Rambling gambling man

I ain't good looking, But you know I ain't shy.

Ain't afraid to look a girl in the eye,

So if you need some loving, And you need it right away,

Just take a little time out, And maybe I'll stay.

Then I got to ramble, Lord I got to gamble,

And I was born a rambling gambling man.

                 Quoted from song lyrics - Rambling gambling man

                 Written and performed by Bob Seger

Rising tide lifts all boats, as reflected by Apple-concept stocks which recently had bulked up stupendously. Given their blowout results last year, some might assume many of them, with stocks valued in awfully buoyant levels, will pay handsome, regular dividends. Not so, at least one profitable touch panel maker bucks the optimistic bet from its shareholders who blatantly bash its unduly thrifty policy.

Branded as the most directly-leveraged way to play Apple-driven rally, TPK (3673, TSE Code), needless to say, has to change, and can’t be relied on if it continues to balk at opening its wallets to its investors.

Bright future for TPK

TPK Holding, the global-caliber maker specialized in projected capacitive input (PCI) applied in touch panel, is a holding firm domiciling at Cayman Island with 14 affiliates and over 34.000 workers worldwide. With its paid-in capital registered at NTD2.2 bn as of 2010, TPK enjoyed barn burners since Apple became its bedfellow in 2005. Setting up its foothold in Taiwan stock market on Oct. 29 last year with IPO price at lofty NTD220, TPK got a bang in debut trade, zooming to NTD550 at closing. During its public allotment, only 1.3% out of 540k subscribers is luckily enough to be entitled to receive 28 mn shares offering from the orthodox Apple-powered new comer.

Stock of TPK has bulldozed higher to current territory around NTD900. Buddying up with Apple and HTC bolstered its bottom lines to book EPS over NTD23 in 2010. While sale in 1Q11 backpedaled 5.5% QoQ to NTD25.32 bn, most analysts bypassed the bummer interpreted only as a small fly on ointment and seemingly already baked into their earlier forecast. TPK, incepted in 2005, even won market’s across-the-board compliment, as the figure was better than analysts’ pan of a 10% backtracking.

TPK is also braced to branch out into one/single glass solution (OGS) technology to reduce usage of indium tin oxide (ITO) in touch panel module. Being a leader in the field in Taiwan, TPK will benefit from adoption of the simplified OGS spec backing up iPhone 5 in 2012. Hopes build up that OGS touch panel demand by Apple’s tablet lineup will bolt 60% for 2011, and that by smartphone runners will balloon more than 50%. Now that Apple has a predominant role in smart-phone and pad-computing arena, with the latter to bite an estimated 70% market share globally, TPK is certainly to be well-fated to keep basking in the black.

Numerous market gurus boast a more brilliant 2Q11 quarter of TPK’s sale to a record apex. Gross margin will be pegged around 15% to boost net income from estimated NTD1.9 bn in 1Q11 with quarterly EPS further jumping over a "balmy" level of NTD9 grabbed in 1Q11. Backstopped by Apple blockbuster iPad2, TPK’ is well poised to blast what they expect, as voiced by more optimistic watchers. Apple, bookending 1Q11 results notably and buttressing 70% of TPK's sale, is primed to roll out iPhone 4 in 2H11, additional boon to TPK.

Fresh bounty to be brought for TPK in 2011 will come from a brisk delivery of e-book, dubbed Nook Color, from Barnes & Noble. The global largest chain bookstore, eyeballing cheaper market by selling its own tablet with content intertwined with FB and Twitter, will serve as TPK sale booster by 5-10% in 2011. Booted up by Android OS, Nook is on route to churn out annual shipment of 10 mn units in 2011.

TPK unveils belt-tightening dividend pay

At its Apr. 18 board meeting, TPK called on its investors to live within its means as a prelude to address future deployment at upcoming analyst and shareholders meetings.  Its 2011 budget is planned to barrel to NTD20 bn, up from NTD10 bn last year. But at the same time, TPK had investors bemoaning a disappointing dividend blueprint, a sharp contrast to a wish of more-than-NTD20 cash dividend for each share. The bad news caused blistering condemnation, especially at a time when other electronics, sitting on hefty cash piles, are ready to kick back heady cash to their investors.

