Kenneth%20Tsao%20/%20Citibank%20Taiwan

1

??????????????? The Practice of Relationship
Management Hi-tech Industry Financing


Presented by Kenneth Tsao / Citibank Taiwan May,
2005
2
Table of Contents

• Practice of Relationship Management
• Organization for Relationship Management
• Spirit of Relationship Management
• New Development of Relationship Management
• Case Study
• Practice of Financing Hi-tech Industry take
  TFT-LCD as an example
• Credit Fundamental TFT-LCD Industry
• Financial Analysis of TFT-LCD Industry
• Stress test and Projection

3
Corporate Investment Bank Organization
Customer Group V.S. Product Groups
4
Practice of Relationship Management
5
Practice of Relationship Management

• Contact Window between Bank and Customers
• Four Major functions
• Customer Satisfaction / Service
• Credit Monitoring / Decision
• Business Origination / Execution
• Cross-Selling Banks Products

6
Customer Satisfaction/Service -- I

• Information Collection
• Newspaper, Stock Price, Magazines...
• Clients Financials/Trend
• Research Reports...
• Industry Information...
• Promotion, Personnel
• Corporate culture
• Peers cross checking, competitors information
• Wallet size, Share of Wallet, Share of mind

7
Customer Satisfaction/Service -- II

• Actions
• Identify Key Decision Makers.
• Phone Call, Lunch/Dinner, Golf...
• Be familiar with Key Decision Makers family,
  birthday, hobbies, mobile phone
• Be familiar with Key Decision Makers working
  schedule
• Customer Activities Product seminar, Important
  Festivals
• Attend customers events Annual Dinners,
  investor seminar,

8
Customer Satisfaction/Service -- III

• Value Add
• Presentation skills
• Sending research reports
• Debt/Bond market update capabilities
• Funding Suggestion / Financial Advisor
• Product Knowledge
• Industry Specialist
• Market events, new market...
• Solution provider

9
Credit Monitoring

• Safe Guard of Bank
• Capability of Financial Analysis
• Industry Knowledge
• Plant Visit
• Senior Management Assessment
• Cross Checking
• Dual Control Functions

10
Business Origination / Execution

• Identify Business Opportunities
• Knowing your bank
• Whats the position of your competitors
• Product Knowledge
• The desire to win Mandate
• Execution Capability
• Team work

11
Cross Selling Banks Products

• Maximize Banks Revenue
• Return on Asset, Return on Equity
• Relationship with your product teams
• Better Utilize Banks Resources
• Good Reward System

12
How to be a Good Relationship Manager
13
Good Account Officer

• Work Hard
• People Sensitivity
• Financial/Product Knowledge
• Teamwork
• Self-Driven
• Integrity

14
How to be a good Relationship Manager
Product Groups
Corporate Finance
ECM
Cash
Customer
RM
FX
Trade
Global Connection
Middle Office
Back Office
15
The Trend of Relationship Management
16
The Trend of Account Management

• Industry Focus.
• More Profit/Performance Driven.
• New Products.
• Balance between Account Officers / Product
  Groups.
• Partnership Accounts.
• Cross Border Coordination.

17
Relationship Management Case Study
18
Case Study I -- Relationship Build Up

• Hard Working / Provide Solutions
• Information Collection.
• Relationship build up in 2000.
• Introduce product teams.
• Activities
• Periodically Review Share of Mind/Wallet
• Relationship Trigger Event

19
Case Study II -- Cross Selling

• From Simple Product to Sophiscated Products
• Cut in relationship by other banks mistake /
  1996
• Build up relationship by serious syndication
  loans / 1996 - 2001.
• FX/Trade/Cash Service / 1996 - 2001
• Capital Market Service / 2000 - 2001.
• MA Advisory / 2001.
• Global Custodian Service / 2002.

