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Where is Value in Taiwan?                by          Frank A.Y. Wang             President     Athena Capital Management  ...
Our Investment Philosophy
Managing Partner’s Background•   Columbia University, 1996 – Completed both his MS and BS degrees in four years from Colum...
Our Mission1)   Value Creation – Out of ~1,500 public companies in Taiwan, only ~100 companies     are actively covered by...
Opportunities –                                                     1. Taiwan is Under-valued                             ...
2. Good Cash Dividend Support                                                    High Cash Dividend Yield…80%             ...
3. Small & mid Cap Heaven in Greater China                                      Good Liquidity for Small & Mid Cap stocks…...
3. Small & mid Cap Heaven in Greater China                                      Good Liquidity for Small & Mid Cap stocks…...
Catalyst - Best Investment Timing in 10 Years                          Come out ahead in 7 years horizon                  ...
Our Approach – Find “Future Stars”                      Marketcap   QFII Marketcap                                        ...
Our Approach – Find “Future Stars”                       Marketcap      QFII Marketcap                                    ...
Value Creation                     – Institutionalizing New Markets for Best Return                                       ...
Where is Value in Taiwan?
EXAMPLE 1 – HANNSTAR 彩晶 (6116 TT)                                                     Private Equity Put?HANNSTAR VALUATIO...
EXAMPLE 2 – GRAPE KING 葡萄王 (1707 TT)                                  1) Healthcare Food for Aging Population Trend;      ...
EXAMPLE 3 – JYD 金益鼎 (8390 TT)          Recycling – Alchemist Turns Electronics Wastes into Precious MetalsJYD VALUATION   ...
EXAMPLE 6 – Wahlee 華立 (3010 TT)                                                                                         20...
What’s the Risk?
1. Where are Foreign Investors?                                                  QFII holding is plateauing…300           ...
2. Where is Trading Volume?                                                             Lowest turnover ever…$US bn    5.0...
3. Where is Confidence?                         Foreign investors put on Taiwan despite up in the US…1.2                  ...
3. Where is Confidence?                         Foreign investors put on Taiwan despite up in the US…  1.1                ...
2020 VISIONTaiwan is the cheapest “Greater China” play with value &potentials.1. Taiwan Will Transcend – The foreigner who...
Case Study - HannStar
What’s the Future?                 A Lost Decade? HannStar Stock Price since IPO…40353025201510 5                         ...
HannStar is Under-valued                                     HannStar      HannStar              AUO                 CMI  ...
What’s Next? What to Do?            Management Buy Out – More Incentives! Partnership!                                    ...
Wealth CreationEntry – Private Company Valuation                       Exit (3 years) – New Public Company Valuation (IPO)...
Conglomerate Risk?$US mn                                      Group Marketcap Lowest Ever…  18,000  16,000  14,000  12,000...
瀚宇博德 Put in HKTaking Advantage of Capital Market when Market is Insufficient        (47% Price Premium to De-List – 1x EV/...
Shareholder Value?                 Today’s Value is Well below any Time in History…                   Make a Cornerstone C...
Size no longer Matters… Why Build Big Fabs? Why Sell Big Screens?                          Small is Better than Large…    ...
Taiwan no longer has Cheap Capital…                             Business Model has changed!                               ...
Investing in Branding & Bottlenecks;                           not in Factories Expansion…                                ...
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  1. 1. Where is Value in Taiwan? by Frank A.Y. Wang President Athena Capital Management May, 2012
  2. 2. Our Investment Philosophy
  3. 3. Managing Partner’s Background• Columbia University, 1996 – Completed both his MS and BS degrees in four years from Columbia University (BS in Electrical Engineering and MS in Operations Research).• Morgan Stanley, 2004-2011 – Executive Director. Top ranked Taiwan Country Strategist and Asian Software Technology Analyst (#2 2011 institutional investor survey). Coordinate global TFT LCD supply/demand model among global Morgan Stanley analysts. Lead research in regional TFT LCD, semiconductor backend foundry, DRAM, software, and China consumer electronics industries. Lead analyst on global equity offerings of Himax, Inotera, Chi Mei Optoelectronics, LG Display, Innolux, Wintek, iSoftstone.• Credit Suisse, 2002-2004 – Vice President. Member of top ranked Asian Equity Research team (#2 institutional investor survey 2002/2003). Coordinated global DRAM semiconductor supply/demand model with CSFB analysts in the US, Japan, Europe, Korea. Lead research on semiconductor backend foundry, TFT LCD, and DRAM companies. Lead and co-lead investment banking deals for HannStar, Macronix, ProMOS.• Grand Capital Group, 2000-2002 – Executive Vice President. Co-Founder of Venture Capital firm in Asia. Reviewed business plans around the world in sectors of Communications, Software, Biotechnology, Hardware, Semiconductors, Internet, Components, and New Businesses. Structure innovative business models and build investment management teams. Board member of late stage technology companies in the US and Asia and advise management.• Citigroup, 1999-2000 – Vice President. Pioneered Asian Technology Investment Research in Citigroup Global Assets Management including China, India, Korea, Taiwan, Singapore, Hong Kong, etc.• Goldman Sachs, 1996-1999 – Financial Analyst. Member of the #1 ranked (1997 Greenwich survey) semiconductor investment research team covered Global Semiconductor and Semiconductor Capital Equipment sectors. Co-published semiconductor industry trends and company reports. Member of lead investment banking deals on TSMC, Micron, Anadigics, SanDisk, Photronics. Interacted with leading global semiconductor company management.
