Other income & associates 178.16 13.73 123.31 92.63 -24.9 80.00 -13.6 80.00 0.0 Net interest 116.97 52.67 40.20 104.06 158.9 51.56 -50.5 88.31 71.3 Abnormal items (pre-tax) 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Profit before tax 3,175.32 3,392.06 4,162.21 5,197.17 24.9 6,780.58 30.5 7,774.51 14.7 Tax (829.98) (961.44) (874.06) (877.49) 0.4 (1,234.27) 40.7 (1,415.41) 14.7 Profit after tax 2,345.34 2,430.62 3,288.15 4,319.68 31.4 5,546.31 28.4 6,359.09 14.7 Abnormal items (post-tax) 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Minorities / pref dividends 8.26 27.31 41.74 41.66 -0.2 0.00 - 0.00 - Net income (local GAAP) 2,353.60 2,457.92 3,329.89 4,361.34 31.0 5,546.31 27.2 6,359.09 14.7 Net Income (UBS) 2,353.60 2,457.92 3,329.89 4,361.34 31.0 5,546.31 27.2 6,359.09 14.7 Tax rate (%) 26.14 28.34 21.00 16.88 -19.6 18.20 7.8 18.21 0.0 Pre-abnormal tax rate (%) 26.01 28.07 21.04 16.97 -19.4 18.20 7.3 18.21 0.0 Per share (NT$) 12/08 12/09 12/10 12/11E % ch 12/12E % ch 12/13E % ch EPS (local GAAP) 10.26 10.61 13.07 17.12 31.0 21.77 27.2 24.96 14.7 EPS (UBS) 10.26 10.61 13.07 17.12 31.0 21.77 27.2 24.96 14.7 Net DPS 5.00 5.00 5.00 5.50 10.0 8.05 46.3 10.23 27.1 Cash EPS 12.12 11.65 14.63 18.82 28.7 23.77 26.3 27.30 14.9 BVPS 40.71 46.03 52.62 69.05 31.2 83.57 21.0 98.98 18.4 Balance sheet (NT$m) 12/08 12/09 12/10 12/11E % ch 12/12E % ch 12/13E % ch Net tangible fixed assets 3,021.22 3,264.55 3,698.85 4,379.92 18.4 4,870.85 11.2 5,275.31 8.3 Net intangible fixed assets 0.00 0.00 0.00 0.10 - 0.00 - 0.00 - Net working capital (incl. other assets) 6,862.52 8,534.06 10,432.78 14,074.82 34.9 17,284.56 22.8 20,805.18 20.4 Other liabilities 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Operating invested capital 9,883.74 11,798.60 14,131.63 18,454.85 30.6 22,155.40 20.1 26,080.49 17.7 Investments 747.42 497.03 777.52 584.62 -24.8 584.62 0.0 584.62 0.0 Total capital employed 10,631.15 12,295.63 14,909.15 19,039.47 27.7 22,740.02 19.4 26,665.11 17.3 Shareholders equity 10,274.61 11,727.68 13,406.02 17,591.49 31.2 21,292.04 21.0 25,217.13 18.4 Minority interests (154.50) (129.01) 0.00 0.00 - 0.00 - 0.00 - Total equity 10,120.11 11,598.67 13,406.02 17,591.49 31.2 21,292.04 21.0 25,217.13 18.4 Net debt / (cash) 511.04 696.97 1,503.13 1,447.98 -3.7 1,447.98 0.0 1,447.98 0.0 Other debt-deemed items 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Total capital employed 10,631.15 12,295.63 14,909.15 19,039.47 27.7 22,740.02 19.4 26,665.11 17.3 Cash flow (NT$m) 12/08 12/09 12/10 12/11E % ch 12/12E % ch 12/13E % ch Operating income (EBIT, UBS) 2,880.18 3,325.66 3,998.70 5,000.47 25.1 6,649.01 33.0 7,606.20 14.4 Depreciation 426.48 240.12 396.70 433.55 9.3 509.07 17.4 595.55 17.0 Net change in working capital 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Other (operating) 186.42 41.04 165.04 134.30 -18.6 80.00 -40.4 80.00 0.0 Operating cash flow (pre tax/interest) 3,493.09 3,606.82 4,560.44 5,568.32 22.1 7,238.08 30.0 8,281.75 14.4 Net interest received / (paid) 116.97 52.67 40.20 104.06 158.9 51.56 -50.5 88.31 71.3 Dividends paid (927.75) (1,043.02) (1,158.09) (1,401.29) 21.0 (2,050.17) 46.3 (2,606.76) 27.1 Tax paid (829.98) (961.44) (874.06) (877.49) 0.4 (1,234.27) 40.7 (1,415.41) 14.7 Capital expenditure (1,256.49) (499.98) (801.19) (1,150.05) 43.5 (1,000.00) -13.0 (1,000.00) 0.0 Net (acquisitions) / disposals (59.08) 33.00 (130.09) 86.83 - 0.00 - 0.00 - Other 250.26 323.69 252.62 699.70 177.0 284.53 -59.3 252.75 -11.2 Share issues 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Cash flow (inc)/dec in net debt 600.59 1,470.70 1,724.79 2,895.77 67.9 3,209.73 10.8 3,520.63 9.7 FX / non cash items (3,957.74) (1,656.62) (2,530.96) (2,840.62) 