Wednesday, December 18, 2013
STATS ChipPAC: ($0.315) Errant conduct by industry peer ASE may benefit company A week ago, Advanced Semiconductor Engineering Inc (ASE), was ordered by the local government of Kaohsiung, China, to close part of their production complex in the state after they were found dumping wastewater containing heavy metals into Houjing Creek, a major source of irrigation water for farmland in southern Taiwan. The world's largest integrated circuit packaging and testing services provider with 30% global market share was given 10 days to explain and correct its misconduct, or face a suspension or shutdown of its K7 plant, a substantial revenue generator (~9%) for the group. Market observers note that client orders which have been affected by the disruption may potentially see order flow towards ASE's competitors. One of the beneficiaries includes SGX-listed STATS-ChipPac Ltd. At the current price, STATS ChipPAC trades at an attractive 0.59x P/B. In addition, investors would be able to gain exposure to TSMC, a key client of STATS ChipPAC, which is tipped to emerge as the main beneficiary to Apple's diversification strategy of its supply chain, away from Samsung.