MasterLink Research* - Winstek (3265 TT) - BUY

Winstek (3265 TT) Bottom in 1Q07 l Winstek reported October pretax profit of NT$27.33mn with monthly gross margin of 22.44%. Margin is expected to improve in November and December. Thus, we estimate 4Q06 gross margin to equal 23-24%, down from 3Q06’s 26% despite 4Q06 utilization rate rising to 75% from 3Q06’s 70%. The margin drop is primarily contributed by lower ASP and higher depreciation expense. l Sunny 1Q07. Winstek’s core business is wafer testing. The company guided 1Q07 revenue to witness a modest single-digit decline, which is stronger than historical average for 1Qs. Orders recovery in February and March of 2007 will come from PC graphic IC and TSMC’s communication clients. Since there was practically no capacity expansion in 2H06, Winstek believes capacity may be fully utilized as business starts to recuperate in February and March. l BUY. We estimate Winstek’s 2006 revenue as NT$2.286bn, with pretax profit of NT$535mn and EPS of NT$1.98. 2007 revenue is estimated as NT$2.735bn, with pretax profit of NT$726mn and EPS of NT$2.62. Given that Winstek has passed its operational bottom and that the current PER of 8.8X is within reasonable range, we post a BUY rating for a three-month investment period.