STATS (Lim&Tan)

S$0.63-STAT.SI

􀁺 News-flow in the semiconductor continues to surprise on the downside.

􀁺 Gartner has revised down their growth forecast for the industry from 6.2% previously to 5.1% due to the negative impact from Japan’s earthquake which is causing continuing supply chain constraints, and this is expected to linger on going into 2H 2011.

􀁺 TSMC and UMC, the world’s top 2 largest foundry have seen weaker than expected orders from their key customers recently which will negatively impact both average selling prices as well as business volumes.

􀁺 As a result, Digitimes.com reported that TSMC will likely lower its previous capex budget of US$7.8bln for this year to about US$7bln, while UMC will likely reduce its from US$2bln to US$1.6bln.

􀁺 While STATS’ share price has already fallen 36% since our downgrade to Sell in Oct ’10, the above negative newsflow suggests that it is still early days for us to turn positive.

􀁺 Besides at close to 13x PE, STATS is still not cheap compared to its Taiwanese peers’ average of 9-10x (and its Taiwanese peers also provide dividend yields of 2-4%).