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  • Chipmos: Shares Have Over 100% Upside And Near-Term Catalysts [View article]
    Hi Philip,

    Thanks for the excellent questions. Please see as follows:

    1. We believe that you are inadvertently looking at basic shares instead of fully diluted shares. Fully diluted share count for 4Q 2012 was 28.9 million and should be flat in 1Q. However the buyback does not kick in until around April 18th (they have a self-imposed 30 day delay before initiating a buyback). We'd expect share count to drop by ~300k shares (1%) in 2Q since it is average shares for the quarter. If you review IMOS filings you would discover how little option/stock grants there have been over time.

    2. Micron DRAM doing well helps in that they are less likely to cut production - in fact if they can get more bits out, they will. It also lessens the probability of a shift of capacity to NAND where IMOS has less business currently. Given Micron chose to go with IMOS a few years ago, we're hopeful Micron will select to move Inotera, and longer-term, Elpida business to IMOS.

    3. The discount will be to Taiwan comps, not to the US price. So if the underwriter believes Taiwan comps trade at $22, then shares may come public at $15 - a premium, not a discount to the US. We'd then expect shares to trade up rapidly.

    We continue to think shares are very compelling - especially know a buyback and listing are just a couple weeks away.

    Apr 3, 2013. 10:22 AM | 2 Likes Like |Link to Comment
  • Chipmos: Shares Have Over 100% Upside And Near-Term Catalysts [View article]
    Buy fear, sell certainty.
    Apr 2, 2013. 11:53 PM | Likes Like |Link to Comment
  • Chipmos: Shares Have Over 100% Upside And Near-Term Catalysts [View article]
    We wanted to address all the comments and private emails in a single response.

    First, thanks for the very favorable feedback. We wish we had ideas like this on a weekly (or monthly) basis, but it's difficult to find names where the facts and set-up are so good. Even following the company's ~30% run since reporting earnings (a miss), shares are still under 2x EV/EBITDA (and there is ZERO net debt).

    Based on several informed comments, it sounds like the listing process is slightly different than we had suggested. Specifically, the company should list on or around April 19th on Taiwan's Emerging Stock Market. It will be a relatively small number of shares. However there will be the potential for additional share sales from underwriters in negotiated transactions. With greater float, there will likely be near-term coverage, even before an uplisting to the Taiex, which would presumably have a very positive impact on valuation. It sounds like an uplisting might not occur for 10-12 months, rather than the 6 we expected, however we view this as a small negative as coverage and liquidity are the key catalysts to achieving appropriate valuation.
    It also sounds like Chipmos may be able to take proceeds from Taiwan share sales to use on additional buybacks of Chipmos Bermuda shares, which would help ensure the closure of any valuation gap. If there is a reader with definitive information on this point, we invite your comment.

    Regarding Keltus' comment on free cash flow versus EPS, we think Hewitt's comment is more than sufficient. ChipMOS is ridiculously conservative. They easily could have reported non-GAAP EPS last year, showing eps excluding FX losses, but they didn't. They could have written off excess equipment, thereby lowering depreciation, but they didn't. Accounting involves many artificial constructs (which we studied ad nauseum during our academic career) and we'd suggest that investment bankers/private equity types rely far more on cash flow and EBITDA metrics than EPS. Of course, perspective like your creates opportunities for investors like us.

    Regarding lower y/y EBITDA, if you break COGS into cash COGS and depreciation related COGS, GM on a like-for-like basis was down about 50bps y/y which is largely attributable to mix, offsetting slightly higher y/y revenues. Operating expenses increased about $2 million y/y. This is essentially the decline.

