CIBC Initiates on Actions Semiconductor with "Sector Outperform" Rating (ACTS)

CIBC World Markets analyst Rick Schafer initiated coverage of China's Actions Semiconductor (ticker: ACTS) yesterday with a "sector outperform" rating. Here are the highlights of Schafer's note to clients:

• Effective January 9, we are initiating coverage on the No. 2 MP3 silicon supplier, Actions Semiconductor (ACTS), with a Sector Outperformer rating and 12- to 18-month price target of $12. Actions is a China-based, fables IC supplier focused on the high-growth value end of the flash MP3 market.

• With its competitive product portfolio, exceptionally lean cost structure, high margins and strong Asian customer base, ACTS is well-positioned to capture significant share in the ramping flash MP3 player market. The value segment should represent more than half of total MP3 units in 2006.

• We are forecasting continued market share gains for ACTS in 2006, with its unit shipments increasing 37% to 68 million. We are introducing EPS estimates of $0.78 in 2006 and $0.86 in 2007 on revenues of $152 million and $181 million.

• At about 10x CY06E EPS, ACTS trades at a significant discount to peers' average 24x and SGTL's 18x. But ACTS' strong competitive position in the high-growth, value segment of the MP3 market and its industry-leading margin profile make for a compelling risk/reward opportunity, in our view.

ACTS Chart (Since its IPO).