Analysts upbeat as company fails

The unexpected shutdown of Shea May Enterprise Co (十美企業), a local printed circuit board (PCB) maker, is expected to relieve oversupply that has plagued the industry for years, industry watchers said yesterday.

The Linkou-based Shea May, formerly a motherboard manufacturer that became a liquid crystal display (LCD) PCB substrate maker, on Monday halted operations because of financial problems. Company chairman Hsu Ching-chung (許進忠) has disappeared.

Shea May -- which mainly supplied LCD substrates to flat-panel makers such as AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) -- reported a loss of NT$86 million during the first half of the year, after losing NT$120 million last year and NT$130 million in 2001.

While the company's 750 employees -- who did not get their December salaries -- were stunned to learn that the company had closed, industry analysts said it was just a matter of time before poor management and weak solvency brought the company down.

"Poor management has resulted in failure for Shea May's efforts to turn profitable by expanding into the high-margin LCD substrate sector amid stiff price competition," said Yeh Chia-wen (葉嘉雯), an analyst at Polaris Securities Group (寶來證券).

Shea May reported an average loss of NT$2 per share over the past three years, Yeh said.

"It's good to see Shea May withdraw from the industry, which will mitigate the prolonged supply glut to certain degree," she added.

The shutdown will make room for healthy PCB companies such as Wus Printed Circuit Co (楠梓電子) and Unimicron Technology Corp (欣興電子), analysts said.

Shea May shares yesterday plunged by the 7-percent daily limit, closing at NT$8.3 on the Gretai Securities Market (櫃台買賣中心) -- the nation's over-the-counter market. Wus rose 2.08 percent to NT$19.6 and Unimicron rose 1.13 percent to NT$26.7 on the TAIEX.

The company's closure is also being viewed as a sign more consolidation is needed in the sector, as another four or five small PCB makers are reportedly on the brink of collapse, said Charles Ma (馬嘉禾) at Yuanta Core Pacific Securities (元大京華證券).

"Shea May's case will make PCB customers more carefully consider the financial situation of PCB companies when deciding on a supplier," Ma said. "That will dash the hopes of struggling second-tier PCB makers in getting breathing room amid improved PCB demand."

The event also highlighted the importance of cost control and management for the slim-margin PCB industry amid fast capacity expansion in China, Ma said.

To safeguard shareholders' interests, the nation's securities regulator and the police are investigating possible insider trading and perjury, Securities and Futures Commission Vice Chairman Wu Tang-chieh (吳當傑) said.

The company yesterday allowed debt collectors to remove inventory and equipment to help repay loans. Wu said this would damage shareholders' interests.

Starting Friday, investors will have to settle trades in Shea May shares at the end of trading, rather than buying them on credit, because the company's management has refused to explain what it plans to do, the Gretai Securities Market said in a statement yesterday.