  4. 4. Our Mission1) Value Creation – Out of ~1,500 public companies in Taiwan, only ~100 companies are actively covered by foreign institutions and ~300 are actively researched by domestic institutions. Athena aims to discover under-researched “future stars” from ~1,000 over-looked publicly listed companies and be a “friendly shareholder activist” to assist corporate management enhancing shareholder value through successful investor relations strategy and investor capital introduction.2) Differentiation – Taiwan is over-looked by foreign investors despite improved corporate governance and shareholder friendliness include high cash dividend yield and pay out ratio. Rooted in Taiwan, Athena aims to be the “gate keeper” for foreign investors in improving global awareness on good under-researched Taiwan companies.3) Integrity/Partnership – Credit is virtue. Trust is everything. Collaboration is key. Athena operates based on trust. Athena aims for positive market influence in Taiwan financial community for societal contribution.
  5. 5. Opportunities – 1. Taiwan is Under-valued Low end of historical valuation… 100% 60.03.0 16% 14% 80%2.5 40.0 12% 60% 26.62.0 9% 10% 40% 20.0 1.8 19.61.5 8% 20% 1.7 5% 0.0 6% 15%1.0 0% 4% -20% (20.0)0.5 2% -22% -40%0.0 0% (40.0) -60% -80% (60.0) EPS Growth(LHS) P/E(RHS) P/B(LHS) ROE(RHS) Note: 1) 2012 book value based on 1Q12 data. 2) 05/0/2012 market value. 3) Current TWSE listed companies for retrospective valuation and financials. 4) TWSE data excludes TDRs listing Source: Cmoney; Bloomberg;
  6. 6. 2. Good Cash Dividend Support High Cash Dividend Yield…80% 6.0%70% 5.0%60% 4.1% 3.6% 4.0%50% 55% 55%40% 3.0%30% 2.0%20% 1.0%10%0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E Cash Dividend Payout Ratio(LHS) Cash Dividend Yield(RHS)Note: 1) 2001-2011 based on average cash dividend yield. 2) 05/07/2012 Market valueSource: Cmoney
  7. 7. 3. Small & mid Cap Heaven in Greater China Good Liquidity for Small & Mid Cap stocks… Average Total Marketcap # Companies Marketcap Daily Turnover ($US bn) ($US mn)Taiwan Stock Exchange 703 824 756 0.6%Taiwan OTC 50 611 81 1.1%Taiwan Emerging Stock Board 18 276 65 0.1%Shanghai A Stock 2,451 919 2,667 0.6%Hong Kong Stock Exchange 2,005 1,491 1,345 0.3%Note: 1) TWSE 12/30/2011 listing includes 33 TDRsSource: Cmoney, TWSE, Shanghai Stock Exchange, HKEX
  8. 8. 3. Small & mid Cap Heaven in Greater China Good Liquidity for Small & Mid Cap stocks… Average Total Marketcap # Companies Marketcap Daily Turnover ($US bn) ($US mn)Taiwan Stock Exchange 702 828 848 0.4%Taiwan OTC 58 607 95 0.6%Taiwan Emerging Stock Board 21 277 77 0.1%Shanghai A Stock 2,671 930 2,872 0.7%Hong Kong Stock Exchange 1505 1342 1122 0.02%Note: 1) TWSE 05/07/2012 listing includes 33 TDRsSource: Cmoney, TWSE, Shanghai Stock Exchange, HKEX