Barring no nasty surprise, the “shareholder-friendly” touch sensor and cover glass producer headquartered in Xiamen city, China, will dole out a meager 5% stock dividend (50 bonus shares for every 1k shares) recapped from 2010 retained earnings to brighten up shareholders. The bland move will surely be broached at analyst meeting reset sooner to May 04, and probably reach a boiling point at June 09 shareholder meeting, at which TPK, on assumptions that it faces sharpening barbs, may be forced to throw retail investors a bigger bone - It’s better late than never, if everything goes well.    

TPK’s baby steps breaches the market’s general rule for investors to get bulky reward from cash-rich, decently-performed stocks. Even Wintek has plotted a cozy dividend plan appropriated from fiscal 2010 earnings. Wintek, another Taiwan’s touch panel sensor maker banking on bread and butter from Apple which accounts for 40% Wintek's client base,  bounced back into black last year, as compared with bleak results marked by consecutive losses in 2008 and 2009.

Asustek, one of major brand-name NB and tablet producers in Taiwan, will pay out all-time-high cash dividend of NTD14, and 22% stock dividend for each 1k share owner after it bloated its EPS to NTD26 last year. While blasted by few foreign analysts, a 85% pruning of its paid-in capital last year by spinning off 2 ODM divisions has bulged its NAV per share to a peak as high as NTD150. By profitability, Asustek beats its major Taiwanese own-brand tablet contender, Acer Inc., due to the efficacy of its PC motherboard segment which constitutes a bulk of 70% in sale breakdown. Growth of Asustek is then less stunted from bluster of tablet devices.

Meanwhile, HTC, the market’s main beauty, has earned it good reputation not only by robust outturn, but also a comfortable string of annual cash dividend averaged over NTD25.6 in a 5-year stint since 2005. Cash dividend to be delivered by HTC, building on its exponential growth this year, is largely speculated to leap further for 2010 fiscal year.

Dividend payout by some TSE members

Listed Firm	TSE Code	Stock Dividend (%, for 1k Shares)	Cash Dividend (NTD)	2010 Net Income (NTD1 bn)	2010 EPS (NTD)	Common Shares (1bn Shares)	Close (NTD, Apr. 22)
Acer Inc.	2353	1(2009)	3.10(2009)	15.10	5.70	27.00	51.10
Asustek	2357	22	14.00	16.40	26.72	6.27	249.50
Wintek	2384	10	0.37	2.06	1.70	14.66	51.20
HTC	2498	5 (2009)	26 (2009)	39.50	48.50	8.17	1,255
Largan	3008	0	13.50	2.49	18.60	1.34	926
Giga Solar	3691	30	25.00	1.07	34.60	0.33	797
TPK	3673	5	0	*5.15	*23.00	2.24	902

*Estimate
          
TPK refuses to buckle under dividend bugs

Despite all the blames, TPK has claimed it is still in the budding phase in the future face-off with 2 LCD display panel behemoths, AUO (2409) and Chimei-Innolux (3481), which are brandishing claws to take a bite on the industry. The backlog of cash reserve should give it a good stead to broaden its output capacity to meet rising demand from Apple in future, and a dividend payout will cause that business blitz to backfire. It is currently bustling with a new 4.5-generation production line to look for a banner 2011 year. In 2H11, monthly output for its product applied in 3.5” touch screen will surge to 14 mn units, up from 8 mn in 2010, and that over 10” will vault to 6 mn from 2 mn. The expansion should assist it to remain dominant in the battle with Wintek.

TPK has tried to blunt the criticism by bringing out its current plight arising from a shortage of working capital estimated at NTD6 bn for that capEx which calls for a fund up to NTD20 bn. But the management is said to be capable of keeping its eyes on the ball, trying to ban a botched move fueled by inflated paid-in capital which in turn dilutes EPS. A worse case is cited from its main rival, Wintek. Despite bloodletting in baselines in a 2-year spell before 2010, Wintek these few years stepped up rights issuance that makes up 50.44% of its capital base, and is going to put its GDR on the block again this year. TPK opines that it will maintain its ROE on the verge over 40%, even though it can provide a bright spot for investors looking for Apple theme.

