Semiconductor Equipment - Berenberg Bank

ASM International NV
Small/Mid-Cap: Technology Hardware
Front-end business undervalued
• We initiate coverage on ASMI with a Buy recommendation and
a price target of €31. ASMI supplies deposition equipment which is
used in the chip fabrication process; its ALD and epitaxy tool are
essential in manufacturing leading-edge chips. We are buyers for the
following reasons: 1) we expect the ALD market (60% revenue) to
grow at a CAGR of 20% to €700m over the next three years, driven
by the new chip designs; 2) ASMI holds a 44% market share of the
ALD market, and we believe it will maintain this as its comprehensive
intellectual property (IP) portfolio has created high entry barriers for
other players; 3) following the release of its Intrepid XP epitaxy tool,
ASMI may receive orders from Intel due to its strong relationship
with Intel and Intel’s dual sourcing policy; 4) its 40% holdings in ASM
Pacific Technology Ltd (ASMP) accounts for 65% of ASMI’s share
value as per our SOTP valuation. We expect holdings to decrease over
time and this will act as a catalyst for the stock.
• Key debates: 1) What is the value of ASMI front-end business? 2)
will ASMI dispose of more ASMP shares?
1. AMAT and Francisco Partners offered ASMI $800m for its
front-end business in 2008. We believe the front-end business is
worth more than $800m today ($949m/€730m as per our
valuation) as ASMI is in a better position than it was in 2008,
given it has gained a 6% ALD market share, and it may gain an
Intel order with its newly launched epitaxy tool.
2. ASMI has taken down its position from a controlling 53% to
40% in Mar 13, .i.e. from a consolidated to a below the line item.
This in our opinion was a 1st step, i.e. no longer have control of
ASMP’s business. The lock up period will expires in September;
we think further disposal will be likely thereafter.
• Our revenue forecasts for in line with consensus, and our EPS are
10%, 8% and 10% above consensus for 2013, 2014 and 2015. We
believe that the gross margin will increase as a result of top-line
growth, and that ASMI can offset its increasing R&D levels with costsavings.
• Our €31 price target is based on an SOTP valuation. We value ASMI’s
front-end operation at €11/share by applying a 14x P/E multiple on
2014 EPS excluding ASMP at €0.81. The 14x P/E multiple is the
average P/E of its peers excluding TEL, as TEL usually trades at a
P/E premium due to its strong cash position. We value the back-end
operation based on ASMP’s listed price, applying a 5% holding
discount.
Y/E 31.12., EUR m 2011 2012 2013E 2014E 2015E
Sales 1,634 1,418 559 477 499
EBIT 366 88 25 61 68
Net profit 187 7 1,470 125 133
Y/E net debt (net cash) -191 -206 -252 -363 -475
EPS (GAAP) 3.12 0.15 22.98 1.95 2.09
EPS (Proforma) 2.38 0.23 0.95 1.95 2.09
CPS 3.93 0.76 0.25 2.03 1.68
DPS 0.36 0.49 4.78 0.00 0.00
Gross margin 35.6% 31.1% 33.9% 40.0% 41.0%
EBIT margin 22.4% 6.3% 4.6% 12.8% 13.7%
Dividend yield 1.4% 1.8% 17.6% 0.0% 0.0%
ROCE 22.6% 1.8% 3.3% 6.2% 6.1%
EV/sales 0.8 0.9 2.4 2.8 2.7
EV/EBIT 3.6 15.0 52.4 21.8 19.4
P/E 8.8 183.2 1.2 14.1 13.2
Source: Company data, Berenberg
Buy (initiation)
Rating system
Current price
EUR 27.49
Absolute
Price target
EUR 31.00
19/07/2013 Amsterdam Close
Market cap EUR 1,736 m
Reuters ASMI.AS
Bloomberg ASM NA
Share data
Shares outstanding (m) 63
Enterprise value (EUR m) 1,461
Daily trading volume 244,210
Performance data
High 52 weeks (EUR) 31
Low 52 weeks (EUR) 24
Relative performance to SXXP AEX
1 month 0.7 % -2.2 %
3 months 10.2 % 6.6 %
12 months -35.9 % -30.1 %
Key data
Price/book value 0.9
CAGR sales 2011-2014 -29.4%
CAGR sales 2012-2015 140.5%
Business activities:
ASMI is a leading supplier of semiconductor
equipment, materials and process solutions for
the wafer processing industry. It supplies
equipment used for the deposition process.
Non-institutional shareholders:
Arthur Del Prado 18%
22 July 2013
Tammy Qiu
Analyst
+44 20 3207 2673
tammy.qiu@berenberg.com
Jean Beaubois
Specialist Sales
+44 20 3207 7835
jean.beaubois@berenberg.com
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