KKR moves into the picture

KKR brings spice to Global Testing.

Kravis Roberts & Co (KKR) has bought US$230m of 7-year convertible bonds

issued by Yageo Corporation. KKR will own a 16.1% stake in Yageo if the bonds

are fully converted at conversion price of NT16.15, making it the largest foreign

shareholder in Yageo. Yageo manufactures passive components such as

resistors, capacitors and inductors. It currently ranks No.1 in chip-resistors, No.

3 in MLCCs (multi-layered ceramic capacitors) and No. 2 in ferrite products on

a worldwide basis.

Yageo is the largest shareholder with 18.2% stake in Global Testing. The entry

of KKR could force Yageo to accelerate the process of divesting non-core

assets, such as Global Testing. This could lead to acquisition by private equity

firms or merger with other players in the Assembly & Test space.Private equity powerhouse Kohlberg

Sequential growth in 2Q07.

of 10-15% in 2Q07 as majority of customers have worked through their excess

inventories. Capacity utilisation is expected to increase to from 58% in 1Q07 to

70% in 2Q07. Major customer TSMC has forecast revenue of NT$73b-75b for

2Q07, which represents a growth of 12.5-15.6% on a qoq basis. There is

growing demand for chips used in video game consoles (Marvell) and digital TVs

(Sunplus, Mstar, Himax and Techwell). Demand for PC-related chips will

increase with the migration to Windows Vista in 2H07.

The recovery in 2H07 will be driven by three new projects:Global Testing guided sequential revenue growth

Diversified into PC-related chips via Nvidia and AMD.

commenced wafer sorting for PC graphics chips from Nvidia in Mar 07. Nvidia

has also increased the volume for pre-production testing at its facility in

Sunnyvale, California. Global Testing was also qualified by AMD and has started

to provide wafer sorting for ATi?s graphics chips used in PCs and video game

consoles in May 07. Both projects involve 12-inch bumped wafers and provide

higher revenue per hour of test time due to technical complexity requiring vertical

probe cards. Global Testing is able to utilise existing testers for these projects

as more PC-related chips have adopted Design for Testability technology.Global Testing

More from Marvell in 3Q07.

acquired Intel?s communications and application processor business. The

business unit develops processors based on XScale technology for smart

phones and personal digital assistants such as Blackberry 8700, Palm Treo and

Motorola Q. Wafer sorting services for the new range of Communications

products will start contributing in 3Q07.Global Testing?s largest customer Marvell has

Overlooked and undervalued.

semiconductor Assembly & Test with 2007 PE at 11.6x (UTAC: 12.1x),

EV/EBITDA at 4.0x (UTAC: 4.5x) and P/B at 1.0x (UTAC: 1.8x). Reiterate BUY

with target price at S$0.33 (previously S$0.42), or FY07 EV/EBITDA of 5x. Share