Big Debt Keeping Amkor a Hold

Amkor Technology, Inc. (AMKR) is one of the largest packaging and test subcontractors. March quarter results exceeded both the consensus and management expectations. Forward guidance is for a 1-3% revenue increase in the second quarter.

Advanced packaging and testing demand remains strong, while traditional lead frame packages are soft. The net impact is a higher-ASP business that is a positive for both revenue growth and profitability. The management is committed to improving the highly leveraged balance sheet.

We are reiterating our Hold rating on AMKR shares. The company has been successful at growing revenues and simultaneously curtailing its operating expenses. However, operating expenses are likely to increase, as the Amkor continues to invest in R&D. We remain concerned about the high level of debt, as the company had a net debt of $1.2 billion at quarter-end, and the long term debt-to-total-capitalization ratio was 67.7%.

AMKR shares are currently trading at a 7.1x multiple to our 2008 earnings estimate (P/E). Despite its revenue growth opportunities, we are wary of the phenomenal debt position and the macro environment that could put pressure on the top line. Consequently, we recommend investors to avoid shares for the time being. We are reiterating our $13.00 target price, which corresponds to a P/E multiple of 10.2x.

Eyeing Loans at Bank of Ireland

We are maintaining our Hold on The Governor and Company of the Bank of Ireland (BOI, or Bank of Ireland), (IRE). In its first quarter interim statement, BOI stated that lending growth has slowed, particularly in its retail businesses in Ireland and credit quality has slipped, as expected. BOI's focus remains on managing its capital and funding positions and on containing costs.

BOI is clearly benefiting from an upturn in the Irish economy. We are also encouraged by the company's strong overall financial position. Credit quality metrics of BOI are very solid, with low levels of non-performing loans and net charge-offs relative to those of global peers. Finally, we view positively the recent 5% increase in the BOI's 2008 full-year dividend to 63.6 cents per share.

While BOI's net interest income has benefitted from strong lending growth, the company's net interest margin (NIM) has been under pressure, as loan growth has outpaced deposit growth. Moreover, competitive pricing pressures on both the loan and deposit sides have also contributed to margin pressure.

Despite current low interest rates, we think property prices in Ireland could affect the company's loan growth going forward as housing prices have risen sharply in the last few years, which may not be sustainable.