Spotlight: Cirtek Holdings Philippines Corporation (CHIPS)

Business Overview

Cirtek Holdings Philippines Corporation is an independent full service solution provider for subcontract manufacturing of semiconductor devices.  The company provides turnkey solutions that include package design and development , wafer probing, wafer back grinding, assembly and packaging, final testing of semiconductor devices, and delivery and shipment to its customers' end users.  The company is currently located at the Laguna Technopark (Binan, Laguna).

The Company's 2 main subsidiaries, used to be under the majority ownership of  Carmetheus Holdings, Inc and Charmview Holdings, Inc, both of which are owned by the Liu family.  After a Deed of Absolute Sale of Shares by the 2 Holdings companies, the Cirtek Holdings became the parent company of CEC and CHI while the holding companies of the Liu family no longer forms part of the company structure, post-reorganization.

Subsidiaries

1.) Cirtek Electronics Corporation (CEC) - 100% owned by the Company, primarily to engage as an independent subcontractor for semiconductor assembly, test, and packaging services.
2.) Cirtek Electronics International Corporation (CIEC) - 100% owned by the Company.  Primary purpose is to sell integrated circuits principally in the USA and to subcontract the production of the same to CEC.

Products

1. Protection Products - designed to protect electronic devices from damaging voltage or current spikes.
2. Light sensors - optical device that is used on the automatic switching on/off of headlights and the automatic adjustment of airconditioning settings in cars.
3. Real time clock - precision time keeping devices with features like calendars, trickle charger, memory functions, etc.
4. Voltage control oscillators (VCO) - designed to be controlled in oscillation frequency by a DC voltage input.
5. Electronic relays - opto relays that are used in controlling high voltage and high power equipment.
6. Power management devices - used in a wide range of power management applications (telecommunications, portable devices, industrial equipment, etc).

Key People

1.) Jerry Liu - Company Chairman and President.  He is concurrently President/CEO of CEC, Director of Cirtek Land and Cayon Holdings, Inc. and Chairman of Silicon Link, Inc.  Mr. Liu's citizenship is in Taiwan.
2.) Nelia Liu - Director.  She is also the Corporate Secretary of CEC, President of Cirtek Land and Cayon Holdings,Inc and treasurer of Camerton, Inc. and Carmetheus.  She is also Dept. Chairman of the Dept. of Pathology and Laboratory of the Lung Center of the Philippines, Cardinal Santos Medical Center and Perpetual Help Medical Center, and an associate professor of the UP College of Medicine - Philippine General Hospital.  UP College of Medicine batch 1975.
3.) Nicanor Lizares - He is also a director of Pancake House, Inc.  Has MS in Industrial Economics and MA International Relations from Boston University.
4.) Anthony Buyawe - Company's Treasurer and CFO.  He is concurrently the CFO of CEC, CEIC and the Figaro Coffee Company.  A former Sr. Director of Ernst and Young.  He obtained his BA degree from UP and his MBA at AIM.
5.) Martin Lorenzo - Independent Director of the Company.  He is currently the Chairman and President of Pancake House, Inc.
6.) Ernest Fritz Server - Independent Director.  President of Multimedia Telephony, Inc., Vice Chairman of RFM Corporation and a director of Philippine Township, Inc. Former Vice Chairman of Commercial Bank of Manila and Cosmos Bottling Company, and President of Philippin Home Cable Holdings, Inc and Philam Fund.

(L-R: PSE President Hans Sicat, Nicanor Lizares, Jerry Liu, VP Binay,  PSE Chairman Jose Pardo, CVCLaw Senior Partner Avelino Cruz)

Quick Numbers

Fundamentals

Book Value of Equity (3Q 2012): ~Php1.08B

Outstanding Shares: ~162.163M

BV/share: Php 6.64


Debt Ratio (Long term): 28%
Beta: 1
Cost of Capital: 10.4%


Net Income: 
2012 3Q:  Php 157M
2011:  Php 163M
2010: Php 148M
2009: Php 40M   

time-weighted average NI: Php 145M


A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (based on earnings - DCF analysis) at around:

Fair Value/share: Php20.48 

As of the end of November 28, 2012, the closing price is at 15.28 which gives us room for about 34% upside towards our conservative target price.

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Technicals

This post came in a bit too late as CHIPS prices have started to move up again.  After settling at around 12, there came a sudden buying demand pushing the price up to its latest at 15.28.  I expect prices would be a bit more volatile this time around since a lot of sellers would start to take profit on higher prices.  The latest candle is an inverted hammer, which may signal prices to close lower than the last 2 days.

Analysis

Cirtek Holdings maintain to have stable earnings over the past few years as they were able to acquire service contracts and also attract new investors via its recent IPO and debt offers.  Risks associated with the company would be more on industry risk (semiconductor) and on foreign exchange, since profits are based in USD.  Market outlook for developed countries (main clients) isn't good; thus, there may be a slowdown of growth in the future.

I find the prices at around 12 as very attractive; unfortunately, prices already went up beyond that level just recently. As prices are expected to be more volatile this time, it would be best to wait until the stock price stabilizes or reaches low levels again.  I would recommend a BUY ON DIPS.

References: Financial Statements of CHIPS (3Q 2012)
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