    While it is almost incomprehensible that any company not on the brink of bankruptcy could trade at 1.5x EV/EBITDA, we posit several reasons.
    First, Chipmos did in fact come from the brink of bankruptcy in 2009. They did pay down $500 million, but the value has no accrued to equity - but given where the company came from it is norton many radar screens.
    Second, Chipmos missed full year revenue guidance of growing 10%. They also disappointed a bit in terms of gross margins expanding as much as hoped for. This strikes us as the ultimate case of investors missing the forest for the trees. If you could buy a million dollar home for a quarter million, and then learned that the door knobs need to be replaced, you'd still buy the home. Investors are laser focused on things that are noise in the scheme of how cheap IMOS is in the big picture. We give Chipmos' 2 largest shareholders, DLS and Chilton a lot of credit for sticking it out through all the noise and understanding what matters.
    Third, there was a big sale of Chipmos shares by SPIL and Thailin in late October - we write about it here This sale was entirely confusing and essentially not explained by management. It was however a necessary step for a Taiwan listing.
    Fourth, management has been excessively conservative. Any company with a 25% free cash flow yield should be buying back share. Chipmos wanted to get to net debt neutral, they are now, and a new buyback kicks in in the next 2-3 weeks. We expect MANY more if the stock remains significantly undervalued - and under $20 is significantly undervalued.
    Fifth, liquidity is difficult for most funds. A half billion dollar hedge fund that wants to build a 1-2% position without making up more than 10% of daily volume would spend 1-2 months. We expect the move from $20 to $30 to be much faster than from $10 to $20. Check out the IMOS chart from September 2003.
    Lastly, typical Wall Street herd mentality. With 1.5x EV/EBITDA something has to be wrong, it has to be a fraud, no one owns it. We'd speculate that at 3x, when the chart starts looking good, and fund managers can name 5 other "smart" funds that own it, it will be a great, cheap idea. Well, we're calling it at 1.5x - we like being early and being right.
    Mar 31, 2013. 09:50 PM | 5 Likes Like |Link to Comment
  • A.H. Belo: Hidden Value Or Value Trap? [View article]
    Tim, really enjoyed this well-written, well-researched article, as well as your previous articles.

    Was curious your thesis for being long MNI. Have no position in it, but if your work there is as thorough as here, thought it could be interesting.

    We love stock ideas with "hidden assets" although in many cases we wonder how hidden they are as management often talks them up and they are well known/well understood by the financial community, although they don't show up in financials.

    We have an article coming up in next 10 days to 2 weeks on a co with a hidden asset, which management has NOT discussed at length.
    Mar 29, 2013. 01:24 PM | Likes Like |Link to Comment
  • Millennial Media Could Be Zipping Higher Soon [View article]
    Stone Fox, you recommended MM at much higher levels, whereas we suggested to short it in September at more than 2x the current price.
    We are not sure how a price/sales multiple makes this cheap - on a P/E or EV/EBITDA this remains insanely expensive.
    Despite the incredible cheapness that you suggest, management and VC Charles Rivers partners are in the market on almost a daily basis dumping stock.
    While the expectation of 50% revenue growth sounds impressive, you fail to note that it marks a dramatic deceleration from 2012 - which was strong, but below the rate of the industry (this great player growing slower than the industry...hmmm share loss?). In addition that 50% is likely to slow further next year.
    As we originally argued, this is a fast growth business, but one with almost no operating leverage - and MM has no competitive advantage. Solar was also sexy and high growth - how's that industry doing?
    Full disclosure: not involved long or short in MM
    Mar 24, 2013. 10:55 PM | 2 Likes Like |Link to Comment
  • Will Kopin Benefit From The Glass Wars? [View article]
    Mark, nice article. Am curious, in your disclosure it says you no longer own Himax - am curious what's changed. Risk/reward less compelling? Do you think shares still could triple this year?