20
Case Study III -- Credit Monitoring

• Sensitive about Banks Asset
• Sign of weakness
• Information collection / Relationship
• Manage banks portfolio
• Integrity
• Dual Control Function

21
Case Study IV -- Deal Implement

• Actions
• Identify opportunities
• Customer needs
• Customer decision process
• Where is your competitors?
• Chasing Mandate
• Key Decision Point and Win the Mandate
• Follow up

22
????????? ? TFT-LCD ??
23
Global TFT-LCD Industry
2005 Q1 Global TMC Review
24
The Fastest Growing Industry in the World

• Due to the strong demand from the end users,
  global TFT-LCD industry growth rate in the past
  two years are over 30
• Looking forward, global TFT-LCD industry is
  expected to have over 20 yoy growth rate in 2004.

Source IDC (Dec. 2003)
25
Why TFT-LCD? A Flat World!
26
TFT-LCD is two times bigger than Foundry DRAM

• Global TFT-LCD industry has been two times
  larger than global foundry and DRAM in 03/04
  and is expected to have higher growth rate in the
  next two years

27
What is TFT-LCD?
TFT-LCD stands for Thin-Film Transistor
Liquid-Crystal Display.
Three major components in TFT-LCD Module
Backlight Unit
TFT Array Substrate (Glass)
Color Filter Substrate
The basic structure of a TFT-LCD panel may be
thought of as two glass substrates sandwiching a
layer of liquid crystal. The front glass
substrate is fitted with a color filter, while
the back glass substrate has transistors
fabricated on it.
28
TFT-LCD Production Process
29
TFT-LCD Panel by Generation
30
Credit Evaluation Points
2005 Q1 Global TFT-LCD Review
31
Credit Analysis - How to Determine a
Companys Risk?

• Industry
• Industry Structure
• Industry Cycles/Trends
• Market Share / Competitive Position
• KSFs vs. Strategy
• Management
• Management Ability - in relation to Strategy,
  Economy, Industry Competitive Environment
• Management Integrity
• Ownership
• Organizational Structure

32
Credit Analysis (Cont.) - How to Determine a
Companys Risk?

• Financial Analysis
• Historical Basis
• Operating Performance
• Growth
• Margins Operating vs. Non-Operating
• Liquidity Cash Flow
• Cash Cycle Working Capital
• Current Ratio Short-Term Assets vs. Liabilities
• Capital Structure
• Leverage Borrowed vs. Self-Funded
• Net Worth

33
Credit Analysis (Cont.) - How to Determine a
Companys Risk?

• Financial Analysis (cont.)
• Forecast
• Assumption vs. Industry Outlook, Market Position
  and Company Strategy
• Financing Flexibility vs. Funding Needs
• Level of Internal Generated Cash
• Banking Relationship
• Access toward Capital Market
• Financing and Hedging Strategy
• Appropriateness
• Suitability

34
Credit Analysis (Cont.) - How to Determine a
Companys Risk?

• Way-Out Analysis
• Source of Way-out and Level of Reliability
• Support or Security Appraisal
• Relationship and Account Strategy
• Share of Wallet Size
• Cross-Sales Opportunity in Non-Lending Products
• Credit Strategy and Credit Limit
• Risk Summary
• Risks and Mitigates Associated with the Exposure
• Justification for Exception on Stability Criteria
• Expectation on Future Risk Profile

35
Price change on TFT-LCD Industry
2005 Q1 Global TFT-LCD Review
36
ASP update February 2005 update - TV
37
The Outlook of TFT-LCD Industry

• The outlook remains bright given LCD is the most
  popular display technology.
• The growth of LCD TV market is critical for
  overall TFT-LCD industry.
• The cyclical volatility in supply/demand should
  stabilize with LCD TV expansion.

Source Lehman Brothers Oct., 2004
38
Global Top Ten TFT-LCD Players

• Top 10 TFT-LCD players are from Korea, Taiwan and
  Japan in terms of production capacity.

Q4, 2003 TFT-LCD Realistic Capacity by Company
Source Display Search 1Q04 (page42)
39
Financial ComparisonTFT-LCD Industry
2005 Q1 Global TFT-LCD Review
40
Taiwan TFT-LCD Customer Performance

• Sales Revenue

• Taiwanese TFT-LCD players experienced strong
  sales growth in 2004. Their total FY04 revenue is
  expected to reach NT493Bn, representing over 50
  yoy growth.

