Semiconductor Equipment - Berenberg Bank

ASML Holding NV
Technology Hardware
technology or materials, could hamper further share price performance.
AMAT said at the US Semicon West 2013 conference in July that
semiconductor companies are currently focusing more on new materials than
they are on lithography scaling, ie EUV should have a minimal impact on the
industry. AMAT also quoted that a fabless company suggested that 90% of its
performance improvement came from materials, and only 10% from
lithography. In addition, the consumer electronics market is currently driven
by demand for mid- to low-end products, which do not require the most
advanced chips. The demand for leading-edge chips could, therefore, decline if
demand for mid- to low-end products rises.
5. Valuation: Our price target of €73.00 implies a 12x P/E based on EPS
estimates of €7.4/share, discounted by a 10% WACC. We have adopted this
EPS estimate because it reflects the earnings power that EUV will, in our
opinion, realise in 2016. Our 12x P/E has assigned a 10% premium to
ASML’s historical mid-recovery-cycle P/E (9x-13x) to reflect ASML’s more
competitive position (market share: 80% by 2016 compared with the last
recovery cycle of 2010, when it had a market share of 70%).
ASML’s RoE is the highest within our coverage, and it has the lowest dividend
yield, FCF yield and net cash/market cap.
Figure 1: Valuation matrix
Dividend
ROE*
Cash/marc
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 4.4% 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%
* based on Berenberg estimation of 2014 performance
Net cash based on 2012 YE balance
Source: Berenberg estimation, company data
Key catalysts
The following are the key catalysts for the share price.
1) Further progress on EUV light source: Management has retained its target
for 105 watts by mid-2014, and expects to reach 80 watts by
September/October 2013. We think ASML’s acquisition of Cymer has further
strengthened its R&D capability on EUV, and believe that ASML is likely to
reach 105 watts by 2014 as targeted.
2) DRAM and NAND order recovery provides order intake/revenue
upside: After seeing DRAM orders recover in Q2, we believe memory orders
will accelerate in the coming quarters, especially NAND orders. Companies
such as KLA and LAM have indicated improving memory orders/spending
compared with the 2012 trough last quarter.
3) Chip-makers accelerate their roadmap on shrinkage: In our opinion, chipmakers
could accelerate their shrinkage plans in next few months, as the level
of competition in the consumer electronics market intensifies.
4) Nikon fails to release EUV tools: We think Nikon is unlikely to announce
any EUV-related progress until 2014/2015, as its current focus is on 450mm.
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