Asia Memory-Bad memories fading

TMT
Memory Devices Technology
8 October 2010
abc
(10k/m by 4Q10) and 90nm full production
capacity, offsetting possible NOR ASP decline.
We’ve modelled NOR ASP to come down by
18% in 4Q and another 10% decline in 1Q11. We
expect NOR flash to represent close to 26% of
Winbond’s revenue by end of 4Q10. We expect
Winbond’s mobile DRAM and specialised
DRAM revenue combined to represent 57% of its
total revenue in 2011, up from 55% this year.
Revenue mix, 2007-11e
100%
80%
60%
40%
20%
0%
2007 2008 2009 2010f 2011f
NOR Flash
Specialty DRAM
Mobile DRAM
Graphic DRAM
Commodity DRAM Others
Source: Company data, HSBC estimates
Revenue growth in 2011 seems minimal, but this
is after a very strong growth year in 2010. We
forecast 2010-11 ASP growth of 53% and -30%
respectively, and 2010-11e bit growth for 12%
and 45%. We expect bit growth to be largely
driven by process migration.
Valuation, ratings
We derive a new 12-month target price of
TWD10.8 (previously TWD12.5) for Winbond by
applying a target FY11e PB multiple of 1.0x
(rolled over to FY11 based on 9.9% ROE and
9.5% COE). Previously, we use a multiple of
1.2x). The lower PB multiple is supported by our
lower forecast in OP and lower ROE, given
Winbond’s NOR growth has come to a
normalized demand and supply situation, in
addition to a softening memory price outlook.
(prior to the capacity glut starting in 2007). With a
less optimistic macro environment, we expect the
stock to reach the lower of its historical PB band
in the next 12 months.
HSBC vs consensus
HSBC 2010e 2011e 2012e
Revenue 32,596 33,796 37,642
EBITDA 14,594 13,729 15,477
EBIT 3,561 2,431 3,662
Net income 3,532 2,011 3,201
EPS (KRW) 1.0 0.6 0.9
EBITDA margin 44.8% 40.6% 41.1%
EBIT margin 10.9% 7.2% 9.7%
Net margin 10.8% 6.0% 8.5%
HSBC vs
2010e 2011e 2012e
consensus
Revenue -2.0% -4.0% -0.6%
EBITDA -5.0% -11.5% 9.8%
EBIT -14.6% -26.1% 1.4%
Net income -15.2% -53.1% -12.3%
EPS (KRW) 9.7% -54.7% 7.6%
Consensus 2010e 2011e 2012e
Revenue 33,255 35,209 37,867
EBITDA 15,365 15,518 14,097
EBIT 4,172 3,289 3,610
Net income 4,165 4,292 3,650
EPS (KRW) 0.9 1.2 0.8
EBITDA margin 46.2% 44.1% 37.2%
EBIT margin 12.5% 9.3% 9.5%
Net margin 12.5% 12.2% 9.6%
Source: HSBC, I/B/E/S consensus
Under our research model, for Taiwan stocks with
a volatility indicator, the Neutral band is 10ppt
above and below the hurdle rate of 9.5% (risk-free
rate of 4% plus risk premium of 5.5%). This
translates into a Neutral band of -0.5% to +19.5%
around the current share price. Our 12-month
target price of TWD10.8 suggests a potential
return of 34.5%, which is in the Overweight band;
thus, we maintain our Overweight (V) rating.
The stock has historically traded at a PB of 0.2-
1.2x, with a high ROE of 2-11% when profitable
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