  9. 9. Catalyst - Best Investment Timing in 10 Years Come out ahead in 7 years horizon 10186 10116 9809 9145 7124 10 years average 6700 6000~7000 5800 4566 4089 3135 3446 3.2x in 7 years 2.8x in 6 years TWSE Index Source: Cmoney1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
  10. 10. Our Approach – Find “Future Stars” Marketcap QFII Marketcap QFII QFII % P/B P/E EV/EBITDA Marketcap ($US mn) ($US mn) Marketcap QFII % P/B P/E EV/EBITDA1101 台泥 4,314 1,457 33.8 1.4 15.4 5.3 ($US mn) ($US mn)1102 亞泥 3,665 648 17.7 1.3 11.2 9.31216 統一 7,188 3,521 49.0 2.9 22.3 8.1 1580 新麥 156 13 8.1 3.7 10.6 6.01301 台塑 16,322 5,936 36.4 2.1 14.3 14.9 1709 和益 277 12 4.2 1.4 10.7 6.41303 南亞 15,809 4,017 25.4 1.8 20.6 11.6 4401 東隆興 113 1 0.9 1.7 7.0 4.91326 台化 15,668 5,614 35.8 1.9 14.6 10.6 1707 葡萄王 212 17 8.1 2.9 9.7 5.41402 遠東新 5,142 1,063 20.7 1.5 14.9 6.8 4105 東洋 630 25 4.0 7.1 22.3 23.21722 台肥 2,329 875 37.6 1.4 23.4 93.8 4104 佳醫 207 13 6.2 1.1 15.6 10.41802 台玻 2,242 169 7.6 1.4 27.5 14.5 5211 蒙恬 42 4 10.5 2.2 6.6 11.02002 中鋼 14,431 1,940 13.4 1.5 22.6 10.2 3060 銘異 392 25 6.3 3.0 14.3 6.02105 正新 6,099 861 14.1 3.5 21.4 9.9 9955 佳龍 102 2 2.1 NM NM NM2201 裕隆汽車 2,648 337 12.7 1.2 22.4 9.8 9930 中聯資源 350 7 1.9 2.6 18.0 8.52207 和泰車 3,459 747 21.6 3.9 16.1 6.4 8390 金益鼎 91 1 1.2 1.8 9.6 12.42301 光寶科技 2,788 1,176 42.2 1.2 11.7 4.4 2913 農林 309 17 5.3 0.9 38.5 NM2303 聯電 6,355 2,974 46.8 0.9 18.6 4.2 6184 大豐電 135 5 3.4 2.6 14.3 9.62308 台達電 7,579 5,247 69.2 3.0 20.9 8.9 9908 大台北 324 10 3.2 1.2 14.2 13.42311 日月光 6,539 4,619 70.6 1.9 14.3 5.6 8926 台汽電 409 19 4.8 1.5 12.9 NM2317 鴻海 31,533 16,069 51.0 1.7 11.8 7.3 4927 KY泰鼎 142 73 51.2 2.1 10.3 4.72324 仁寶 5,027 2,964 59.0 1.5 14.0 6.4 1704 榮化 1,252 305 24.3 1.7 9.5 13.62325 矽品 3,563 1,981 55.6 1.8 22.2 5.3 2448 晶電 2,123 799 37.7 1.4 25.5 13.62330 台積電 72,923 56,122 77.0 3.6 16.9 7.5 3490 單井 25 0 0.1 1.0 12.6 6.02347 聯強 3,673 1,888 51.4 2.5 15.0 23.7 1590 Airtac 865 692 80.0 4.9 14.2 9.82353 宏碁 3,214 1,177 36.6 1.3 NM NM 6153 嘉聯益 477 49 10.2 2.0 9.9 5.62354 鴻準 4,085 1,070 26.2 2.3 15.7 9.1 3293 鈊象 334 29 8.8 3.0 8.9 11.12357 華碩 8,155 4,326 53.1 2.1 14.4 6.7 8044 網路家庭 432 146 33.8 9.7 24.8 19.12382 廣達 10,498 3,999 38.1 2.8 14.4 11.0 8255 朋程 204 2 1.1 2.7 13.4 8.92409 友達 3,928 1,410 35.9 0.6 NM 9.0 6116 彩晶 572 66 11.5 0.6 NM 34.02412 中華電 23,557 3,835 16.3 1.9 15.1 8.1 Simple Avg 407 93 13.1 2.6 14.5 11.12454 聯發科 10,136 3,428 33.8 2.7 22.8 15.92474 可成 4,880 2,117 43.4 2.7 14.2 5.6 3044 健鼎 1,559 980 62.8 2.1 10.7 3.82498 宏達電 12,782 6,861 53.7 4.0 6.5 4.8 6153 嘉聯益 477 49 10.2 2.0 9.9 5.62801 彰銀 3,644 376 10.3 1.2 12.4 89.5 8072 陞泰 326 11 3.4 2.2 11.4 5.32880 華南金 4,518 492 10.9 1.1 16.1 81.4 2107 厚生 323 28 8.8 1.1 4.2 5.82881 富邦金 9,084 1,964 21.6 1.2 9.1 29.7 1337 F-亞塑 434 312 71.9 2.3 9.4 3.82882 國泰金 10,737 1,805 16.8 1.5 29.5 NM 3030 德律 278 19 6.7 1.9 9.6 3.82883 開發金 2,869 445 15.5 0.7 53.8 381.2 6146 耕興 184 56 30.3 3.0 12.6 6.42885 元大金 4,557 1,444 31.7 0.9 10.6 84.5 1707 葡萄王 212 17 8.1 2.9 9.7 