Montage Tech Group (MONT), a Shanghai, China based fabless provider of analog and mixed-signal semiconductor solutions, is expected to IPO during the week of September 23. The firm plans to raise $92.3 million through an offering of 7.1 million shares at an expected price range of $12-$14. The offering will include 25% insider shares. If the price hits the midpoint of the expected range at $13, MONT will command a market value of $344 million.
MONT filed on April 8, 2013.
Joint Managers: Barclays, Stifel, Deutsche Bank
Co-Managers: Wells Fargo, Needham & Co.
MONT is a fabless provider of analog and mixed-signal semiconductor solutions. Its current focus is producing high performance, low power semiconductors for use in set-top boxes for the home entertainment industry. These semiconductors are specifically targeted for use in emerging home entertainment markets and can help in enhancing signal processing performance in areas where signals received by set-top boxes may be distorted. MONT also offers high performance, low power interface solutions that enable memory-intensive server applications for cloud computing firms.
MONT's targeting of emerging markets, including Latin America, China, India, and Africa, provides it with a wealth of opportunities as entertainment companies continue to aggressively push into those territories. Chinese manufacturers sold an estimated 154 million set-top boxes in 2012, 66% of which were sold outside of China, mostly in the above-mentioned emerging markets. That figure is projected to grow to 243 million by 2016 (a 12% annual growth), meaning that MONT's market for semiconductors should continue to expand.
MONT offers the following figures in its S-1 balance sheets for the six months ending June 30, 2013:
Net Income: $8,772,000
Total Assets: $64,592,000
Total Liabilities: $20,660,000
Stockholders' Equity: ($10,468,000)
MONT has taken full advantage of China's growth in production of set-top boxes for emerging markets. Its revenues have grown from $29.1 million in 2010 to $78.2 million in 2012, which is equivalent to a compound annual growth rate of 64%. MONT has also managed to translate its explosive revenue into significantly improved income: after posting an $8.5 million net loss in 2010, the firm put up $5.0 million in income for 2011 and $18.3 million for 2012. MONT posted an income of $8.8 million in the first six months of calendar 2013, as well.
MONT's revenue and income growth is very impressive. MONT's careful selection of markets with long-run growth prospects, complex product designs and high qualification requirements, coupled with its heavy investment into technology for those markets, has permitted it to place a high bar for competitors seeking entrance into the same markets. We recommend this IPO if it is priced in the $12 to $14 range and the underwriters don't increase the size of the deal.
This recommendation comes with the caveat that stocks in all Chinese firms must come with: if you intend to own shares in MONT, keep a weather eye on China's shaky internal governance and its relationships with the West, and don't be afraid to take profits if any accounting issues ever concern you. Based on the ups and downs of Chinese IPOs and the liability risk, I believe the highly compensated joint underwriters- Barclays, Stifel and Deutsche along with MONT's high powered law firm-O'Melveny and Myers and their worldwide accounting firm- Pricewaterhouse have performed thorough due diligence.
Additional disclosure: This article was written for informational purposes and is partially based on the S-1 filed by the company with the SEC. Investors should read the S-1 and consult with their financial adviser before making any investment decision.