12.2 (3,209.73) 13.0 (3,520.63) 9.7 Balance sheet (inc)/dec in net debt (3,357.15) (185.93) (806.17) 55.15 - 0.00 - 0.00 - Core EBITDA 3,306.67 3,565.78 4,395.40 5,434.02 23.6 7,158.08 31.7 8,201.75 14.6 Maintenance capital expenditure (143.81) (28.98) (71.46) (93.14) 30.3 (81.87) -12.1 (82.51) 0.8 Maintenance net working capital 0.00 0.00 0.00 0.00 - 0.00 - 0.00 - Operating free cash flow, pre-tax (OpFCF) 3,162.86 3,536.80 4,323.93 5,340.88 23.5 7,076.21 32.5 8,119.24 14.7Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Note: For some companies, the data represents an extract of the full company accounts. UBS 6
  7. 7. Global Equity ResearchTaiwanIndustrial, Diversified Simplo Technology12-month rating Buy12m price target NT$280.00 Valuation (x) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E P/E (local GAAP) - 11.2 13.3 14.6 11.5 10.0 P/E (UBS) - 11.2 13.3 14.6 11.5 10.0 P/CEPS - 10.2 11.9 13.3 10.5 9.1 Net dividend yield (%) 4.8 4.2 2.9 2.2 3.2 4.1Company profile P/BV - 2.6 3.3 3.6 3.0 2.5Established in 1992, Simplo Technology designs and produces EV/revenue (core) 1.0 1.0 1.3 1.4 1.2 1.1battery packs for notebook PCs as well as handheld devices. The EV/EBITDA (core) 10.1 9.7 11.5 13.4 10.6 9.6companys major products are battery packs for NBs, tablet PCs and EV/EBIT (core) 11.1 10.5 12.7 14.6 11.4 10.3PDAs, smart battery pack gauge boards, protection circuit boards for EV/OpFCF (core) 10.3 9.8 11.7 13.7 10.7 9.7Li-ion battery packs, smart charge units for smart battery packs, EV/op. invested capital - 3.2 3.9 4.5 3.7 3.3specialised battery packs, and automatic manufacturing equipmentfor battery packs. Simplo also provides technical support and design Enterprise value (NT$m) 12/09 12/10 12/11E 12/12E 12/13Eservices for battery packs. Average market cap 30,247.81 44,451.69 63,567.61 63,567.61 63,567.61 + minority interests 129.01 80.11 94.19 94.19 94.19 + average net debt (cash) 4,439.93 6,282.07 9,507.18 12,033.18 15,021.17 + pension obligations and other 0.00 0.00 0.00 0.00 0.00 - non-core asset value (58.72) (138.73) (140.67) (140.67) (140.67) Core enterprise value 34,758.04 50,675.14 73,028.30 75,554.31 78,542.29 Growth (%) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E Value (EV/OpFCF & P/E) Revenue 22.9 11.4 13.0 30.7 24.7 13.9 15.0x 20.0x EBITDA (UBS) 32.6 7.8 23.3 23.6 31.7 14.6 EBIT (UBS) 32.5 15.5 20.2 25.1 33.0 14.4 10.0x 15.0x EPS (UBS) - 3.5 23.2 31.0 27.2 14.7 10.0x Cash EPS - -3.9 25.6 28.7 26.3 14.9 5.0x Net DPS 2.7 0.0 0.0 10.0 46.3 27.1 5.0x BVPS - 13.1 14.3 31.2 21.0 18.4 0.0x 0.0x 12/09 12/10 12/11E 12/12E 12/13E Margins (%) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E EV/OpFCF (LHS) P/E (RHS) EBITDA / revenue 10.1 10.4 11.4 10.7 11.3 11.4 EBIT / revenue 9.2 9.7 10.3 9.9 10.5 10.6 Net profit (UBS) / revenue - 7.2 8.6 8.6 8.8 8.8 Profitability 10.60% 33.00% Return on capital (%) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E 10.40% 32.50% EBIT ROIC (UBS) - 30.7 30.8 30.7 32.7 31.5 10.20% 32.00% ROIC post tax - 22.1 24.4 25.5 26.8 25.8 10.00% 31.50% Net ROE - 22.3 26.5 28.1 28.5 27.3 9.80% 31.00% 9.60% 30.50% Coverage ratios (x) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E 9.40% 30.00% EBIT / net interest - - - - - - 12/09 12/10 12/11(E) 12/12(E) 12/13(E) Dividend cover (UBS EPS) - 2.1 2.6 3.1 2.7 2.4 EBIT margin (LHS) ROIC (RHS) Div. payout ratio (%, UBS EPS) - 47.1 38.3 32.1 37.0 41.0 Net debt / EBITDA NM 0.2 0.3 0.3 0.2 0.2 ROE v Price to book value Efficiency ratios (x) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E 29.00% 4.0x Revenue / op. invested capital - 3.2 3.0 3.1 3.1 3.0 27.86% 3.5x Revenue / fixed assets 11.4 10.9 11.1 12.5 13.6 14.2 26.71% 25.57% Revenue / net