5.42886 兆豐金 8,404 2,025 24.1 1.2 14.3 NM 8210 勤誠 144 14 10.0 2.1 9.0 5.32890 永豐金控 2,485 777 31.3 0.9 25.4 54.7 2114 鑫永銓 126 1 1.2 2.4 8.6 5.92891 中信金 7,561 3,435 45.4 1.3 12.6 79.1 2420 新巨 123 1 1.2 1.6 7.5 5.02892 第一金 4,420 750 17.0 1.1 17.9 96.2 3527 聚積 154 3 2.2 3.0 15.4 5.22912 統一超 5,527 2,225 40.3 8.2 26.8 12.3 3213 茂訊 102 4 4.1 2.7 9.8 6.83008 大立光 2,117 546 25.8 3.2 12.4 11.7 3611 鼎翰 102 1 0.8 3.0 8.9 6.03045 台灣大 10,639 3,566 33.5 6.6 23.9 12.2 8114 振樺電 114 8 6.7 2.8 9.5 5.33231 緯創 3,109 1,869 60.1 1.5 10.5 5.1 5490 同亨 96 11 11.9 1.8 8.7 4.73481 奇美電子 3,047 622 20.4 0.5 NM 8.0 8103 瀚荃 108 8 7.1 1.9 9.0 3.23673 F-TPK 2,926 1,844 63.0 3.1 8.0 6.6 3332 幸康 74 0 0.1 1.7 8.5 6.54904 遠傳 7,027 2,855 40.6 2.9 23.8 7.8 8091 翔名 96 1 0.9 2.9 9.8 5.05880 合庫金 3,903 452 11.6 1.0 459.8 NM 3526 凡甲 74 0 0.2 1.9 10.6 3.46505 台塑化 27,689 1,944 7.0 3.9 38.3 21.3 5439 高技 63 0 0.1 1.5 6.5 3.4 6218 豪勉科技 56 0 0.1 1.7 13.0 6.9 TWSE 50 Sum 444,795 177,884 40.0 2.0 19.3 8.9 3390 旭軟 62 0 0.2 1.9 6.9 3.9 TWSE 688,337 226,463 32.9 1.5 15.3 13.2 3563 牧德 58 2 4.2 3.2 9.0 5.9 4429 聚紡 46 2 3.3 1.3 13.2 4.6 Simple Avg 216 61 10.3 2.2 9.6 5.1 Note: 1) 05/07/2012 stock price and 2012 consensus forecast Source: Cmoney, TWSE
  11. 11. Our Approach – Find “Future Stars” Marketcap QFII Marketcap QFII QFII % P/B P/E EV/EBITDA Marketcap ($US mn) ($US mn) Marketcap QFII % P/B P/E EV/EBITDA1101 台泥 4,548 1,609 35.4 1.4 16.7 7.4 ($US mn) ($US mn)1102 亞泥 3,754 683 18.2 1.4 14.3 11.31216 統一 6,476 3,012 46.5 3.0 19.0 9.0 1580 新麥 139 11 8.0 3.6 10.2 7.0 1709 和益 270 11 4.2 1.4 9.1 6.41301 台塑 17,853 6,747 37.8 2.0 11.4 14.3 4401 東隆興 112 0 0.4 1.4 6.0 4.31303 南亞 16,437 4,325 26.3 1.8 12.1 11.5 1707 葡萄王 194 13 6.5 2.4 11.2 5.31326 台化 16,427 6,068 36.9 1.7 9.9 10.1 4105 東洋 647 29 4.5 5.9 11.1 19.41402 遠東新 6,032 1,335 22.1 1.8 13.9 7.7 4104 佳醫 237 18 7.4 1.3 11.0 9.51722 台肥 2,558 1,014 39.7 1.4 41.2 91.5 5211 蒙恬 47 5 10.5 2.1 17.9 12.21802 台玻 2,602 194 7.5 1.6 14.1 9.7 3060 銘異 347 22 6.2 2.1 12.1 6.52002 中鋼 14,909 1,889 12.7 1.6 11.6 10.2 9955 佳龍 111 2 1.8 1.2 NM 21.82105 正新 5,613 808 14.4 3.7 16.3 9.3 9930 中聯資源 302 5 1.7 2.3 13.8 9.32201 裕隆汽車 3,214 450 14.0 1.4 21.1 13.5 8390 金益鼎 84 1 1.2 1.5 9.8 11.32301 光寶科技 2,781 1,166 41.9 1.2 9.2 3.0 2913 農林 308 14 4.6 0.7 38.9 NM2303 聯電 6,673 2,933 44.0 0.9 7.8 4.0 6184 大豐電 123 4 3.0 2.4 12.7 10.12308 台達電 6,329 4,251 67.2 2.5 12.2 16.1 9908 大台北 314 9 3.0 1.1 15.1 12.72311 日月光 6,318 4,390 69.5 2.1 10.2 5.8 8926 台汽電 401 17 4.2 1.4 10.6 NM2317 鴻海 34,027 16,581 48.7 2.0 12.2 9.8 4927 KY泰鼎 123 61 49.3 1.6 7.1 5.02324 仁寶 4,998 2,822 56.5 1.2 6.0 6.6 1704 榮化 1,529 369 24.2 1.8 11.1 11.62325 矽品 3,361 1,897 56.5 1.6 17.0 6.9 2448 晶電 2,139 837 39.1 1.3 8.1 10.52330 台積電 66,084 49,972 75.6 3.5 12.3 6.8 3490 單井 25 0 0 0.9 12.1 6.02347 聯強 3,808 2,112 55.5 3.3 21.7 26.8 1590 Airtac 805 618 76.8 3.8 10.0 9.02353 宏碁 3,790 1,370 36.2 1.1 6.8 171.3 6153 嘉聯益 541 116 