Lasertec 6920
June 16, 2021 - 5:34pm EST by
thrive25
2021 2022
Price: 21,200.00 EPS 0 0
Shares Out. (in M): 90 P/E 0 0
Market Cap (in $M): 1,913 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 1,913 TEV/EBIT 0 0

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Description

 

 

Lasertec offers an attractive way to benefit from a particularly difficult hurdle in the ever-present pursuit of cost reductions in the semiconductor manufacturing industry.  Specifically, Lasertec is uniquely (perhaps to the point of being the only supplier for a specific type of test equipment) positioned to allow cutting edge fabs to improve EUV yields which is a critical technology in shrinks below 7nm. It is initially a bet on the continued arms race among TSMC, Samsung, and Intel.  And, the Company should have a runway of growth as EUV technology propagates beyond bleeding edge semiconductor manufacturing. 

 

Read no further if long tail technology businesses are not your bailiwick.

 

 

Summary thesis:

·        FCF yield of 9%+ as of FY 6/2025 compounding at 50%+ which should offer at least 50% upside.

·        Yield is king.  Lasertec makes that happen.  Initial yields on sub-7nm were/are below 70%.  Improving yield provides a massive ROI. 

·        Migration from 7nm to 5nm is difficult.  Wafer costs (estimated by TSMC) at 5nm are ~$17k vs ~$9k at 7nm   (already arguably at cutting edge).

·        Lasertec’s key anctinic blank inspection tool is a unique critical value add and currently has a 2 year build time implying a long runway even from existing customers.

·        As further evidence of the competition in $20B+ fabs, Samsung is being displaced by TSMC due to inability to compete [BELOW]

 

Background

 

Why bother?

A 7nm to 5nm node migration saves approximately 15-50% on key KPIs (admittedly wide range). If you can’t compete, you are toast.  Globalfounderies gave up.  Samsung might be next which strikes me as crazy and additional optionality.

 

“TSMC's next-generation process technology — N3 — will provide a full node improvement over N5. In particular, the contract maker of semiconductors promises an up to 15% performance gain (at the same power and transistor count), an up to 30% power reduction (at the same clocks and complexity), and an up to 70% logic density gain. One of the most interesting details about N3 is that it will use EUV for up to 'over 20 layers,' according to ASML.”

____________________________________________________________________________

“Samsung appears to be losing the semiconductor race to TSMC, and it looks like this outcome has to do with Samsung’s inability to secure enough semiconductor production equipment for its EUV processes. Or rather, it may have more to do with TSMC beating Samsung to the punch and securing enough EUV production equipment ahead of time.

 

By the end of the first quarter of 2021, TSMC was able to increase its contract manufacturing market share by 8 points compared to Q1 2019. It had a share of 56%, outperforming Samsung who has lost 1% market share in the same quarter. But more worrying for Samsung is that TSMC has secured major US customers including Apple and Advanced Micro Devices.”

 

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Financials

 

 

 

 

 

JUN '18

JUN '19

JUN '20

21-Jun

22-Jun

23-Jun

24-Jun

25-Jun

Income Statement

 

 

 

         

Sales

21,252

28,770

42,573

      68,117

     119,204

     214,567

     375,493

  619,564

 

22.4%

35.4%

48.0%

60%

75%

80%

75%

65%

Estimated Sales

     

      65,496

     100,574

     134,795

     205,965

 

Sales vs Consensus

     

104%

119%

159%

182%

 

EV/Sales

     

26.5x

15.2x

8.4x

4.8x

2.9x

EBIT

5,685

7,941

15,063

      27,247

      50,066

      90,118

     157,707

  260,217

EBIT  Margins

27%

28%

35%

40%

42%

42%

42%

42%

Inc EBIT Margins

19%

30%

52%

48%

45%

42%

42%

42%

EV/EBIT

 

 

 

66.3x

36.1x

20.0x

11.5x

6.9x

EV/NOPAT

 

 

 

102.0x

55.5x

30.8x

17.6x

10.7x

NOPAT Yield

 

 

 

1.0%

1.8%

3.2%

5.7%

9.4%

Note: In JPY

               

 

 

On a comparative basis, Lasertec trades at significant premium to its’ closest comps.  However, its’ market cap is significantly below other companies in its’ peer group.

 

 

 

 

While I would never purport Lasertec to have the TAM that ASML has, I would like to note that the largest multiple for which ASML traded over the last 15 years (outside of the last 2) preceded a massive stock run.

 

 

 

 Risk:

·        EUV adoption is priced in

·        KLAC and others are working on competing products

·        It is expensive

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

  • Continued tightness in semi capacity
  • Inability of INTC and Samsung to keep up with TSMC
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