Wednesday, Credit Suisse upgraded Amkor Technology, Inc. (AMKR) shares to Outperform from Neutral and increased its price target to $8 from $7.
Analyst Kumar believes near term strength, mix shift towards higher value packaging, laminates and flip chip, should have a positive impact on AMKR's GMs. Valuation for AMKR is reasonable given stock is currently trading at ~3.5x EV/EBITDA vs 5 year average of 6.4x.
The analyst has remained constructive on AMKR given its focus on free cash flow, pricing and capex discipline, and strengthening of its balance sheet. Although OSAT companies have bumped up prior calendar 2009 capex estimates, richer product mix, such as wireless baseband, to high end flipchip and laminate products in calendar 2010 and tightening capacity utilization should benefit AMKR.
As a result of richer mix, the analyst now expects peak margins to be closer to 28% - 30% and trough margins closer to 13%-15% and mid cycle margins of ~20-22% last cycle. The analyst thinks this improving value added for packaging, combined with an already reasonably established industry capital discipline should drive gradual multiple expansion for AMKR.
The analyst's checks in Taiwan suggest September quarter is tracking towards the higher end and fourth quarter is now tracking flat to up for foundries/sub-cons versus July indications of flat to down. Gross margin expansion to 30%. CS Asia Tech conference September 15 week should provide preview of strength the analyst expects in October earnings season.
Currently, AMKR is up $0.55 or 9.72% and trading at $6.18.
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