21.5 2.2 12.1 5.32354 鴻準 4,769 1,350 28.3 2.4 15.6 9.4 3293 鈊象 490 39 8.0 4.8 12.7 12.22357 華碩 6,098 2,798 45.9 1.6 10.5 6.8 8044 網路家庭 408 133 32.7 8.8 14.7 20.52382 廣達 8,706 3,017 34.7 2.2 13.5 13.6 8255 朋程 258 3 1.1 3.0 16.5 9.72409 友達 4,914 1,810 36.8 0.5 19.5 9.5 6116 彩晶 482 59 12.2 0.4 NM 8.02412 中華電 24,746 5,454 22.0 2.0 15.6 7.1 Simple Avg 417 96 13.8 2.4 12.8 10.22454 聯發科 11,169 4,044 36.2 2.7 9.7 22.62474 可成 4,654 2,083 44.8 3.8 28.4 5.2 3044 健鼎 1,489 837 56.2 1.9 8.3 3.82498 宏達電 16,502 9,040 54.8 5.6 10.5 8.9 6153 嘉聯益 541 116 21.5 2.2 12.1 5.3 8072 陞泰 322 9 2.7 2.1 10.4 5.92801 彰銀 4,095 433 10.6 1.2 13.8 152.1 2107 厚生 344 26 7.6 1.1 7.4 5.82880 華南金 4,792 491 10.3 1.3 21.9 121.6 1337 F-亞塑 338 244 72.2 1.8 8.5 3.72881 富邦金 10,621 2,455 23.1 1.3 14.0 79.7 3030 德律 268 14 5.2 1.6 5.9 3.72882 國泰金 12,066 2,079 17.2 1.5 72.4 NM 6146 耕興 173 49 28.2 2.7 9.8 6.12883 開發金 3,769 584 15.5 0.7 10.7 629.9 1707 葡萄王 194 13 6.5 2.4 11.2 5.32885 元大金 5,910 2,058 34.8 1.3 19.2 141.8 8210 勤誠 139 14 10.0 1.9 7.8 4.02886 兆豐金 8,329 1,907 22.9 1.1 14.2 NM 2114 鑫永銓 124 1 1.2 2.2 8.5 6.12888 新光金 2,691 646 24.0 0.8 28.3 NM 2420 新巨 118 1 1.0 1.4 6.8 4.02890 永豐金控 2,458 757 30.8 0.7 12.6 96.5 3527 聚積 127 1 1.1 2.4 9.7 6.02891 中信金 7,956 3,730 46.9 1.3 14.4 87.7 3213 茂訊 108 4 3.7 2.9 9.4 6.72892 第一金 4,957 807 16.3 1.2 18.7 154.8 3611 鼎翰 106 1 1.0 3.1 9.2 5.72912 統一超 5,614 2,278 40.6 8.3 29.4 10.6 8114 振樺電 102 7 6.6 2.5 8.6 5.93008 大立光 3,116 1,092 35.1 4.8 19.5 14.2 5490 同亨 102 13 12.3 1.8 9.0 4.33045 台灣大 10,148 3,270 32.2 6.2 22.7 10.2 8103 瀚荃 92 3 3.6 1.5 6.2 3.73231 緯創 3,127 1,759 56.3 1.5 7.3 7.0 3332 幸康 74 0 0.1 1.7 10.8 6.53481 奇美電子 3,827 798 20.9 0.4 NM 13.7 8091 翔名 88 2 2.1 2.5 8.2 5.23673 TPK 3,733 2,676 71.7 6.1 19.1 8.4 3526 凡甲 83 0 0.1 1.9 10.4 3.84904 遠傳 6,159 2,098 34.1 2.5 20.4 5.8 5439 高技 62 0 0.2 1.4 6.8 3.65880 合庫金 4,233 474 11.2 NM NM NM 6218 豪勉科技 62 0 0.5 1.6 6.3 4.86505 台塑化 28,387 1,947 6.9 3.5 21.2 16.0 3390 旭軟 63 0 0.1 1.9 7.4 4.3 TWSE 50 Sum 456,133 177,564 38.9 1.9 13.8 10.1 3563 牧德 53 2 3.5 2.3 7.2 5.2 TWSE 703,607 225,576 32.1 1.4 14.7 16.5 4429 聚紡 46 1 2.8 1.7 8.6 4.9 Simple Avg 209 54 10.0 2.0 8.6 5.0 Note: 1) 02/04/2012 stock price and 2012 consensus forecast Source: Cmoney, TWSE
  12. 12. Value Creation – Institutionalizing New Markets for Best Return Bridging Foreign investors Market Institutionalizing an for sustainable long term gain Value Under-research marketForeign Partnering withInvestor Venture CapitalistsResearch Foreign Investorcoverage for Early Understanding ResearchDomestic CoverageResearchcoverage Domestic Low risk;Public Low returnListing Research High risk; Coverage Not sure high return Under ResearchEmergingStock Board Low risk; Medium riskListing Good return Medium return Venture Capital EM Stock Public 2 years Sufficient Time Corporation formation Board Listing Listing Track record
  13. 13. Where is Value in Taiwan?
