Investment Idea: ChipMOS TECHNOLOGIES Inc. (IMOS)
ChipMOS TECHNOLOGIES INC. (IMOS) - Investment Idea
1. Executive Summary
ChipMOS TECHNOLOGIES INC. (IMOS) is a compelling investment opportunity due to its strong position in providing critical back-end assembly and testing services for memory and logic/mixed-signal semiconductors. We believe IMOS is undervalued given its exposure to growing markets like display driver ICs for OLED and automotive applications, coupled with attractive cash flow generation.
2. Investment Thesis (Bull Case)
Our bullish thesis for IMOS is based on the following factors:
- Exposure to Growth Markets: IMOS's diversification beyond traditional memory testing and assembly positions it favorably to capitalize on high-growth segments. Specifically, their involvement in testing and assembly for LCD, OLED, and other display panel driver semiconductors provides exposure to the rapidly expanding display market, driven by increasing demand for higher resolution screens across various applications, including mobile devices, automotive displays, and large-screen TVs. Furthermore, increasing automotive semiconductor content will further drive demand for ChipMOS services.
- Strong Customer Relationships: As a key provider of back-end services for leading semiconductor companies, IMOS benefits from sticky customer relationships and repeat business. The complexity and high reliability requirements of semiconductor testing and assembly create switching costs for customers, giving IMOS a competitive advantage.
- Favorable Industry Dynamics: The semiconductor industry is characterized by increasing outsourcing of testing and assembly services as companies focus on core competencies like design and wafer fabrication. This trend benefits specialized players like IMOS, which can achieve economies of scale and offer specialized expertise. The company's presence in gold bumping, reel to reel assembly, and test services for LCD directly targets this outsourcing trend.
- Compelling Valuation: The current price of $30.14 represents an attractive entry point, particularly considering the company's demonstrated profitability and cash flow generation, discussed further in the valuation section. We believe the market is underestimating the long-term growth potential driven by the display and automotive markets.