For those seeking a banquet fraught with cash dividend, TPK suggests them to realign entry into stable dividend yield firms, such as Taiwan Mobile (3045) and Chunghwa Telecom (2412), which have not been misers for dividend disbursement. Besides, TPK borrows a cogent case from a battery of US big-name setups, including Apple, Yahoo and Google. They had barely bulged in their dividend releases in the past, a rare reality that only witnessed Apple to dispense cash to investors in 2003. Everything that TPK needs to do is aimed for bonanza in the foreseeable future, as it asserts.

Cash call to be expected in wake of ECB sale

But TPK lately produced a series of conflicting views. To bathe in the booming industry in next 3 – 5 years, TPK has completed an offering of 3-year zero-coupon ECB on Apr. 13, right off the bat after it was nodded by regulators on Apr. 11. The issuance, worth USD400 mn, was reportedly 75% of which snatched up by long-term foreign big-wigs, while that picked up by “swap” players hit less than 20%. Bidding for the ECB was active, with oversubscribing ratio booked at 10X and convertible price fixed at NTD1,071, equivalent to a premium of 32% that bred the largest gap since 2004 in comparison with those ever rounded up by its Taiwanese ECB brethrens. 

There is still a nagging concern that the bond offering might not be much more than a band-aid. To further breathe life into its operations, TPK ponders successive fund raising blizzard by right issues or GDR to the tune below 20 mn new shares, as reported recently. The proposal will top the list of agenda at its June 09 shareholder meeting. The new basket is hinted to have a slight 8% diluted effect for its EPS multiple. If TPK finally puts it to bed, investors will then cash in on the benevolent plan to get chances for new shares by lottery allotment, and hopefully share the bona fides growth benefits - possibly stock capital gains rather than dividend income. 

Bulwark for stock capital gain play

All those clarifications - capEx, capital preservation and bidding to clean balance sheet, will bode well for its stock price which is bound to bob higher in future. A bunch of analysts, from left and right, seem to rate the stock as a strong buy as its 2011 sales will double to NTD121 bn, up from NTD59.5 a year ago. Net income is touted in the vicinity of NTD11 bn, or NTD48 per share, marking spectacular airborne jumps from NTD4.74 and NTD21.19 in 2010.

With that bullish, stunning backdrop, backlash at the niggard has taken a backseat. Instead of bargaining with TPK’s policy, most of foreign analysts backed its policy to freeze dividend payout, with one aggressively tipping upside target over NTD1,020. Albeit not all of them jumping on the bandwagon to chart an inconceivable updraft, they regarded the stock as a bastion for growth-motivated buyers who can afford to brush off any cash dividend thinking. Fortunately, there’s still one foreign house demanding for the dividend over NTD1 at the very least. 

Going back to Feb 11 this year, TPK stock outperformed the market following an inclusion of its stock into MSCI emerging market index components. The foreign house reiterated its bullishness for TPK which won’t face any bumpy road ahead in next 2 years, as Apple will remain financially fragrant. As of .Apr. 22, foreign holding on TPK bulged to 146 mn shares, or 74% part of its capital shares; followed by local funds, 12.42 mn, or 5.65% and proprietary traders, 0.97 mn, or 0.44%. The laws of gravity seems to reverse, and in a big way, as the tight liquidity will squeeze the small-cap, capitalized at NTD2.24 bn, to one way course – breaking the NTD1,000 round number. What goes up mustn’t go down - at least that’s what they say at present, letting alone a chop for the stock rating to a sell.    

Development of Taiwan TDR sector – Hoped to widen number

Taiwan stock market, at the behest of upgrading itself into regional financial bellwether, has lured more overseas firms to climb abroad, especially on TDR counter. An overseas firm, absent from any stock bourse previously, can be directly traded publicly in primary TSE and OTC boards, while that already listed overseas can be eligible for a dual listing with a quote name seen by form of TDR. TPK is one of those 7 overseas firms directly presented on the major TSE board. At the moment, only one overseas firm goes traded on OTC.

