唔識轉做中文

When chips are down

Wednesday, July 23, 2008

The Hang Seng Index is highly likely to continue its rebound this week, so hold index-sensitive and quality shares but exercise caution on the others.
Semiconductor Manufacturing International Corporation (0981) surged 15 percent yesterday - on reports of a possible sale of a stake in the company - before closing 10 percent higher at 45.5 HK cents.

SMIC - the mainland's largest and most advanced semiconductor foundry and contract chip maker - was listed on March 18, 2004, at HK$2.69.

At the time the company went public, the benchmark had recovered to around 13,000 points, having dipped below 8,400 when Hong Kong was hit by the SARS epidemic a year earlier. Market sentiment had improved dramatically at the time of its listing and almost every new share offering was heavily over-subscribed.

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Although SMIC attracted much attention from investors, the share debuted at HK$2.42 and faced immediate selling pressure, sinking over the next four years.

As of yesterday's close, it had fallen 83 percent from its public offering price while the HSI surged 73 percent in the same period.

The major problem was that SMIC incurred losses between 2005 and last year, with net losses amounting to US$114 million (HK$889.2 million), US$49 million and US$19 million respectively.

Its heavy capital expenditure (about US$700 million to US$800 million per year), and hence huge depreciation and amortization expenses, were among the highest in the foundry industry.

DRAM price erosion was another major difficulty for SMIC. Even bringing a new strategic investor would not help much.

SMIC share-sale rumors have emerged from time to time, driving up the share price for a day or two. Every time that happens, it seems to be the last chance for existing shareholders to exit.

Dr Check and/or The Standard bear no responsibility for any investment decision made based on the views expressed in this column.