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雷达卡
28 January 2009
FC packages
Initiating coverage: Catalysts for
2010 recovery emerging
Akinori Kanemoto
Research Analyst
(+81) 3 5156-6767
akinori.kanemoto@db.com
Bright spots emerging for 2010 onward
The FC package industry is facing serious inventory adjustments that are
unprecedented. However, we sense that the bad news will soon be fully
discounted after Intel's results announcement. Despite forex, macroeconomic,
and other risks, we see a few catalysts for some companies in the electronic parts
sector toward 2010, backed by price hikes that can bolster them individually. We
initiate coverage on Shinko Electric with Buy ratings, and Ibiden with a Hold rating.
Deutsche Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, 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. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Coverage Change
Top picks
Shinko Electric Ind. (6967.T),¥749 Buy
Companies featured
Shinko Electric Ind. (6967.T),¥749 Buy
2008A 2009E 2010E
EPS (¥) 84 -25 -24
P/E (x) 27.5 - -
EV/EBITDA (x) 5.5 2.2 2.5
Ibiden (4062.T),¥1,834 Hold
2008A 2009E 2010E
EPS (¥) 312 30 16
P/E (x) 23.8 60.7 114.7
EV/EBITDA (x) 10.0 4.1 5.1
Global Markets Research Company
The rules of the game for Japanese FC package makers
In this report, we analyze the historical and prospective rules of the game for
Japanese flip-chip (FC) package manufacturers from both a volume and pricing
perspective. We also analyze trends for packages used in the Atom processor.
Once near-term negatives out, focus to shift to 2010
Since Nov. 2008, the FC package industry has been undergoing a major
adjustment to inventories in excess of actual demand in the area of FC packages
for Intel. Consequently, we think Shinko Elec. and Ibiden will see OP turn negative
in 3Q, both at their FC package businesses and on an all-company basis. However,
we think all the near-term negatives will be out once 3Q earnings are announced.
Going forward, we think the equities market's focus will start shifting to the
medium-term catalysts of the two companies. Specific catalysts include, in the
second half of CY2009 and on into CY2010, the ASP-boosting effect of an increase
in packages for Nehalem, Intel's 2G X66 MPU, and an increase in unit prices
stemming from a generational change to the X68. As a result of these factors, we
think the chances of post-cycle earnings recovery are rising for these two
companies, and that their relative positions within the sector will gradually improve.
Potential for Intel Atom packages to become a new FC package market
There are concerns in the equities market about a possible drop in FC package
ASPs as a result of growth in netbooks and Atom processors. However, Atom's
selling point is its low power consumption, and it seems poised to be adopted for
various Internet-enabled devices. Over the medium term, we think the market
potential of FC packages— use of which has to this point been limited to PCs and
game consoles— could still expand significantly. In this report, we focus on the
possibilities in this area.
Initiating coverage with Buy on Shinko Electric, Hold on Ibiden
We think both Shinko Electric and Ibiden will make operating losses in 3Q and 4Q
FY3/09, but we still think both companies are rarities in the electronic components
sector in that they have unique factors likely to yield improved earnings. These
include new FC packages coming out in 2H FY3/09 and thereafter and the
resulting ASP-boosting effect, and, in Ibiden's case, growth in DPF volume thanks
to the start of Euro5. Accordingly, we think it is possible to award these two
modest premiums to the average forecast FY3/09 P/B for the 20 major electronics
component manufacturers (0.8x). Our target prices are ¥900 for Shinko Electric
and ¥1,800 for Ibiden, both based on a forecast FY3/09 P/B of 0.9x.
(Continued from cover page)
Valuation and risks
The effectiveness of earnings-based (or ‘flow-based’) valuation metrics is decreasing as a
result of declining profitability. Accordingly, we are using P/B (an asset-based or ‘stock-based’
metric) to value electronic components makers. Whereas the average forecast FY3/09 P/B for
the 20 major electronics components companies is 0.8x, Shinko Electric's is 0.7x and Ibiden's
is 0.9x. We thus think the former is undervalued, while the latter is not particularly
undervalued. Our ratings are therefore Buy for Shinko Electric and Hold for Ibiden. Risks to
our investment view include 1) PC demand trends, 2) unexpectedly strong growth in
netbooks, 3) forex trends, 4) possible price reversals, and 5) Nan Ya PCB striking out on its
own.
Table of Content
Investment thesis............................................................................4
FC package industry hit by adjustments to inventories in excess of actual demand in Oct-Dec
2008, but 3Q results should get all near-term negative incentives out in the open...................4
One of few subsectors in electronic components sector with individual catalysts for 2010 ....4
Atom processor not exclusively a risk—it could create an entirely new market for FC
packages ...................................................................................................................................4
Initiating Shinko Electric with Buy, Ibiden with Hold..................................................................4
Valuation....................................................................................................................................5
Risks..........................................................................................................................................5
Valuation.........................................................................................6
Shinko Electric: Still looks undervalued relative to sector ..........................................................6
Ibiden: Share price in range of fair value ....................................................................................7
A look at volume trends..................................................................9
FC package market overview.....................................................................................................9
MPU packages account for 70% of Japanese FC package makers shipment ........................10
MPU market trends: Intel share continues rising.....................................................................11
Breakdown of price determinants................................................14
Technological advances for FC packages corresponding with Moore's law ...........................14
Roadmap for FC packages beginning with X68 .......................................................................16
Japanese makers to maintain their lead in technological development...................................17
Abundant catalysts for FC packages in 2H 2009 onward from Nehalem launch and shift to
X68 ..........................................................................................................................................18
Impact of forex trends on prices weighing heavily for now.....................................................20
Atom affording wider potential for FC packages.........................22
Comparison of Intel Atom processor with MPUs for PCs .......................................................22
Atom processor embeddings...................................................................................................24
Atom not just for netbooks but for MID, embedded internet devices.....................................25
Trends in FC packages for Atom..............................................................................................28
How strong is the potential for FCs for Atom? ........................................................................28
Outlook for three FC package makers ..........................................30
Major inventory adjustment in Oct-Dec 2008, bringing them below actual demand ..............30
Outlook for MPU FC package demand ....................................................................................33
From 2010 onwards Nehalem packages, then generational change to X68; good signs to
continue in terms of average prices.........................................................................................35
Shinko Electric more favored from effect of higher average prices for Intel MPU packages ..35
Risks ..............................................................................................37
Trend in demand for PCs..........................................................................................................37
Larger-than-expected spread of netbooks ...............................................................................37
Forex movements and chance of prices rebounding...............................................................37
Nan Ya is on the rise.................................................................................................................37
Companies
Shinko Electric Ind. (6967)........................................................................................................38
Ibiden (4062)............................................................................................................................70
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