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ChipMOS TECHNOLOGIES (Bermuda) LTD. Message Board

  • haschultz1 haschultz1 May 5, 2013 10:45 PM Flag

    IMOS Questions/Comments

    Thanks for the replies to questions. The message structure is messy so I'm starting a new topic (& lost two detailed replies of mine).

    I agree with most of your writings. I'm aware of the Taiwan listing but that is known & in the price.

    My current comments are:

    1) Why does IMOS pay a dividend while it has so much debt? Debt is cheap but I would rather they paid it off (get share price appreciation with less debt & interest and higher equity/share

    2) IMOS has a lower price/book (~1.02 but due to book value being in Plant, Property & Equipment) & lower price/sales (somewhat due to lower margins). By these metrics, IMOS looks good....but they still have lower margins & higher Capital requirements.

    3) How can IMOS grow margins? Manufacturers are generally lower margin investments who have high Capital Investment needs & higher depreciation expenses....which IMOS does. Competition keeps margins lower. IMOS presentation at website says there are fewer competitiors for IMOS. Is this how they plan to grow their margins?

    4) Timing of a buy? IMOS reported lower revenue than the same month in 2012 for Jan & Feb although they beat in March. It would seem that the bigger gains may come later this year than in the run-up to earnings. Comments?

    5) How to buy? Should I buy the shares? Should I buy call options (Sept or Dec so I can get the benefit of the 1Q and 2Q earnings announcments)? Or, what seems like a lower risk tactic, should I buy the shares and then sell covered calls. This seems like it can have an upside of 30+% which providing around 12% downside protection. Pretty sweet deal.

    6) You can go to the DailyFinance site and see projected earnings. You can go to NASDAQ site and see institutional ownership which is low.....but there were some bigger sellers in 1Q 2013 (disturbing)

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    • With all the excitement trading HIMX yesterday, it was hard to focus elsewhere (up 6% on big volume and then down 10% on even bigger volume). But, HIMX beat by 25% on earnings ($0.088 vs. $0.07 expected and last year both). Revenue also beat and they seem upbeat with conference call coming tomorrow with guidance.

      IMOS had very few shares for sale and all those offered were at higher prices. Looking good for you guys but I got only a few shares..........very few. I was hoping to buy under $15 (actually around $14.50 or so). I may have to look to buy call options instead???

      I don't like buying near the top of the trading range but there just are no shares to be had lower. Resistance is at $16 and IMOS needs higher volume to bust through meaningfully. No doubt earnings could be that catalyst.

      But, it seems all of IMOS customers are doing well so what is not to like about IMOS? Trading near book value helps a lot also.

    • Has- I will only answer your first question. IMOS is a cash cow. It recently turned net cash and will be building cash from this point forward. There is no reason to pay down the debt as it is of a negligible interest rate and will be paid down soon enough.More importnatly you seem to have missed the nub of why IMOS is such a good play. The metric of EPS is the weakest metric because of depreciation expense [money spent long ago] and it has been falling off, hence EPS is improving. As Caff points out FCF is a much better indicator [cash goes right into the pocket so to speak]. I will let others explain further, but a key is to understand the selling of the 120M shares of IMOST[ a brand new company] in TW in which IMOS owns 84% of the shares. Again- getting into the weeds is like understanding the physics of engine acceleration. Better to ust turn the key and step on the gas petal. I would suggest that approach to IMOS. If not, go back in time and read the last 3 months of posts OR just buy the stock. A word to the wise- we of message board think that IMOS will start heading up [at the lastest] after the CC next week, if not before. Do not have to wait too long to see if we are correct.

      Sentiment: Strong Buy

      • 1 Reply to marnis123
      • Again, thanks to all as my understanding of IMOS has greatly improved and I now feel better about how to deal with this stock that has been on my watch list for a long time......without action on my part.

        I will look at Free Cash Flow as that might help me value this but also help me see what Capital Investments have been. As technology changes, upgrading equipment is needed or you lose to your competition. Then, Capital is also needed to expand and take on new business. At least IMOS has declared this 2013 Capital at ~$100 million (if memory serves me correct).

        I do wonder how much fully depreciated equipment is still 'working'? What I will do is look at the cash to debt ratio as a measure of whether free cash flow is sustaining this ratio.

        I have noticed that many Asian companies like to pay dividends........and many of these also have larger insider ownership. So, as they many times don't pay multi-million dollar salaries with stock options like in the USA, these dividends are probably more important for 'walking around cash'.

