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Suess Microtec AG Small/Mid-Cap: Technology Hardware Small, but active in growing markets • We initiate on Suess Microtec (SUSS) with a Buy recommendation and a price target of €9.4. SUSS supplies equipment used for chip packaging, photomask cleaning, and 3D integration, which will drive smaller chip sizes once shrinkage stops. Our Buy rating is based on the following: 1) the lithography segment’s strong performance (69% of SUSS’s revenue, and 100% of its profit), which is sufficient to drive group revenue growth; 2) Tamarack Scientific’s (acquired in 2012) margin may gradually converge to an average lithography margin of 20%; 3) bonder segment revenue is likely to triple in 2016/2017 once 3D bonder starts to ship in volume, driven by chip-makers expanding their 3D packaging capacity; and 4) the option value of more frequent cleaning for EUV photomasks as the move to EUV is made – the photomask segment’s revenue could double from the current €20m-40m level in 2015/2016. • Key debates: 1) How will the company’s “bread-and-butter” lithography segment perform in the future? 2) When will 3D bonding tools show significant growth? 3) Could SUSS become an acquisition target given its 3D bonding speciality? 1. We expect the lithography segment to grow at 22% in 2014 and 24% in 2015. With Tamarack’s contribution, semiconductor cycle recovery momentum and its high-growth end-market exposure, lithography is expected to contribute 100% of group revenue growth and 95% of group profit growth in 2015. It can therefore drive group growth even in the absence of a significant improvement in the other segments. 2. 3D bonder volume shipments may not start before 2016/17, and some chip-makers may start building pilot lines in 2014/15; our bull-case assumption gives 9% and 8% revenue upside to our current group revenue estimates in 2014 and 2015 respectively. 3. We think that an acquisition of SUSS’s 3D bonding business is unlikely given that: a) AMAT has used EV Group since 2009, and b) TEL may not have any further acquisition plans in the near term after acquiring Oerlikon and FSI in 2012. • Our EPS forecasts are 8% and 11% above consensus for 2014 and 2015. We believe that the lithography segment will be able to drive total revenue and profit growth even without a material improvement from the bonder and photomask divisions. We estimate the lithography operating margin will slowly normalise to 20% after Tamarack’s integration. • Our €9.4 price target is based on 14x P/E on 2014 adjusted EPS of €0.67. The 14x P/E is at the mid of the historical 11-18x multiple applied in the middle of the order recovery cycle. Y/E 31.12., EUR m 2011 2012 2013E 2014E 2015E Sales 175 164 153 188 215 EBIT 19 12 -8 19 29 Net profit 15 8 -8 13 20 Y/E net debt (net cash) -46 -26 -5 -7 -21 EPS (reported) 0.77 0.49 -0.40 0.67 1.04 EPS (Proforma) 0.77 0.41 -0.04 0.67 1.04 CPS 2.43 1.34 0.26 0.38 1.09 DPS 0.00 0.00 0.00 0.00 0.00 Gross margin 37.8% 35.0% 30.0% 36.5% 38.8% EBIT margin 10.6% 7.2% -5.5% 9.9% 13.7% Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% ROCE 12.9% 7.5% -6.0% 9.6% 13.1% EV/sales 0.6 0.7 0.9 0.7 0.6 EV/EBIT 5.4 10.4 -17.0 7.5 4.3 P/E 10.0 15.8 -19.3 11.4 7.4 Source: Company data, Berenberg Buy (initiation) Rating system Current price EUR 7.65 Absolute Price target EUR 9.40 19/07/2013 XETRA Close Market cap EUR 147 m Reuters SMHNn.DE Bloomberg SMHN GY Share data Shares outstanding (m) 19 Enterprise value (EUR m) 142 Daily trading volume 73,041 Performance data High 52 weeks (EUR) 10 Low 52 weeks (EUR) 7 Relative performance to SXXP TecDAX 1 month -7.1 % -8.4 % 3 months -12.2 % -13.7 % 12 months -35.3 % -39.9 % Key data Price/book value 1.2 Net gearing 0.0% CAGR sales 2012-2015 9.5% CAGR EPS 2012-2015 28.8% Business activities: Suess is a leading supplier of equipment and process solutions for the semiconductor and LED industry. 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 74
Suess Microtec AG Small/Mid-Cap: Technology Hardware Investment summary Our investment thesis on Buy-rated SUSS is predicated on four points. • Lithography can drive growth on its own, even without any contribution from the bonder and photomask divisions: We estimate group revenue and profit will grow at 14% and 58% respectively in 2015, with the lithography segment contributing 100% of group revenue growth and 83% of profit growth in 2015. The lithography segment is likely to show an organic growth rate similar to historical recovery cycle growth of ~15% in 2014 and 2015, and generate a ~20% peak cycle margin. Tamarack’s contribution may triple to €30m by 2015, as SUSS is aiming to gain half of the back-end lithography market (a $60mn market). Along with Tamarack’s contribution, growth momentum from the semiconductor recovery cycle and strong growth in end-markets such as MEMS, we expect lithography to drive group revenue and profit growth on its own, without the company having to rely on significant improvements in other segments. • 3D bonder revenue may triple in 2016/17: Industry experts believe 3D integration could be one way to extend Moore’s law (ie that the number of components on integrated circuits doubles approximately every two years) once the physical shrinkage limit for chips is reached at ~5nm/3nm. Market researcher Yole Development expects the market to grow from $150m today to $500m-1bn in the next few years. In our opinion, even though we are not likely to see large order intakes before 2015/2016, the segment’s revenue could triple once volumes ramp up in 2016/2017. Our bull-case scenario for SUSS (seven tool shipments for 2014 and 2015 versus two tools by our estimates) suggests 9% and 8% revenue upside and 42% and 18% operating profit upside for 2014 and 2015 respectively compared to our current forecasts. • EUV photomask cleaning provides potential upside: SUSS holds a 100% share of the EUV photomask-cleaning tool market and an 80% share of the argon fluoride immersion (ArFi) photomask-cleaning tool market (combined market size: €50m-60m). We may see significant revenue upside in this segment once EUV volume shipments start in 2016, as EUV photomasks are likely to require more frequent cleaning than conventional photomasks as their structure is much more complex. • Valuation – at the middle of the range of historical multiples: Our price target of €9.4 is based on 14x P/E on 2014 adjusted EPS of €0.67, which is towards the middle of the historical 11-18x multiple range applied in the middle of the order recovery cycle. Figure 1: 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 4.4% 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 estimates of 2014 performance. Net cash based on 2012 YE balance Source: Berenberg estimates, company data 75
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