Nanya PCB - Master Link Report

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MasterLink Securities Equity Research Nan Ya PCB Corp. (8046 TT) PCB / IC Substrate Outperform Initiation MasterLink Research Equity Analyst Cathy Chin 886.2.2731.3888 ext 635 cathychin@masterlink.com.tw Largest Flip Chip Manufacturer in Taiwan Recommendation Outperform Date: Share Price (NT$): Price Target (NT$): Percent Change: 52-wk range (NT$): TWSE: April 17, 2006 350.0 407.0 16.3% 370.0-38.3 6952.54 Flip Chip is the key source of revenue in 2006: Nan Ya PCB’s (NYPCB) product mix in
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  MasterLink Securities   Equity Research   April 17, 2006 cathychin@masterlink.com.tw Page 1 of 12 Nan Ya PCB Corp. (8046 TT)  Outperform PCB / IC Substrate   Initiation MasterLink ResearchEquity Analyst Cathy Chin886.2.2731.3888 ext 635cathychin@masterlink.com.tw Recommendation OutperformDate: April 17, 2006Share Price (NT$): 350.0Price Target (NT$): 407.0Percent Change: 16.3%52-wk range (NT$): 370.0-38.3TWSE: 6952.54 Company Data Capital Size (NT$): 5.9bnMarket Cap (NT$): 209.7bnMarket Cap (US$): 6.5bnOutstanding Shrs: 599mnPER (‘06E): 16.3xPBR (‘06E): 8.6xForeign Ownership: 2.7%Major Shareholder: Nanya Plastic (68.58%)   Performance 1-m 3-m 6-m Absolute (%) 17.10 29.15 249.93Relative to TAIEX 8.81 24.13 200.43 Key Changes Current Prev. Recommendation Outperform N/APrice Target (NT$) 407.0 N/A06E Revenue (NT$bn) 44.0bn N/A06E Gross Margin (%) 35.5 N/A06E Oper. Margin (%) 30.4 N/A06E EPS (NT$) 21.5 N/A Price Catalysts (+,-) (+) Strong IC substrate industry outlook(+) Improving demand on Flip Chip(- ) Possible FC oversupply in 2007 Related Research Tripod (3044 TT) Apr. 06,06PPT   (2446 TT) Nov 24, 05’ Largest Flip Chip Manufacturer in Taiwan  Flip Chip is the key source of revenue in 2006: Nan Ya PCB’s (NYPCB)product mix in 1Q06 is: Flip Chip ( FC, 53% of revenue), Wire Bonding (WB,20%), conventional PCB and Others (27%). As 1) Intel’s Napa dual coreCPU, Sony’s PS3 and Microsoft’s Vista OS will be launched from 2H06 to1H07 2) higher gross margin for FC, 3) more new applications, NYPCB willremain focused on its FC manufacturing business. We estimate FC wilaccount for 61.2% of 2006 revenue.  Flip Chip market demand value is estimated to reach US$960mn in2006, up 56.4% YoY: With the growing demand in graphic chips, CPU / MPU chipsets and game consoles in 2006, we estimate the market demandvalue of FC will reach US$960mn in 2006, up 56.4% YoY from US$614mnin 2005, and FC will become the main growth momentum in IC substrateindustry in 2006.  Revenues are trending up quarterly in 2006: Due   to 1) growing demandon FC, 2) increasing FC weight in NYPCB’s revenue from 45.6% in 2005 to61.2% in 2006, and 3) cost down competitive advantage in raw materialsourcing, We estimate NYPCB’s consolidated revenue in 2006 will reachNT$44.0bn, up 72.9% YoY, with net profit of NT$12.9bn, up 199.9% YoY,and EPS of NT$21.5.  Outperform: we give NYPCB 19x PER for its robust growth momentum andstrong cost down competitive advantage among industry peers, and targetprice at NT$407.0, implying 16.3% upside potential. We thereforerecommend an Outperform for NYPCB. Average daily volume ('000, LHS) and share price (NT$, RHS)04,0008,00012,000,000      A   -     0     5     M   -     0     5     J   -     0     5     J   -     0     5     A   -     0     5     S   -     0     5     O   -     0     5     N   -     0     5     D   -     0     5     J   -     0     6     F   -     0     6     M   -     0     6     A   -     0     6 010020030040016 (50.0)00      A   -     0     5     M   -     0     5     J   -     0     5     J   -     0     5     A   -     0     5     S   -     0     5     O   -     0     5     N   -     0     5     D   -     0     5     J   -     0     6     F   -     0     6     M   -     0     6     A   -     0     6 Relative to TAIEX (%) 250.550.    MasterLink Securities   Nan Ya PCB   April 17, 2006 cathychin@masterlink.com.tw Page 2 of 12 Investment Keynotes Company Background Nan Ya PCB (NYPCB), a subsidiary of Formosa Plastics Group, was established in 1997and currently is the largest Flip Chip (FC) manufacturer in Taiwan. It currently focuses itsbusiness on conventional PCB and IC substrate: FC (53% of 1Q06 revenue), wire bonding(20%), conventional PCB and others (27%). Currently NYPCB has 4 IC substrate factoriesin Taiwan, and 2 conventional PCB factories in Kunshan, China. NYPCB’s current FCcapacity is around 25.3mn pcs per month, which is the highest compared with industrypeers in Taiwan. NYPCB is currently the largest FC