    Looking forward to your upcoming articles. We actually reference your work in a soon to be released article.
    Mar 24, 2013. 03:59 PM | Likes Like |Link to Comment
  • Micron Earnings: What Happened And Where Do We Go From Here? [View article]
    Are you a comedy writer?
    Mar 22, 2013. 02:52 PM | 1 Like Like |Link to Comment
  • Another day, another low-cost iPhone (AAPL +1.3%) report. RBC's Amit Daryanani says his checks indicate a cheaper iPhone with a plastic case and a 4" non-retina display is on the way. He thinks it will arrive in the June/July timeframe, sell for less than $400, and (after modeling various scenarios in a spreadsheet) add $22B in sales and $5 in EPS to Apple's 2014 results. For those keeping score, RBC, Jefferies, KGI Securities, Sterne Agee, and Goldman have all predicted a cheaper iPhone will arrive, but the details they provide vary plenty. [View news story]
    Our checks suggest this information is accurate and that $NTE is a subcontractor (with their LCD Modules going to Foxconn). Full Disclosure: Long NTE.
    Mar 22, 2013. 01:00 PM | Likes Like |Link to Comment
  • AMD Buyout? [View article]
    Ashraf, very much appreciate the comprehensive, thoughtful answer. Will be interesting to see how it plays out - but in semis, when isn't that the case? Still hoping they can convince Geisinger to come back.
    Mar 21, 2013. 10:16 PM | Likes Like |Link to Comment
  • Though Intel's (INTC) superb credit rating has allowed it to issue dirt-cheap debt to finance buybacks, "leverage works best when a company is growing," cautions Bernstein's Stacy Rasgon. The chip giant's aggressive cash-return strategy has already led net cash to fall below $5B, its lowest level since '95. Now, with weak PC demand pressuring sales, capex about to surge, and a 4.2% dividend soaking up over half of free cash flow, Intel probably has little choice but to either slow its buyback activity or further weaken its net cash balance. [View news story]
    To be precise, with the buyback they are not increasing FCF, they are increasing FCF per share. I'm not a fan of Mr Ragson, but I also fail to see the catalyst that would shares on INTC to outperform.
    Mar 21, 2013. 09:02 PM | 1 Like Like |Link to Comment
  • AMD Buyout? [View article]
    Ashraf, can you remind me why you are long INTC - I think you posted recently that it's one of your two largest positions. I'm not suggesting to short it, however, aside from a 4% yield (yield has NOT kept the stock from underperforming the group meaningfully over the past 12 months), what is the case for material outperformance? Do you expect it to significantly outperform the Nasdaq (or the index of your choice) over the next 12 months? I just don't see INTC as generating alpha, whereas I can name multiple stocks where I'd expect material outperformance (or underperformance).
    If you have a recent article on Intel that I should check out, let me know.
    Personally, best investment case I see for Intel is the potential that it will be one of 3-4 leading foundries in a few years that can afford the cap-ex necessary to stay at the leading edge and have adequate capacity, and with 3-4 players, have leverage on customers...but that's a very long-term thesis and doesn't get me paid this year.
    Mar 21, 2013. 07:01 PM | Likes Like |Link to Comment
  • Micron (MU): FQ2 EPS of -$0.28 misses by $0.09. Revenue of $2.1B beats by $0.18B. Shares +5.8% AH. (PR[View news story]
    Excluding currency hedge loss and loss on asset sale, big EPS beat, with GM way above expectations. DRAM pricing was down 10% q/q - so big DRAM price increases will begin helping in current quarter. Stock is going to go much higher.
    Mar 21, 2013. 04:10 PM | 1 Like Like |Link to Comment
  • Could This Be The Year Netlist Gains Traction? [View article]
    As we wrote on Jan 19th, we got this one wrong.

    Please revisit our track record from 2012. We think it compares favorably with almost anyone - if you followed us, you would have done very well (as we did).
    Positive calls on Google, Exar (single best performing analog semiconductor stock), LF, NamTai, MU, AMCC all very right for the right reason. Negative calls on Groupon and MM (please notice how harshly criticized we were on MM), both completely right and down huge. Suggested ARM/INTC pair trade, another big winner. Got NLST wrong and RBCN.
    The jury is still out on IMOS but we would be AGGRESSIVE buyers at current levels.
    Mar 20, 2013. 04:20 PM | Likes Like |Link to Comment
  • Micron: An Optimist's Earnings Estimate [View article]
    Majority of MU's sales are contract not spot. Also compare pricing vs average price from last quarter, not price on last day or last q/first day of current quarter.

    Am long (very long) but thesis is not dependent on strong 2Q - we'll see who is right in a couple days, but am extremely confident in our analysis.
    Mar 19, 2013. 08:24 AM | Likes Like |Link to Comment
  • Micron: An Optimist's Earnings Estimate [View article]
    F2Q will not be good. You are an optimist and you are not modeling accurately. Specifically server DRAM, now a significant portion of DRAM sales and NOR did not see price hikes during the quarter. Also, overall ASP improvement did not occur in a linear manner, with much occurring in the 3rd month, likely on lower volumes.

    Of course, the sell-side has been previewing the quarter in a fairly downbeat fashion - see Wedbush lowering estimates yesterday, for example. The all important outlook should be terrific and we'd expect to see shares make new highs (we recommended purchase back at $5.71 in November), but it won't be because of F2Q.
    Mar 19, 2013. 07:09 AM | Likes Like |Link to Comment