Description

• Why the opt?

• We see a 41.50 EUR stock by the end of next year for 60%+ upside as investors begin to look at AIXA with fresh eyes given its exposure to GaN, SiC and MicroLED.  Each of these are some of the more exciting growth stories in the market with GaN becoming the material of choice for all low-power charging (smartphones, PCs) and expanding toward higher-power (solar, data center, etc), SiC becoming the material of choice for EVs and MicroLED the future of display.  AIXA offers up exposure to all three.  In the past, AIXA had been exposed largely to just LED and Optoelectronics. Below we outline the three main drivers.

• Why now?

• MicroLED

• MicroLED displays have no sunlight glare, better brightness, greater viewing range, lower power and longer life than traditional LED or OLED displays.

• AIXA is about to start receiving MicroLED tool orders for AMS Osram’s (AMS) new fab that will be used for MicroLED production for Apple.  We expect AIXA could see orders as soon as this quarter (they report Thursday AM).  We see a starting revenue opportunity of $150mm for just the Smartwatch (vs street estimates of $495mm of total AIXA revenue this year).  Given the MicroLED advantages highlighted above, we believe the Android ecosystem will follow suit.  This is supported by Samsung and Google headlines on investments in and hiring around MicroLED. 

• Importantly, most expect MicroLED to expand to the Smartphone, with the question being when, not if.  Some discussing 2026/2027 as the year of introduction.  Obviously, the smartphone market is massive.  MicroLED would likely begin with the higher-end models.  For each 1mm phones you need about 4-5 tools at an ASP of $3.5-4.5mm.  If we assume MicroLED begins at just the high-end for AAPL so ~40mm phones, it would represent an $800mm opt vs this year's total revenue base of $495mm.  To compete with Apple, given the benefits of MicroLED discussed above, we'd also expect Samsung and others to also adopt MicroLED and for MicroLED to begin moving to the lower-end models.  Consequently, the MicroLED smartphone opportunity could be multiples of AIXA’s current revenue base..

• Ahead of smartphones, many also think that MicroLED will be adopted for TVs. The Company has recently discussed a ~100 tool opportunity for TVs that could come before smartphone adoption.

• SiC

• For those that track autos at all, SiC is becoming the preferred material for EVs.  The CAGR for SiC will be well in excess of 25%.  AIXA has already won WOLF as a customer, who has aggressive targets for SiC.  Additionally, most believe they won On Semi who has equally ambitious expansion plans.  IFX is also building a 300mm SiC fab in 2024 that we believe AIXA is well positioned to win away from Tokyo Electron (TEL) as both AIXA and IFX are German companies and AIXA's tool for 300mm has greater throughput than TEL’s allowing for 6 wafers at a time vs TEL’s 1.  

• Sizing the opportunity, AIXA has said that for every $1bn of WOLF CapEx toward SiC device manufacturing, 25-33% goes towards Epitaxy, which AIXA produces tools for.  Another way to frame it is AIXA in the past has estimated that each 1mm of SiC EVs could require 25mm tools.  Looking ahead, experts see 20-25% SiC penetration of EVs in 2025.  20% EV penetration in 2025 at 25% SiC penetration assuming 95mm auto units gets 5mm SiC EVs, requiring 125mm tools.  Assuming a $4mm ASP would get a $500mm addressable opportunity that would be scaling rapidly as EVs and SiC within EVs continue to grow.  We estimate that AIXA's SiC revenue is currently only $40mm.  Competitively, AIXA and TEL are the two main players with ASMI recently acquiring the third LPE.  LPE manufactures a single-wafer tool for 200mm, given its architecture is similar to TEL, we see them as more of a competitive threat to TEL.

• GaN

• We have been tracking GaN and our checks indicate that GaN is clearly becoming the material of choice for smartphone chargers and PCs.  This provides a strong baseline of revenue for AIXA.  GaN is also beginning to move into high power uses as companies like STM and IFX enter the space with a greater focus on high power such as solar or data centers.  For example, ENPH is adopting GaN for their next inverter architecture. 

• Bundling this together, we see street numbers as far too low in the coming years and have revenue upside of 20%+ in 2023 and 30%+ in 2024.  More importantly, we expect continuing signs of MicroLED adoption to drive the stock with tangible orders in the near-term coming from AMS.  Additionally, we expect margins to grow from here as they drive leverage on OpEx and new tools come in at or above the corporate gross margin average.

• The USD is also a tailwind with the Company's 2022 guidance assuming a 1.2 USD to EUR ratio vs parity right now.  Management has also been sounding positive on the road. 

• Valuation

• We are looking at 2024 and see the potential for revenue to exceed 800mm EUR and earnings power in excess of 1.70 EUR.  This is before any contribution from smartphone or TV related MicroLED.  Applying a 22.5x multiple and adding cash gets a 41.57 EUR TP for 63% upside.  Another way to look at it is to apply a lower multiple on the 1.70 but to account for the TV and Apple Smartphone opportunity. In this scenario, we assume 16x on the 1.70 EUR then assume 33% probability of adoption within TV in 2026 (100 tools) and Apple Smartphone in 2027 (just high-end and no Android adoption), apply the same 16x multiple and discount back to year-end 23 at 11%.  This gets a similar target price of 41.49 EUR. 

Catalyst

• Company earnings on Thursday when could see first MicroLED related orders.
• Continued growth of SiC related orders and more signs that they may have also won IFX as a customer.
• Further signs of MicroLED adoption beyond the Apple Smartwatch.
• Potential upside to 2022 guidance.