Semiconductor Equipment - Berenberg Bank

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Applied Materials Inc Technology Hardware Valuation Our valuation is based on a P/E multiple. Our price target of $14.40 implies a P/E of 12x based on 2014 EPS estimates of $1.20. Historically, AMAT has traded between 8x and 24x P/E during the semiconductor industry recovery cycle (from end-2009 to 2011 – see Figure 14). We believe we entered the recovery cycle at the start of 2013, when an increase in order levels was reported by front-end players such as ASML, AMAT, TEL and KLA. AMAT was trading at 10-14x between June and September 2010, which was six months after it entered the recovery cycle. Our P/E of 12x is in the middle of range of the historical 10-14x mid-recovery cycle P/E, and it is in line with its peer group median multiple based on 2014 earnings. Figure 14: 8-14x P/E in the middle of the semiconductor recovery cycle S Bl b d Source: Bloomberg data Figure 15: Peer group valuation Company Name PE EV/EBIT EV/Sales FY 2013E FY 2014E FY2015E FY 2013E FY 2014E FY2015E FY 2013E FY 2014E FY2015E NIKON CORP 14.12 13.42 12.25 9.83 8.28 8.53 0.82 0.80 0.87 ASM INTL NV 27.03 14.02 13.19 50.89 10.49 13.21 3.13 1.91 1.52 ASML HOLDING NV 25.04 15.67 12.17 21.81 10.74 2.10 4.80 3.73 0.67 KLA-TENCOR CORP 16.94 13.21 11.26 9.43 7.59 2.97 2.46 2.21 0.95 LAM RESEARCH 20.99 11.64 10.15 14.73 8.28 2.90 1.74 1.44 0.58 ULVAC INC na 10.21 7.36 25.28 12.27 15.08 0.82 0.75 1.04 DAINIPPON SCREEN 28.32 14.13 14.41 67.36 11.63 13.66 0.76 0.70 0.81 TOKYO ELECTRON 48.60 20.98 18.74 25.57 9.75 5.61 1.16 1.02 0.72 Mean 22.63 14.16 12.44 28.12 9.88 8.01 1.96 1.57 0.89 Median 23.01 13.72 12.21 23.55 10.12 7.07 1.45 1.23 0.84 APPLIED MATERIAL 23.30 13.18 11.92 17.43 10.77 4.87 2.35 1.92 0.91 Source: Bloomberg data 104
Applied Materials Inc Technology Hardware The share price has increased by 60% since November 2012, mainly due to the improved semiconductor equipment order intake levels reported, comforting statements on share gains and SAM expansion potential. Following the rally, the P/E multiple stands at a higher level compared to the previous recovery cycle multiple in 2011, without any significant EPS downwards revision. We believe this multiple expansion is driven by momentum rather than strengthened fundamentals. Figure 16: forward P/E is higher than previous recovery cycle Source: Bloomberg data Figure 17: No EPS major revision Source: Bloomberg data 105
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