manufacturer in Taiwan  Table 1: 2Q06 FC Capacity Comparison by Key Manufacturers in Taiwan FC Key Manufacturers in Taiwan2Q06 Capacity Main Customers NYPCB23.5 mn / permonthIntel (INTC US, US$19.5, NR),nVidia (NVDA US, US$29.6, NR),ATI (ATY CN, CA$18.9, NR),Microsoft (MSFT US, US$27.1, NR)PPT (2446 TT, NT$82.0, NR) 8mn / per monthIntel, nVidia, ATI, VIA (2388 TT, NT$28.7, NR)Kinsus (3189 TT, NT$137.0, NR)2mn / per monthAmkor (AMKR, US$9.2, NR),Xilinx (XLNX, US$26.4, NR),Altera (ALTR, US$20.6, NR), TI (TXN, US$32.7, NR)Unimicron (3037 TT, NT$55.1, NR)2.5mn / per monthMotorola (MOT, US$24.0, NR),BenQ (2352 TT, US$27.2, NR),Nokia (NOK1V FH, € 17.4, NR),Sony Ericsson (237523Z LN)Source: MasterLink Securities IC substrate becomes the mainstream of IC packaging technology IC carrier, which is used to connect ICs to PCBs (Printed Circuits Board), can be dividedinto two types: lead frame and IC substrate. IC substrate offers much higher number ofInput/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 higherIC performance, the higher number of I/Os, and shrinking IC die size despite higherperformance requirements, IC substrate becomes mainstream of IC packaging technology.    MasterLink Securities   Nan Ya PCB   April 17, 2006 cathychin@masterlink.com.tw Page 3 of 12 Table 2: IC carrier Progression by Size of Lead Pitch and I/O Count 0123105090130Lead Number (I/O count)Lead Pitch (mm)DILSoP QFPBGA CSP Flip ChipLead FrameIC Substrate   Source: MasterLink Securities 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 frameto connect ICs and substrates. CSP is a single-chip-package technology, and size of CSP isalmost 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 andPBGA (Plastic Ball Grid Array, which is one kind of BGA package) are the three mostpopular IC substrates. Table 3: IC Substrate Classification by Package Forms and Interconnections Source: IEK-ITIS; MasterLink Securities ClassificationTypesNotes 1) BGA (Ball Grid Array Package) CBGA (Ceramic BGA)PBGA (Plastic BGA)TBGA (Tape BGA)CDBGA (Cavity Down BGA)2) CSP (Chip Scale Package) Substrate CSPLead frame CSP3) FC (Flip Chip Package) ◇ Flip the die and use bumping to connect the front side of the diewith the substrate1) Wire Bonding ◇ Use gold wire to connect IC and substrate2) TAB (Tape Automated Bonding) ◇ TAB involves bonding a gold bumped die to a single layer circuit builton a flexible material, such as polyimide. ◇ TAB is used primarily in the flat panel display inductry to mount driverIcs between the glass of the display and the input circuitry behind thedisplay.3) FC ◇ Flip the die and use bumping to connect the front side of the diewith the substrate ◇ Use solder ball instead of the conventional lead frame as theinterconnection between substrate and IC. ◇ Compared with traditional lead frame, a BGA package allows more I/Ocounts and better heat depersion. Suitable for ICs that is running at highfrenquency. ◇ Single chip package technology. ◇ Size of the package chip is almost the same or only slightly larger thanthe bare die. ◇ Mostly used in ICs that are running at high frequency but with smallernumbers of pin counts. Number of pin count is also lower due to the smallsize of the package IC. Package FormsInterconnections    MasterLink Securities   Nan Ya PCB   April 17, 2006 cathychin@masterlink.com.tw Page 4 of 12 Table 4: The Applications of Three Most Popular IC Substrates PBGA Micro-processor, controllers, ASICs, gate arrays, memory, communications, networking, graphics CSP Memory card, microprocessor, SRAM, DRAM, ASICs FC Workstations, routers, graphics, CPU, game consoles, set-top-boxesSource: MasterLink Securities Table 5: CSP, FC, and PBGA IC Substrate Package Source: PPT, MasterLink Securities 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,global IC substrate production value has begun to increase since 2003. During 2006 to2007, higher-performance IC demand from new consumer electronics products, such asIntel’s Napa dual core CPU and game console, is expected to boost global IC substratedemand. We estimate global IC substrate market size will reach US$6.1bn in 2006, up10.9% from US$5.5bn in 2005, and will grow to US$6.8bn in 2007, up 10.3% YoY. Table 6: 2001~2007 Global IC Substrate Market Size Source: IEK-ITIS; MasterLink Securities Higher-performance IC demand from new applications will boost global IC substrate market size to US$6.1bn in 2006, up 10.9% YoY  10.3%10.9% 13.6%23.7%20.0%14.6%0369200120022003200420052006E2007E0%10%20%Global IC Substrate Production Value (LHS, US$: bn )Growth YoY (RHS, %)  
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