In TDR’s 28 certificates, Tokyo and S. Africa both contributes one to TDR pits; Thailand, 2; Singapore, 11 and HK, 13. In terms of total market caps among the so-called 4 Asian Little Dragons countries, Taiwan trails Korea and HK, only mildly eclipsing Singapore. However, the apparently freer FX control in HK has made itself a rival beyond the reach of Taiwan.     

TDR market is plugging along in reasonably good shape, as flaunted by government, thanks in no small part to relatively laxer rules, and thanks as well to ceaselessly belligerent attitude by retail investors who count for half of overall market volume. A bevy of 27 new comers are queuing up to set sights on TDR this year, with more to awe investors in future. But an all-bets-are-off situation will likely take place once cross-Taiwan Straits relation breaks down. So far, a benign political picture has encouraged many Taiwanese and Chinese firms, with shares currently circulating in HK market, to willing bet big on TSE.

Listing numbers in Taiwan

Year	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
TSE	638	669	697	691	688	698	718	741	758	767
%, Growth	8.46	4.63	4.00	-0.80	1.43	0.27	2.78	3.10	2.24	1.17
OTC	384	423	466	503	431	547	539	546	564	571
%, Growth	13.28	9.2	9.22	7.35	-16.70	21.20	-1.48	1.28	3.19	1.22
TDR	1	3	0	0	0	0	0	13	24	28
Total	1,023	1,095	1,163	1,194	1,119	1,245	1,257	1,300	1,346	1,366

Note: *1: TSE = Taiwan Stock Exchange *2: A relisting for OTC-traded stocks into TSE board will partly lead to a drop of OTC listing numbers. *3: Annual figures are year-end balances. *4: Figures for 2011 are based on the date as of March 2011.

Taiwan firms buy offshore fund to tap China market

Beset by 25% corporate income tax, and 40% inheritance tax rate, slashed to 10% in 2009, a substantial batch of Taiwanese firms have their headquarters based either in Singapore or HK years ago. The relocations binge can be partly traced to attempts to skip barrier for outbound investment ceiling by a listed firm with the sum restricted at a bar below 40% of total equity. Meanwhile, those domestically-rooted will clear the barricade in vying for access in China market by snapping up an overseas tailor-made mezzanine fund.

Using internal capital for buying offshore fund is not blocked by government, with the accounting ruse blanketed by a grey area in off-balance spreadsheet. The fund can also serve as a good stead to avoid tax probe for personal inheritance tax, much as it can allow listed firms to take their gloves off, roaming in a vast and potential market in China. The safe shelter was seldom urged to lay bare the ultimate beneficiaries, no more than its purported investment bias.

Shaky outlook for TDR 

Much was made when the government fielded a new champion, TDR sector, into the corporate listing battlefield, brewing a successful scenario billed as “salmon back to habitat” since 2009, in which the pace of TDR floating was quickening much more than those of TSE and OTC. The arrivals shouldn’t be lumped together as profiteering bums. To some extent, they are rambling gambling men. The government must be behooved to batten down the hatches in any brouhaha case like TPK which is brimming with cash yet blinking at dividend payout to investors. A beastlier TDR event, akin to an alleged bribery occurring last year, must be boycotted together.

The TDR market, at best, is somewhat like a wonderful land besieged by short-term or momentum participants. On balance, nearly 60% of TDR issues become fallen angels in their post-IPO trends, with IPO prices now far behind. It is not similar to an inflated blimp ready to burst, but more of a story of winners chipping away those considerations raised in Taiwan off the table, and all the more so are those small-caps, particularly in the likes of PCB and connectors. A few in the 2 sectors on TSE and OTC in the past were busy in pump-and-dump games after listing, thereafter leaving their stocks now basement dwelling on the markets.  

In actuality, the government’s push for TDR number is much related to the fact that lots of domestic venture capital firms went bust in recent years by lack of promising acquisition baits for them which now increasingly bend toward that attractive China market. On the domestic front, private investment was reported to come back on a reviving track in 2010, with new buildups of factory up by a net total of 342, a stark difference versus backward steps in 2008 and 2009, in which factories went bankrupt by a net 489 and 1,316. Last year's bounce belies a beleaguered sector in new start-ups.

