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Singapore “Flyer” of the Week: STATS ChipPAC Limited

STATS ChipPAC Limited (SGX: S24), a leading provider of advanced semiconductor packaging and testing services, has gained some 7% over the week, closing at S$0.49 on Thursday.

The firm is headquartered in Singapore and has manufacturing facilities in South Korea, Singapore, China, Malaysia, and Taiwan. Singapore’s mammoth sovereign wealth fund, Temasek Holdings, owns around 83.8% of the company.

A week ago on 15 May, stock exchange operator the Singapore Exchange issued a query to STATS ChipPAC on the back of a 13% rise in its share price on the day itself. At one point during the day, the shares were up around 15%.

The following day, STATS ChipPac replied saying that the firm had “received a non-binding expression of interest from a third party, with a view to a possible acquisition of all the shares in the Company subject to a number of conditions”. It went on to say that there is no guarantee that this will result in any form of “definitive agreement or transaction”.

The interested party had likely seen something attractive in STATS ChipPAC even though its latest first quarter results, which was made public end of last month, had nothing much in it to cheer about.

Revenue for the quarter was at US$365.5 million, a decrease of 10.1% from a year ago. The decrease in revenue was due to weaker demand from the wireless communications market that caters to the high-end smartphone segment. However, this was partially offset by strength in the low-cost smartphone segment. The firm did not make any profit for the quarter; it saw a net loss of US$15.8 million versus a net profit of US$3.5 million earned last year. Sequentially, the quarterly loss was also a step down from the net loss of US$12.1 million suffered in the prior quarter.

As noted by me colleague Stanley Lim recently, STATS ChipPAC had not only ran into losses: It has also been seeing increasing cost pressures as its gross profit margin has declined from 17% to 13.6% over the past three years. In the latest quarter, the company’s gross profit margin was at a dismal 10% as compared to 15.4% last year. Operating margin for the latest quarter was 0.7%, compared to 6.1% in first quarter of last year.

STATS ChipPac is currently trading at less than its book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.