  14. 14. EXAMPLE 1 – HANNSTAR 彩晶 (6116 TT) Private Equity Put?HANNSTAR VALUATIONMarketcap ($US mn) 518Net Debt ($US mn) 117Enterprise Value ($US mn) 6352011(E) Sales ($US mn) 1,390Book Value ($US mn) 1,2802011(E) Operating Cash Flow ($US mn) 132Net PP&E ($US mn) 1,179Short Term Investments ($US mn) 51P/B 0.4xEV/Book 0.5xEV/Operating Cash Flow 4.8xNote: 1) 2011(E) Operating Cash Flow uses Annualized 1Q-3Q11 OPCF. 2) 02/04/2012 stock price. 3) 3Q11 Balance Sheet Data.Source: Cmoney;
  15. 15. EXAMPLE 2 – GRAPE KING 葡萄王 (1707 TT) 1) Healthcare Food for Aging Population Trend; 2) Largest Home-Made Direct-Sales Network in Taiwan; 3) Only Listed Company in Taiwan with Direct Sales Business Model GRAPEKING VALUATION Marketcap ($US mn) 191 Cash Marketcap Net Debt ($US mn) (17) P/E Dividend ($US bn) Yield Enterprise Value ($US mn) 174 2011(E) Sales ($US mn) 123 2011(E) Sales Growth 14% Herbal 6.4 18x 2% 2011(E) Direct Sales ($US mn) 100 Life 2011(E) Direct Sales Growth 20% 2005-2010 Sales CAGR 17% Nu Skin 3.0 22x 1% 2005-2010 EPS CAGR 24% 2012(E) P/E 12.8x 2012(E) PEG 0.8x Grape 0.17 10x 7% King EV/EBITDA 6.45xNote: 1) 2011(E) Sales based on annualized 1Q-3Q11 sales. 2) 2011 Sales growth based on Jan-Oct 2011 sales growth. 3) 02/04/2012 stock price. 4)3Q11 Balance Sheet Data.Source: Cmoney; Company; Google Finance
  16. 16. EXAMPLE 3 – JYD 金益鼎 (8390 TT) Recycling – Alchemist Turns Electronics Wastes into Precious MetalsJYD VALUATION EPSMarketcap ($US mn) 83 1Q08 2Q08 3Q08 4Q08 2008Net Debt ($US mn) 25 0.61 0.7 0.78 (0.7) 1.4 1Q09 2Q09 3Q09 4Q09 2009Enterprise Value ($US mn) 108 0.1 0.43 0.5 0.53 1.62011(E) Sales ($US mn) 124 1Q10 2Q10 3Q10 4Q10 2010Book Value ($US mn) 50 0.42 0.69 0.55 0.4 2.1P/B 1.5x 1Q11 2Q11 3Q11 4Q11(E) 2011(E)EV/Book 2x 0.73 0.94 0.92 0.4 3.0EV/EBITDA 11x 1Q12(F) 2Q12(F) 3Q12(F) 4Q12(F) 2012(F)2011 ROE(E) 15% 0.5 0.6 1 1.5 3.62.50 Low Gold High Gold2.00 Price Price1.501.00 High Factory OK BEST0.50 Utilization0.00 2008/5 2008/11 2009/5 2009/11 2010/5 2010/11 2011/5 2011/11 Low Factory X GOOD Utilization JYD (8390 TT) TWSE INDEX GOLDNote: 1) 02/04/2012 stock price. 2) 3Q11 Balance Sheet Data. 3) EV/EBITDA is based on annualized 1Q-3Q11 dataSource: Cmoney, JYD
  17. 17. EXAMPLE 6 – Wahlee 華立 (3010 TT) 200 3 2.5 WAHLEE VALUATION 150 2 1.5 100 1 Marketcap ($US mn) 319 0.5 50 0 -0.5 Net Debt ($US mn) 132 0 -1 Enterprise Value ($US mn) 451 Stock Price Quaterly EPS(RHS) 2011(E) Sales ($US mn) 1,042 Linear (Quaterly EPS(RHS)) 160 20.0% Book Value ($US mn) 253 140 120 15.0% 100 P/E 7.8x 80 10.0% 60 40 5.0% P/B 1.2x 20 0 0.0% EV/Book 1.6x 2011 ROE(E) 16% Stock Price(LHS) Cash Dividend Yield(RHS) Linear (Cash Dividend Yield(RHS))Note: 1) 02/04/2012 stock price. 2) 3Q11 Balance Sheet Data. 3) Assume same payout ratio in 2012.Source: Cmoney;
  18. 18. What’s the Risk?