As can be perceived reasonable, the island was blighted by a declined crop of local-content new issues, especially those qualified in the big-cap bracket. Things are certain that the landscape for Taiwan stock market will be less blissful, if developing mainly on the back of TDR boomlet. But truly to say, the government has spilled bean that the market has done its best to be on par with regional peers.

Government backs off from TPK brawl

The market’s regulators, behaving in an oddly backhanded way, had made it clear that TPK's dividend policy is not under the jurisdiction of the market as it is registered offshore. If that is the case, who can bail out investors in future in reaction to a bungling financial move by a TDR and TSE-listed universal firm? The government at some points should issue more guidelines, better comprising a knock-out option that can force them to delist, if they commit a blunder like money laundering, or keep rambling worldwide with money pocketed from Taiwan market. At then, barbarians will not be seen at the gates.

Loosen up, Tightwad !

In the case of TPK’s frugal attitude to its investors, at first blush it looks like a positive call, but a closer look will reveal that it just adopts an unfair policy. People will boggle at the huge bonus awarded to its board members who received NTD21.14 mn in 2009 and NTD42.52 in 2010. A proposed 5% stock dividend for every 1,000 shares is almost equal to NTD112 mn worth of shares, a bane to earlier bettor who had hoped TPK to follow the fad led by other electronics such as HTC and Largan. Its skimpy manner is quite unacceptable to local individual investors generally in favor of fat return both in cash and stock dividend.

The stock doesn’t look undervalued if judged by trailing PER around 40X, much expensive than the TSE’s 16X, neither should it be known as a safe wager as it is largely pandered, so to speak. TPK has fairly customized products for Apple which is its biggest profit generator. Nevertheless, a sudden retrieval of contract as well as a sturdier competitor will blur its outlook in a market that’s not short of makers biting the bullet. Bleaching out those concerns, TPK current uptrend will be probably on a roll, driven by bulls not bullied by any aberrant blip such as TPK’s bluffing of slim bonus shares. Insiders may likely wait for more upbeat news to come - for example, a merger between TPK and Apple. If that takes roots, retail investors will hail the invincible TPK, then leaving those resentment all behind.

It is boloney for investors to simply trade stocks without expectations about the yields from any sort of dividend. Greed and fear have long been bogeymen for market’s every twist and turn, so it shouldn’t surprise us that investors can’t get a predictable cycle to catch a bid, and the same holds true for listed concerns and industries to boot. Market timing, if running against market's underlying direction, always unexpectedly deals a blow to confidence, and continues to be challenging. Dividend payout in some ways can compensate for trepidation in face of uncertainty.

Blots in CB and ECB back office sheets

It is not an amazingly eye-popping topic for any cash-cow company wrapping up an ECB offering in such a swift fashion. As was often the case previously, issuers and underwriters will prearrange a bilateral agreement to split the ownerships to their dedicated subscribers. Who are the de facto buyers behind the scene deserves little attention, much less is the factor to settle a convertible price. They, in general, can rig market price as the yardsticks to dictate the premium ratio. But we should call them market makers instead of price riggers. It is very evident that no one but insiders can capitalize on their positions to upload the CB into their own accounts.

After a stock IPO, insiders in Taiwan will hit a roadblock for selling the tranche that required to be deposited in government agency to justify goodwill to the market. It’s stipulated that in an IPO, at a minimum tad, primarily stock owners with a stake below 30 mn shares must deposit 25% to the agency amid a lock-in spell of 6 months. A larger holder will be accordingly asked to chip in increased amount. The required span was shortened from previous interval of 2 years effective Oct. 2010.

However, they can engineer a scheme by launching CB or ECB sale and then transform the tranche into common stocks over the convertible price, in a bid to reap profits or rewarding themselves after years of R&D, road shows and hard works, etc. Therefore CB exercise is quite vanilla and plain, at least in Taiwan. Glitz will definitely fall on a stock characterized by tight-liquidity combined with honest-to-god organic growth - the tighter the company’s floating, the brighter the blaze. 