working capital 5.5 4.5 4.1 4.2 4.0 3.8 3.0x 24.43% Investment ratios (x) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E 23.29% 2.5x 22.14% OpFCF / EBIT 1.1 1.1 1.1 1.1 1.1 1.1 21.00% 2.0x Capex / revenue (%) 2.7 1.5 2.1 2.3 1.6 1.4 12/09 12/10 12/11(E) 12/12(E) 12/13(E) Capex / depreciation 2.9 2.1 2.0 2.7 2.0 1.7 ROE (LHS) Price to book v alue (RHS) Capital structure (%) 5Yr Avg 12/09 12/10 12/11E 12/12E 12/13E Growth (UBS EPS) Net debt / total equity - 5.9 11.2 8.2 6.8 5.7 Net debt / (net debt + equity) - 5.6 10.1 7.6 6.4 5.4 80000 35.0% Net debt (core) / EV 7.6 12.8 12.4 13.0 15.9 19.1 70000 30.0% 25.0% Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. 60000 20.0% Valuations: based on an average share price that year, (E): based on a share price of NT$249.50 on 12 Jul 2011 17:36 HKT Market cap(E) may include 50000 forecast share issues/buybacks. 15.0% 40000 10.0% 30000 5.0% 20000 0.0% Patrick Chen Arthur Hsieh 12/09 12/10 12/11(E) 12/12(E) 12/13(E) Rev enue (LHS) UBS EPS Grow th (RHS) Analyst Analyst patrick-p.chen@ubs.com arthur.hsieh@ubs.com +886-2-8722 7388 +886-2-8722 7348 UBS 7
  8. 8. Simplo Technology 12 July 2011 Simplo TechnologyEstablished in 1992, Simplo Technology designs and produces battery packs fornotebook PCs as well as handheld devices. The companys major products arebattery packs for NBs, tablet PCs and PDAs, smart battery pack gauge boards,protection circuit boards for Li-ion battery packs, smart charge units for smartbattery packs, specialised battery packs, and automatic manufacturingequipment for battery packs. Simplo also provides technical support and designservices for battery packs. Statement of RiskGiven Simplo’s high reliance on NB shipments and continuing pricing pressurefrom PC OEMs and NB ODMs, we believe Simplo’s investment risk couldincrease on any deviation from our expectations for end-demand and marketconditions. This is in addition to the high price volatility in battery cells’material costs and reduced financial transparency, as a result of Simplo’sproduction move from Taiwan to China. Analyst CertificationEach research analyst primarily responsible for the content of this researchreport, in whole or in part, certifies that with respect to each security or issuerthat the analyst covered in this report: (1) all of the views expressed accuratelyreflect his or her personal views about those securities or issuers and wereprepared in an independent manner, including with respect to UBS, and (2) nopart of his or her compensation was, is, or will be, directly or indirectly, relatedto the specific recommendations or views expressed by that research analyst inthe research report. UBS 8
  9. 9. Simplo Technology 12 July 2011Required DisclosuresThis report has been prepared by UBS Securities Pte. Ltd., Taipei Branch, an affiliate of UBS AG. UBS AG, itssubsidiaries, branches and affiliates are referred to herein as UBS.For information on the ways in which UBS manages conflicts and maintains independence of its research product;historical performance information; and certain additional disclosures concerning UBS research recommendations,please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance isnot a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co.Limited is licensed to conduct securities investment consultancy businesses by the China Securities RegulatoryCommission.UBS Investment Research: Global Equity Rating Allocations 1 2 UBS 12-Month Rating Rating Category Coverage IB Services Buy Buy 54% 39% Neutral Hold/Neutral 39% 35% Sell Sell 7% 14% 3 4 UBS Short-Term Rating Rating Category Coverage IB Services Buy Buy less than 1% 33% Sell Sell less than 1% 25%1:Percentage of companies under coverage globally within the 12-month rating category.2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided withinthe past 12 months.3:Percentage of companies under coverage globally within the Short-Term rating category.4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were providedwithin the past 12 months.Source: UBS. Rating allocations are as of 30 June 2011.UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. UBS 9
