Thesis: ASYS is a compelling buy, with upside potential of 100%+. ASYS represents a very rare opportunity to own a high-growth, under-the-radar microcap stock, at a deep discount valuation, and in a high growth industry which is on the cusp of a multi-year up-cycle. There is also significant downside protection for the ASYS, since the company’s net cash makes up 77% of the market cap, ($3.65 per share), and the stock trading at a price to TBV of about 0.75x. ASYS is your opportunity to own a niche semiconductor capital equipment (SCE) provider, whose stock is still trading near multi-year lows due to non-recurring factors, while the group is near all time highs. In my view, the stock is due for a massive catch-up rally for its first big move, and then another move as the cycle for their products moves into a prolonged growth phase.
Valuation: ASYS is vastly undervalued on virtually every metric on projected results. I estimate ASYS will lose $0.22 in FY20, because the company is at the bottom of their business cycle in the SCE market, and elevated non-recurring expenses associated with non-core business divestitures. However, once the
smoke clears, and the cycle progresses into 2021, I estimate the company will generate at least $12 mil in EBITDA and $0.65 in EPS, and for these numbers to nearly double in 2022, to $20 and $1.30. My target price is $10 per share, which based on my FY21 estimates, and equals an P/E, EV/EBITDA, and FCF yield, of 15x, 7.5x, and 6%, which is consistent with the stock’s value in similar stages of past cycles, resulting in 100+% return potential. If my thesis continues to play-out, we could ultimately see the stock at or above $15 within 12-24 months which is consistent to where the stock has peaked in past cycles, and equals P/E, EV/EBITDA, and FCF yield, of 11.5x, 8x, and 8% on my FY22 estimates. ASYS also trades at price to TBV of around 0.75x, providing downside support for the stock.
Why Does This Opportunity Exist? The primary reason why ASYS is massively under-valued, is because the company reported disappointing proceeds from the sale of its Tempress subsidiary in January, and Covid-19 sales pressure. Tempress was a discontinued loss-generating business, and its sale better positions ASYS to focus on their core semiconductor business. Due to the micro-cap size of the ASYS, the selling pressure from the announcement caused the stock to decline 34%, and followed by Covid 19, which further pressured the stock, and it still has not recovered much since then. I am not sure what proceeds the market was expecting from the Tempress saqle, but ASYS had previously indicated they would only receive nominal if any proceeds from the sale, so it was irrational for the stock to decline so much.
The Company: ASYS 10k states, “we are a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing, and related consumables used in fabricating semiconductor devices, such as silicon carbide (SiC) and silicon power chips, electronic assemblies and light-emitting diodes (LEDs). We sell these products to semiconductor and automotive component manufacturers worldwide, particularly in Asia, North America and Europe. Our strategic focus is on semiconductor growth opportunities in power electronics, leveraging our strength in our core competencies in thermal and substrate processing. We are a market leader in the high-end power chip market (SiC and 300mm silicon horizontal thermal reactor), developing and supplying essential equipment and consumablesused in the semiconductor industry... Our customers are primarily manufacturers of integrated circuits. During 2019, 59% of our net revenue from continuing operations came from customers outside of North America. This group represented 76% of revenues in 2018. In 2019, net revenue from continuing operations was distributed among customers in different geographic regions as follows: North/South America 41% (35% of which is in the United States), Asia 41% (including 18% to China, 5% to Malaysia and 10% to Taiwan) and Europe 18%.No individual customer accounted for 10% or more of net revenues from our continuing operations in 2019”.