        Thanks again people!!!! I will be focused in HIMX earnigns tomorrow and then make a play on HIMX outlook will give some more insight into IMOS and then as a way to build on my HIMX gains.

    • Great discussion and really helpful to me. And, I hope it helps y'all critically rethink your strategies.

      Thanks Jaret & Sil for pointing out EPS and margins can grow with reduced depreciations.

      Thanks Sil for pointing out the IMOS is more a testing than manufacturer........although that seems to be splitting hairs as the testing could be considered one of the steps in manufacturing.

      And, Johnboy is right in that there was a lot of institutional selling in the first quarter of 2013. This is a concern as institutions do their due diligence. 3 institutions sold 265,000, 199,200 & 147,690 shares respectively. Only four firms even reported buying/adding and the largest two are only 52,660 and 10,735; both by newcomers. This may be why IMOS came into the year a buck higher than they left the quarter. With the price much higher this quarter thus far, perhaps there is more buying interest.

      I thought there were now listed in Taiwan but this is knowna and thus mostly baked into the price. I know Taiwan seems to trade at higher valuations than the USA but who really knows how this shakes out? There may be lots of USA shares sold upon any increases from Taiwan.

      I will probably make up my mind after HIMX announces Tuesday morning. But, it would seem buying and selling covered calls is the lowest risk method and the potential 30% return with a 12% downside protection certainly acceptable. It may not be like the homerun I have with HIMX but the chances of making contact vs. striking out is preferable.

      Can anyone elaborate on IMOS needing to restructure and Sil's comment about "Also see how imos has to restructure."?

      • 1 Reply to haschultz1
      • Hazchultz. I would not worry about large institutions selling 200,000 shares of IMOS. The dollar amount is very insignificant for these companies. You would be surprised to as how little thought is made for selling such small amounts and who makes these decisions, and sometimes even why. Also, many institutions have lousy track records. If you want their performance, they will be happy to invest your money for you.

        It's good to see that you are asking many questions regarding IMOS. I would say that very little is baked into the price regarding the Taiwan listing, and much of the business outlook. It's just an over looked stock..... period. I still think the selling of the shares is an overhang. We need to gt that out of the way.

        You should probably be asking questions about HIMX. A LOT is baked into the share price regarding Google Glass and that is a big unknown. Big unknown's can be very good, or very bad. Unfortunately you would need a lot of info to make an informed decision, and also some luck.

        Sentiment: Strong Buy

    • Actually the Taiwan listing is not at all built into the price. That's key. They will be selling the shares in Taiwan at a higher price than the shares in the US currently cost, and buying US shares, so there's arbitrage at work.

      1) The interest on the debt, as I said before, is minimal. They are gaining money faster than they know what to do with it. Despite constant capex they've gained half a billion net cash in the past 3 or 4 years. A dividend is not a bad idea with that kind of free cash flow. Doing dividends in Taiwan also allows them to avoid an extra Taiwanese tax.

      2) The p/b is actually even better than it looks because a lot of the equipment they use is carried at zero value at this point. Fully depreciated.

      3) They are growing margins a) because depreciation is shrinking. They had huge capex just before the financial crisis hit which nearly drove them bankrupt. Now, as I said in the previous point, a lot of the equipment is getting fully depreciated so depreciation has been dropping in recent quarters, and will drop a little more. b) Utilization of the equipment is rising. Equipment is a huge fixed cost so as sales rise, margins rise.

      4) Soon. The primary products they deal with are memory (DRAM and NOR/NAND flash), LCD drivers, and other smaller things like logic, fingerprint sensors, magnetometers. Everything is going well at the same time. DRAM prices have skyrocketed, double what they were a few months ago, flash is also higher. There are predictions of mobile DRAM shortages in 2H. Meanwhile Micron, the second biggest IMOS customer, is buying Elpida and the final approval on that should come soon. In the long run that will mean a lot more business from Micron. LCD drivers are also exploding. 2Q sales may be on the order of 15% higher than 1Q, and with the fixed costs involved that means much higher profits.

      5) I'd start with some shares. It's up to you whether you want calls too.

      Sentiment: Strong Buy

    • 1) A lot of people wanted those dividends badly. There are arguments for both sides of this question.
      2) Imos is more of a tester than a manufactuer.
      3) Depreciation offsets are declining and so increasing eps.
      4) Imos was a great buy when 8 to 11 most of the time and ok when 12 to 15 much of the time.
      5) Ask the experts.
      6) Look up Giant Haven . Also see how imos has to restructure.

      Sentiment: Hold

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