Bear Stearns analyst suggests Amkor for yield pickup

By Ronda Fears

Nashville, Tenn., March 25 - Bear Stearns & Co. convertible analysts recommend Amkor Technology Inc. to reap a healthy yield, effectively getting paid to wait for the stock story to turn around.

"The convertible is rated B3/B- by the rating agencies with a negative outlook, which takes into account the unexpected slope of the recovery in the company's end markets," said Yaw Debrah, head of convertible research at Bear Stearns, in a report Monday.

"We note that with Amkor's leverage, once past breakeven, a substantial portion of revenues fall to the bottom line. For investors who would like exposure to the stock, but who would like to be paid to wait while the fundamentals of the company develop, we propose the 5.75% convertible bond."

The convertible offers a high current yield of 6.21% paying investors to wait while the pace of recovery in the company's end markets picks up.

On a price appreciation and depreciation basis, the convertible is currently showing about 60% movement with the underlying equity. Couple with the high current yield of 6.2%, Debrah said the risk/reward profile is very attractive.

For a 25% rise in the equity over the next year, the convertible will show 68% upside participation, on a total return basis, the analyst said. On the other hand, if the equity was to drop 25% over the next year, it is estimate to participate with only about 20% of the equity loss.

"The Amkor 5.75% convertible offers the luxury of being paid to wait while the economic recovery picks up steam, an attractive risk reward profile and a higher ranking in the event of a company default," Debrah said.

The Amkor 5.75% convertible due 2006 (B3/B-) was trading on Friday at 92.5 versus a stock price of $21 and a conversion premium of 53.9%.

Robert Maire, Bear Stearns semiconductor equipment analyst, raised his rating on Amkor to buy from attractive with a new price target of $35 per share, up from $28 per share, the convertible analyst noted in the report.

"In his view given its position in the market and high leverage, Amkor should be among the first and fastest companies to recover as things move forward. The signs of a recovery are starting to solidify, the company is starting to firm up its six-month projections and appears to be feeling very confident about them," Debrah said in the report.

"The strengthening is not in just one product sector or geography but rather across the board in products and geography. Maire continues to caution investors that they have to be patient because the slope of the recovery is still not fully known and in the near term Q1 is always seasonally weak, which should be of no surprise to seasoned investors."

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