  10. 10. Simplo Technology 12 July 2011KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not aforecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stocks price target and/or rating aresubject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect anychange in the fundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.EXCEPTIONS AND SPECIAL CASESUK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell:Negative on factors such as structure, management, performance record, discount.Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment ReviewCommittee (IRC). Factors considered by the IRC include the stocks volatility and the credit spread of the respective companysdebt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are notregistered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained inthe NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by aresearch analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any,follows.UBS Securities Pte. Ltd., Taipei Branch: Patrick Chen; Arthur Hsieh.Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date Simplo Technology 6121.TWO Suspended N/A NT$260.00 11 Jul 2011Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricingdateUnless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. UBS 10
  11. 11. Simplo Technology 12 July 2011Simplo Technology (NT$) Price Target (NT$) Stock Price (NT$) 300 250 200 150 100 50 0 01-Jan-07 01-Jan-08 01-Jan-09 01-Jan-10 01-Jan-11 01-Jul-06 01-Oct-06 01-Apr-07 01-Jul-07 01-Oct-07 01-Apr-08 01-Jul-08 01-Oct-08 01-Apr-09 01-Jul-09 01-Oct-09 01-Apr-10 01-Jul-10 01-Oct-10 01-Apr-11 01-Jul-11 Buy 2 Neutral 2 Buy Neutral No RatingSource: UBS; as of 11 Jul 2011Note: On August 4, 2007 UBS revised its rating system. (See UBS Investment Research: Global Equity Rating Definitions tablefor details). From September 9, 2006 through August 3, 2007 the UBS ratings and their definitions were: Buy 1 = FSR is > 6%above the MRA, higher degree of predictability; Buy 2 = FSR is > 6% above the MRA, lower degree of predictability; Neutral 1 =FSR is between -6% and 6% of the MRA, higher degree of predictability; Neutral 2 = FSR is between -6% and 6% of the MRA,lower degree of predictability; Reduce 1 = FSR is > 6% below the MRA, higher degree of predictability; Reduce 2 = FSR is > 6%below the MRA, lower degree of predictability. The predictability level indicates an analysts conviction in the FSR. Apredictability level of 1 means that the analysts estimate of FSR is in the middle of a narrower, or smaller, range of possibilities.A predictability level of 2 means that the analysts estimate of FSR is in the middle of a broader, or larger, range of possibilities.From October 13, 2003 through September 8, 2006 the percentage band criteria used in the rating system was 10%. UBS 11
  12. 12. Simplo Technology 12 July 2011Global DisclaimerThis report has been prepared by UBS Securities Pte. Ltd., Taipei Branch, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certaincountries, UBS AG is referred to as UBS SA.This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy orrecommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for informationpurposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. 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