In other cases, those financially-ill bond investors could leverage purchases by loans from domestic banks. What's worth a notice is that  it now turns out to be part of backbones for banks income stream as they act as buyers and then refurnish or restructure bond into a swap – banks sign repurchase agreement when reselling bonds to fresh buyers who take in interest income from banks. Meanwhile, banks will roll out premium ratio to sell options carried in the bond to others. The trade creates a rate spread, though usually marked with shallow basis points income for business arising from the "hybrid" securities. In reality, domestic CB is much more hectic and popular than ECB if termed by churning rate and market liquidity.

Taiwan stock market – Divergent price moves by sector

Unanimous rise in global stock markets last week was explicable, as the tech honchos, Intel and Apple, burnished the tech outlook with their better-than-expect results. While worry about a buffeting on balance sheet for 1Q11 results caused by lingering impact from Japan quake and appreciated local currency, NTD, has not gone away, investors built positions amid fears to sit out of a rally in a market that bottomed out around 8,600 last Tuesday. The steep run-up actually had some pundits stumped, making their analyzing programs on the blink. The wrong earnings prediction about Intel which beats their estimates is however partly attributed to Asian PC maker’s moribund showings.

The market last week bumped up higher to end at 8,969, up 251 points WoW. A randomly-selected trading mode seems to have vanished in a market now staging vividly diverse price trends by sector. Partly emboldening market sentiment, talks between financial watchdogs across Taiwan Straits, set to begin on Apr. 25, propped up financials. Optimism was blooming from their future roadmap. The meeting is widely-thought as a barometer whether stocks can reclaim the 9,000 ground on the back of would-be leader – financials. However, a bundle of old-school industrials have exhibited brighter sparks for the year to date, such as Formosa Plastic (1301) and Taiwan Glass (1802), both of which had posted a 3-year-plus pinnacle. The cement sector, also banking higher lately, is braced to bag actual benefit from China’s 12th 5-year economic development plans in future.

Botchy operations and back-to-back low-balling quarterly estimates for 2Q11 put Acer exposed to moral hazard as the NB maker cut its sale forecast twice in a month on Apr.19. Foreign house renewed their bearish note to Acer, with one slashing its target price to a trough of NTD35. A likely bottleneck for its logistical system is added to its battered outlook. In 1Q11, it hauled in sale of NTD127 bn, down 14.3% QoQ; net income slid 69% QoQ to NTD1.18 bn and EPS slumped to NTD0.45, down from NTD1.62 in 4Q10 and an 8-year quarterly low. Acer is set to have its analyst meeting on Apr. 28, seemingly intending to cut all analysts' bearishness to the bone. Ostensibly, that might be an idea initiated by new CEO who took the baton early this month. The stock may drift aimlessly in a basing pattern around NTD48 - NTD50 for a while, with company buy-back program providing much-needed buffer to stave off selling pressure. It certainly will reboot more buying if condition warrants, according to its past records.    

The market is still chock-a-block with rave reviews about which will be the new champs among those highfliers. The so-called F4s (named after a popular Taiwan band, F4), - namely, HTC, Largan, Giga Solar and TPK, have acted like representatives respectively hovering in the market’s priciest bands separated by each NTD100. Their blazing strides have bested other one-time leading techies, such as IC-designer MediaTek (2454), which has been in a bind in operations since 2010. Other big-beta tech stocks, ranging from DRAM, LCD display, and IC foundry service, were also running into a brick wall.

On the brink of topping out

This week will encounter a barrage of analyst meetings, with caution reigning as anxiety about an adverse affect by Japan quake and ensuing failure for Taiwan manufacturers to build key component inventory will be again broadly-based in next 2 months, customarily a slow season in the tech sector. With investors still digesting corporate earnings reports due by Apr., a further jump over 9,000 may bog down to form a bedeviling broadening top. 

Good luck and good trading !

Link - Rambling gambling man:
http://www.youtube.com/watch?v=3kX6hpmTNTk

P.S. Sorry for the delay of posting this lengthy article. Monday morning is usually the time I post my views. But it's really diffcult to put a chart and a table on a blog. Now, I know it. Thanks God ! Maybe I got to ramble around tech streets to ask for answers, not money.......