Source The companies and Citibanks estimate
TFT-LCD realted sales accounts for 58 of CPTs
sales in 2004.. Innolux, established in 2003,
belongs to Hon Hai group. Its ramp-up of G4.5 and
G5 lines is in 4Q,2004.
41
Taiwan TFT-LCD Customer Performance
Operating Margin

• Due to increasing demand and improving yield
  rate, all Taiwanese TFT- LCD players reported
  handsome operating profit in 1H04. However, the
  unexpected price drop impaired their margins in
  3Q04.

Source The companies CPT numbers only
represent TFT-LCD business
42
Global TFT-LCD Players Performance

• All global TFT-LCD players showed decreased
  EBITDA margin in 3Q04 due to declining panel
  price.

Source The companies The figures of
LCD-Division of CPT and Samsung
43
Taiwan TFT-LCD Players Performance in 2004
Profit Margin still maintain at good level after
the price downturn in 2004
44
Taiwan TFT-LCD Players Performance in 04 (contd)
Capital Structure is improved in 2004 due to
Equity injection and profit generation
45
Taiwan TFT-LCD Players Performance in 04 (contd)
Heavy Capex is the major cash outflow v.s. cash
generation from operation and fund raising
46
Way-Out AnalysisTFT-LCD Industry
2005 Q1 Global TFT-LCD Review
47
Taiwan TFT-LCD Portfolio

• Active ECM Global Loan Fund Raising Total 18
  ECM transactions with amount of US4,974MM during
  2002-2004. Meanwhile, there are also 10
  significant syndications happened during
  2002-2004.

• TFT-LCD syndication loan Large size longer
  tenor (e.g. US2BN 7-year syndication for AU and
  ChiMei in 2004) Major in local currency Club
  deal type syndication.

• Limited Credit Appetite on Term Exposure

48
Taiwan TFT-LCD players Fund Raising in 2004

• Total fund-raising of Taiwanese TFT-LCD players
  amounts to around US12bn in 2004.

Source The companies as of Nov. 2004
49
Price Drop Leads to Expansion Slow-down of
Taiwanese Players

• Due to 2H04 unexpected ASP drop and overcapacity
  concern, AUO and CMO have announced to postpone
  their next-generation fabs (slow ramp-up in G6
  and delay in G7) while Hannstar decided to halt
  their G6 investment.

50
Stress TestTFT-LCD Industry
2005 Q1 Global TFT-LCD Review
51
Stress Test Price v.s. Display Search Price
Display Search Forecast Blue Line
Stress Test Price Red Line
Source Display Search, Nov., 2004
52


630


600


550


550


550


550


37" Price Changes ()
0.0
-48.0
-16.7
-16.0
-4.8
-8.3
0.0
0.0
0.0
42" LCD TV Panel Ave. Unit Price
stress
N/A
1,800
1,260


945


756


642


550


550


550


42" Price Changes ()
-
-30.0
-25.0
-20.0
-15.1
-14.3
0.0
0.0
47" LCD TV Panel Ave. Unit Price
stress
N/A
3,200
2,600


2,300


2,000


1,750


1,550


1,350


1,200


47" Price Changes ()
-
-18.8
-11.5
-13.0
-12.5
-11.4
-12.9
-11.1
50" LCD TV Panel Ave. Unit Price
stress
N/A
5,500
5,000


4,500


4,000


3,500


3,000


2,500


2,000


50" Price Changes ()
-
-9.1
-10.0
-11.1
-12.5
-14.3
-16.7
-20.0
53
Stress Test Worksheet Take AU as an example (1)
54
Stress Test Worksheet Take AU as an example (2)
55
TFT-LCD Stress Test Result 2005
Profit Margin will be hit significantly under the
Stress Test in 2005
56
TFT-LCD Stress Test Result 2005 (Contd)
Balance Sheets still show a healthy status
57
TFT-LCD Stress Test Result 2005 (Contd)
Heavy Capex will drive the cash level down
58
AppendixIndividual Names Analysis(Example)
59
Discussion