China Bull Cashes in Some Chips

11/06/2007 12:00 am EST

Focus: GLOBAL

Jim Trippon

Editor-in-Chief, China Stock Digest

Jim Trippon, editor-in-chief of China Stock Digest, has begun to hedge some of his bullish bets on China, but he does recommend a Taiwanese semiconductor company.

Because the prices of our stocks have increased so explosively, I’ve decided to protect our profits in case of any sharp correction: we have added a “Profit Protector” which establishes a sales price for all of our stocks in the event of sudden market movements.

The new “Profit Protector” establishes what we call a “trailing stop.” If for any reason a stock suddenly falls to the “Profit Protector” price, it should trigger an immediate and automatic sale to lock in your profits. With valuations reaching new highs there is a possibility of volatility in the future.

Guarding against losses due to sudden corrections is crucially important, and we hope you use this new resource to help preserve your gains. (Editor’s Note: in a subsequent alert, Trippon said a decline in prices had triggered profit-taking in big Chinese stocks like China Life, China Mobile, China Netcom, Petro China and Yangzhou Coal.)
 
Shares of Advanced Semiconductor Engineering (NYSE: ASX), also known as ASE Group, the world’s top chip packaging and testing firm, rose again this month on positive earnings and confidence about the future.

The Taiwan-based company’s chairman, Jason Chang, is predicting that sales will increase by 20% during 2008. Chang also predicted positive results for the company through new technologies for the upcoming two to three years.

ASE’s revenues for the third quarter were up 18.7% over the same period a year ago, indicating the company is overcoming a seasonal slump and improving substantially upon last year’s performance. Credit Suisse has upped its rating on the company to Outperform based partly on ASE’s effort to buy 49% of its closely related test unit, called ASE Test Ltd. ASE says it will streamline its operations by purchasing the portion of the company that it does not already own.

ASE is also expanding into mainland China in a joint venture with NXP semiconductor. The project is an integrated circuit assembly plant in Jiangsu province, and analysts agree that it will improve the company’s efficiency.

We continue to see the expansion of ASE into China as very positive news and are continuing our Buy recommendation on Advanced Semiconductor Engineering. With revenues predicted to continue increasing, we feel the company’s estimated P/E of 14.6x and relative dividend yield of 1.88% continue to represent excellent value.

(The stock closed Monday below $6.00 a share—Editor.)

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