Semiconductor Equipment - Berenberg Bank

Tokyo Electron Ltd
Technology Hardware
o AMAT and LAM are also aiming to gain market share: AMAT is aiming to
gain a 2-4% WFE share by 2016, and LAM is looking to gain a 3-5% share
in the etching market and a 5-10% share in the cleaning market. In our view,
TEL is in a weaker position compared with AMAT and LAM in terms of
gaining share, as it does not have an established market position or
experience in these growing markets.
• Little upside from operating leverage and yen depreciation: TEL’s margin
may improve due to cost savings, but we believe the margin is unlikely to show
significant improvement without top-line growth. We estimate that the gross
margin will stay at the 33% level (34% in 2007) after cost savings are taken into
account. We estimate the operating margin will be 9% in 2015 (compared with
19% in 2007), assuming that the ¥10bn saving planned for 2013 happens each
year thereafter.
• Yen depreciation has had little impact: In our opinion, the yen depreciation
has had little impact on TEL from both an operational and competitiveness
perspective, as: 1) its operations are not heavily exposed to FX movements in
terms of yen contract prices and its manufacturing plants are located in Japan,
meaning that the effect on its operations/cost base is limited; 2) we believe
chip-makers care more about tool performance, reliability and supporting
services than price; and 3) Japan-based Hitachi and Dainippon have the same
FX advantage.
• The FPD/PV segment remain a profit drag: In our opinion, the FPD/PV
segment was always been a profit-dilutive segment for TEL. Between 2004 and
2012, the segment’s margin was 10% at peak, which is lower than the SPE
margin (which averaged 12.5% in 2004-2012). We estimate the segment will be
loss-making in 2013, 2014 and 2015 due to the weak TV and solar markets.
Management is targeting a profit in the solar business in two years’ time, but
expects it to remain sluggish in 2013 and 2014. A weak performance may trigger
impairments on the ¥22bn goodwill related to the Oerlikon Solar acquisition in
2012.
• Valuation: Our price target of ¥4,331 implies an EV/sales of 0.9x, which is the
middle of the historical EV/sales range of 0.7x-1.2x during the semiconductor
recovery cycle. We base our valuation on EV/sales instead of P/E, as TEL
trades at a premium P/E compared to its peers due to its strong cash position.
We believe EV/sales is the valuation methodology to reflect its weaker growth
potential compared with ASML, AMAT and ASMI.
TEL’s ROE is lower than ASML’s and AMAT’s as its operating margin is
lower. It has the strongest cash position among its peers.
Figure 2: Valuation matrix
ROE*
Dividend
yield*
FCF yield* Net cash/marcap
No.1 ASML 19.7% AMAT 2.5% AMAT 9.7% TEL 26.5%
No.2 AMAT 17.1% TEL 1.5% ASMI 6.2% SUSS 17.6%
No.3 SUSS 9.1% ASML 0.9% ASML 4.5% AMAT 16.7%
No.4 TEL 6.3% ASMI - TEL 4.3% ASMI 8.9%
No.5 ASMI 6.2% SUSS - SUSS 1.6% ASML 6.5%
*base on Berenberg estimation of 2014 performance
Net cash base on 2012 YE balance
Source: Berenberg estimate, company data
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