Investors Unfairly Punishing ChipMOS Tech


We reiterate our interest in ChipMOS Tech Bermuda (NASDAQ:IMOS) as an undervalued opportunity.

The company sports a depression level price due to a low Altman Z Score and a convoluted management / ownership structure.

These issues are reflected in IMOS’s current price which is slightly above book value.

Valuation Comparison

Table 1: Equity Valuations for the Top Values in the Semiconductor Equipment and Material Industry

imos 1

The four companies in our comparison appeared undervalued in our initial valuation analysis. Our comparison suggests that ChipMOS Tech Bermuda offers investors quite a deal. Private equity values are in the $30’s and a relative multiple analysis pegs fair value in the mid-teens to low twenties. Furthermore, ChipMOS Tech Bermuda gives an adequate showing in terms of earning power and reproduction value. The key metric to watch in terms of the IMOS story are profit margins. If IMOS can partake in the estimated industry growth, then the company should trade for at both a higher P/E and P/S ratio. The other three stocks leave something to be desired since they offer little to no margin of safety.

Stock Universe

Table 2: Undervalued universe for the Semiconductor Equipment and Material Industry


The industry balances in terms of undervalued and overvalued securities. Eight stocks are overvalued while 10 are possibly undervalued. Investors will notice a difference between the percent discounts of Table 1 and Table 2. Differences are results of the use of averages and differences in valuation data used between the two charts. The bulk of the valuation difference is attributable to the earnings power and reproduction values shown on Table 1.

Valuation Calculations

Table 3: Take Out Valuations for Selected Semiconductor Equipment and Material Stocks

imos 3

The majority of the selected companies perform well on the private equity value test. The discounts are quite steep for three of the companies ranging from 35% to 79%.

Table 4: Relative Valuation of Selected Semiconductor Equipment and Material Stocks

imos 4

The same three companies perform strongly on the relative value test as well. Again, the values are quite compelling for ChipMOS Tech Bermuda. Each metric suggests that investors believe that ChipMOS Tech Bermuda will encounter financial difficulty. We will address these concerns in our future write up of ChipMOS Tech Bermuda.

Table 5: Earnings Power and Reproduction Values of Selected Semiconductor Equipment and Material Stocks

imos 5

ChipsMOS Tech Bermuda provides the strongest showing in a comparison of earnings power and reproduction values. The other companies involved in the comparative analysis all fail this examination. ChipMOS’s showing has interesting implications; the company’s earnings seem to be worth $15 per share and reproducing the business from scratch about $11 per share. These suggested prices make ChipMOS quite attractive because both values are well above the current price. Investors can make a strong case for ChipMOS moving closer to the $11 to $15 range.

The above valuation analysis suggests that investors might be unfairly punishing ChipMOS Tech Bermuda. Investor sentiment led us to taking a position in ChipMOS, and we think the company is worthy of further research.

*The author owns 400 shares of IMOS at an average price of $6.90.
**The author cannot be held responsible for any money gained or loss from trades undertaken based on information presented herein.
***The author currently owns: A, BRP, BTEL.OB, COP, IMOS, and VRGY
****Financial data comes from Yahoo!Finance

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Tagged: , , , Semiconductor Equipment & Materials, Taiwan
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