  19. 19. 1. Where are Foreign Investors? QFII holding is plateauing…300 40% 60 90% TWSE TSMC 77% 80% 33% 35%250 $US bn 50 $US bn 70% 30%200 40 60% 25% 50%150 20% 30 40% 15%100 20 30% 10% 20% 50 10 5% 10% 0 0% 0 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 QFII Amount(LHS) QFII Holding of TWSE(RHS) QFII Amount(LHS) QFII Holding of TSMC(RHS) Note: 1) 2001~2011 Year end positions. 2) 05/07/2012 stock price. Source: Cmoney
  20. 20. 2. Where is Trading Volume? Lowest turnover ever…$US bn 5.0 1.0% 4.5 4.5 0.9% 0.9% 0.9% 4.0 4.0 3.8 0.8% 3.8 3.8 0.8% 0.8% 3.6 3.6 0.7% 3.5 3.2 0.7% 3.3 0.7% 2.9 0.6% 3.0 2.7 0.6% 0.6% 0.6% 2.5 2.6 0.6% 0.6% 0.5% 2.5 0.5% 0.5% 2.0 0.4% 1.5 0.3% 1.0 0.2% 0.5 0.1% 0.0 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average Trading Volume(LHS) Average Turnover Rate(RHS)Note: 1) 2012 data is based on Jan12. 2) 05/07/2012 stock price.Source: Cmoney
  21. 21. 3. Where is Confidence? Foreign investors put on Taiwan despite up in the US…1.2 3,500 40,0001.1 3,000 35,000 1.09 30,0001.0 2,500 25,000 2,0000.9 20,000 1,5000.8 0.86 15,000 1,000 10,0000.7 500 5,0000.6 0 0 May-11 May-12 Dec-11 Aug-11 Jan-11 Feb-11 Apr-11 Sep-11 Oct-11 Jan-12 Feb-12 Apr-12 Mar-11 Jul-11 Mar-12 Jun-11 Nov-11 NASDAQ Index TWSE Index NASDAQ Index(LHS) QFII NET SHORT POSITION IN FUTURES(RHS)1.1 9,500 35,0001.1 9,000 30,0001.0 8,5001.0 25,000 8,0000.9 0.86 20,000 7,5000.9 7,000 15,0000.8 6,5000.8 10,0000.7 6,000 5,500 5,0000.70.6 5,000 0 May-11 May-12 Dec-11 Aug-11 Jan-11 Feb-11 Apr-11 Sep-11 Oct-11 Jan-12 Feb-12 Apr-12 Mar-11 Jul-11 Mar-12 Jun-11 Nov-11 Shanghai A Index TWSE Index TWSE(LHS) QFII NET SHORT POSITION IN FUTURES(RHS) Note: 05/07/2012 stock price. Source: Cmoney ;
  22. 22. 3. Where is Confidence? Foreign investors put on Taiwan despite up in the US… 1.1 3,000 40,000 1.0 1.07 35,000 2,500 30,000 2,000 0.9 25,000 1,500 20,000 0.8 0.89 15,000 1,000 10,000 0.7 500 5,000 0.6 0 0 NASDAQ Index TWSE Index NASDAQ Index(LHS) QFII NET SHORT POSITION IN FUTURES(RHS) 9,500 35,000 1.2 9,000 30,000 1.1 8,500 25,000 1.0 8,000 7,500 20,000 0.9 0.89 7,000 15,000 0.8 6,500 0.84 10,000 6,000 0.7 5,000 5,500 0.6 5,000 0 Shanghai A Index TWSE Index TWSE(LHS) QFII NET SHORT POSITION IN FUTURES(RHS)Note: 02/10/2012 stock price.Source: Cmoney ;
  23. 23. 2020 VISIONTaiwan is the cheapest “Greater China” play with value &potentials.1. Taiwan Will Transcend – The foreigner who understands the best of China; The Chinese who understands the best of the world.2. Election Matters Less – 2 years cycle; 2014 next on local; 2016 next on President and Congress; Higher opportunity cost for politicians to execute on plans.3. Wealth Creation – Urban Renewal; More International Visitors; Infrastructure Spending.
  24. 24. Case Study - HannStar
  25. 25. What’s the Future? A Lost Decade? HannStar Stock Price since IPO…40353025201510 5 05/07/2012 Stock price: 2.95 08/17/2001 8/17/2002 8/17/2003 8/17/2004 8/17/2005 8/17/2006 8/17/2007 8/17/2008 8/17/2009 8/17/2010 8/17/2011Source: Cmoney
  26. 26. HannStar is Under-valued HannStar HannStar AUO CMI CPT E ink3Q11 (Parent Only) (Consolidated) (Consolidated) (Consolidated) (Consolidated) (Consolidated)Marketcap ($US mn) 367 518 4,355 3,169 294 1,388EV ($US mn) 267 484 8,853 12,347 1,163 1,541Book value/share (TWD) 5.4 5.4 25.5 29.7 5.6 24.9Cash ($US mn) 168 493 2,781 2,061 580 243Debt ($US mn) 68 610 7,278 11,239 1,449 396Net Debt ($US mn) (100) 117 4,498 9,178 869 153Investments for sale ($US mn) 21 49 24 53 27 12PP&E ($US mn) 627 1,179 11,986 14,097 2,246 311Book ($US mn) 1,047 1,047 7,505 7,229 1,219 898OPCF (1Q-3Q11) ($US mn) 70 99 236 118 32 147Capex (1Q-3Q11) ($US mn) (61) (312) (1,469) (1,302) (79) (65)FCF (1Q-3Q11) ($US mn) 9 (213) (1,233) (1,185) (47) 81P/B 0.4 0.4 0.6 0.4 0.2 1.5EV/Book 0.3 0.5 1.2 1.7 1.0 1.7EV/OPCF 2.9 3.7 28.1 78.4 27.3 7.1Net Debt/Equity % (10) 11 60 127 71 17Net Debt/Marketcap % (40) 47 120 320 372 10Note: 1) 3Q11 Consolidated data. 2) OPCF, Capex, and FCF based on 1Q-3Q11 accumulated Data. 3) 1/18/2012 stock price.Source: Cmoney;
