This morning ChipMOS (IMOS) released its Proxy statement announcing its annual shareholder meeting which will be held on August 31st. Two points stand out: first, the CEO is very confident about business for the second half and beyond. Second, the company is trying to free up cash for dividends or other shareholder friendly actions.
In the Proxy is a letter to shareholders from ChipMOS Chairman and CEO SJ Cheng. Notably, this letter is new. It was not in the 20-F annual report filed with the SEC on April 26. It gives terrific color on his expectation for business later this year. Cheng comments:
"We are optimistic in our outlook for the second half of 2012 led by seasonality, currently low inventory levels, ramp of new business and the addition of new capacity. Overall, we are very confident in our business over then near and long term."
He also elaborates that some of the growth in 2H will come from new business derived from recently developed technology.
"We have found that our WLCSP and copper bumping technologies have been recognized as a viable and cost effective solution for the power management devices, logic products and low-density memory products, including NOR flash and DRAM, mainly for handheld electronic applications. We have teamed up our staffs and put together production line for this advanced packaging business opportunity by leveraging our existing bumping technology and newly engaged AKM business. We expect to commence the WLCSP production in second half of 2012."
In our view, if ChipMOS can deliver 2H growth, that should be a more than enough for the stock to work as its trading slightly over 2x FCF.
In addition in the Proxy there is a proposal for a "Share Premium Reduction and Accumulated Losses Set-Off." Essentially what this means is that the company will take excess reserves and use them to eliminate accumulated losses. There will be no cash impact. However, quite importantly.
"...the set-off of the Accumulated Loss in full will give the Company greater flexibility to declare dividends to its shareholders in the future."
We take today's proxy as unusually meaningful, and a clear signpost that ChipMOS' 2Q earnings call on August 17th should be a positive catalyst for shares.
Disclosure: I am long IMOS.
Additional disclosure: We conduct thorough research on our ideas, but our views are our own. Please do your own research.