  27. 27. What’s Next? What to Do? Management Buy Out – More Incentives! Partnership! Core Shareholders Core Shareholders Private 25% 25% Equity 40% Core Debt Leverage Shareholders 50% Management + 50% Employee 5% Others Private Equity 75% 20% Management + Employee 10%Equity Valuation $US 500 mn $US 1 bn $US 500 mn Net Debt $US 500 mnManagement Buy Out $US 1 bn ValuationCorporate Structure Pre-MBO Equity Post-MBO Equity Capital Holding % Holding %Core Shareholder Base 25% 50%Employee 2% 4% $US 20 mn (interest free loan ~$US100/mth - 3 years)Management 3% 6% $US 30 mn (management bonus; 3 years lock up)Private Equity Investor 20% 40% $US 200 mnDebt Leverage 50% $US 500 mn (4% interest = $US20 mn interest expense/year)Source: Athena
  28. 28. Wealth CreationEntry – Private Company Valuation Exit (3 years) – New Public Company Valuation (IPO)(NT$5.5/share - De-Listing) (NT$22/share – Re-Listing)Enterprise Value $US 1 bn Enterprise Value $US 2 bnEBITDA $US 150 mn EBITDA $US 250 mnEV/EBITDA 6.5x EV/EBITDA 8xEV/Book 0.8x EV/Book 1.1xNet DEBT $US 500 mn Net DEBT 0EQUITY $US 500 mn EQUITY $US 2 bnWealth CreationCorporate Structure Today Equity Post-MBO Equity Equity Wealth Valuation Equity Valuation Valuation Creation (Today) Holding % (Post MBO) (3 years)Core Shareholder Base 25% $US125 mn 50% $US250 mn $US1 bn 8xEmployee 4% $US20 mn $US80 mn Very largeManagement 6% $US30 mn $US120 mn Very largePrivate Equity Investor 40% $US200 mn $US800 mn 4xTotal Equity Valuation $US500 mn $US500 mn $US2 bn 4xSource: Athena
  29. 29. Conglomerate Risk?$US mn Group Marketcap Lowest Ever… 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 華新 華邦電 華新科 瀚宇博德 彩晶 Mktcap Conglomerate Ticker Name P/S P/B P/E EV/Book EV/EBITDA EV/OPCF ($US mn) Holdings 1605 TT 華新麗華 1,121 0.2x 0.5x 32x 1.1x 32x 221x ~20% 2344 TT 華邦電 517 0.4x 0.4x 34x 0.7x 2x 3x ~30% 2492 TT 華新科 181 0.2x 0.4x N.A. 0.6x 3x 8x ~35% 6116 TT 瀚宇彩晶 367 0.2x 0.4x N.A. 0.5x 8x 4x ~25% 5469 TT 瀚宇博德 185 0.1x 0.5x 12x 1.7x 5x 10x ~50%Note: 1) Based on 1/18/2012 stock price. 2) 3Q11 Book value. 3) Annualized Jan-Oct11 sales for sales calculation. 4) Annualized 1Q-3Q11 EBITDASource: Cmoney;
  30. 30. 瀚宇博德 Put in HKTaking Advantage of Capital Market when Market is Insufficient (47% Price Premium to De-List – 1x EV/Book)HKD/USD 7.8Buyout Stock Price ($HK) 1.25 (Price Premium 47%)# of Shares (mn) 1,316Marketcap ($US mn) 211Net Debt ($US mn) 167Enterprise Value ($US mn) 377Book Value ($US mn) 376Net Income ($US mn) (1)Operating Cash Flow ($US mn) 41P/E N.A.P/B 0.6xEV/Book 1xEV/OPCF 9.3xNote: 1) Annualized 1H11 Operating cash flow. 2) 1H11 Book value. 3) Annualized 1H11 earnings.Source: Company
  31. 31. Shareholder Value? Today’s Value is Well below any Time in History… Make a Cornerstone Case! Re-set Benchmarks % of current total % of 1/15/2012 Date Action Price Share(k) Amount(TWD mn) shares Marketcap 2005/3/1 海外存託憑證 10.66 768,000 8,187 1.3% 75%2008/8/22 Shares Buyback 7.13 255,000 1,818 0.4% 17%2008/10/14 Shares Buyback 4.27 40,899 175 0.1% 2%2011/1/27 私募 5 634,050 3,170 1.1% 29%Source: Cmoney
  32. 32. Size no longer Matters… Why Build Big Fabs? Why Sell Big Screens? Small is Better than Large… HTC 4.3” Sensation Sharp 42” 1080p 60Hz LCD TVViewing Angle 1x 100xPrice $US 435 $US 199 (Black Friday Price)Source: Bestbuy; Amazon
  33. 33. Taiwan no longer has Cheap Capital… Business Model has changed! 60% 京東方能源 stake in exchange for 2.7 bn RMB cash 北京工業發展 1 billion tons coal mining right in exchange for 0.45 billion 5.5G AM-OLED line setup (22 bn RMB investments) tons coal mining right 京東方A(BOE) 內蒙古 控股子公司 京東方能源 鄂爾多斯 京東方光電 昊華能源 20% 京東方能源 stake in exchange for 0.9 bn RMB cashSource: BOE
  34. 34. Investing in Branding & Bottlenecks; not in Factories Expansion… Key Technology bottlenecks QHD IPS, AMOLED, 3D, Flexible Display, 10 fingers Touch, (high resolution, paper-like, multi-view)… Capex is Commodity; no innovation Don’t do capex unless 1) Monopoly 2) Can be TSMC or Samsung Supply Chain – Unforgiven Road Factory Capex R&D R&D is Innovation A chance to disrupt industry for windfall profits Branding (Customer Relationships) Google, Microsoft, Apple, Amazon, SoftBank, Nintendo, Intel, IBM, … China, India, Brazil, Russia, Middle East, North Africa, Eastern Europe…Source: Athena

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