|Shares Out. (in M):||14||P/E||0||6.3|
|Market Cap (in $M):||139||P/FCF||0||0|
|Net Debt (in $M):||-35||EBIT||0||0|
Sign up for free guest access to view investment idea with a 45 days delay.
Amtech is a smallcap semiconductor capital equipment (SCE) company written-up 3 times previously on VIC. The most recent write-ups by Bill and Natty813 provided excellent background on ASYS's products and segments so I will focus mainly on what we perceive to be the current opportunity and catalyst path for ASYS shares. There is also good background and content in this recent presentation at the Needham conference here: https://wsw.com/webcast/needham108/asys/2281568
For quick background, ASYS has historically been a tradeable stock despite being a poor long-term investment, it could periodically be bought for $5 or below during a downcycle and then sold at $10 - $12 as its cyclical earnings power inevitably recovered. For most of Amtech’s history, robust but brief upcycles in its semi and solar segments yielded peak quarterly earnings run rates of $.25 - $.50 that were then followed by years of losses and cash burn. The company was historically largely focused on diffusion furnaces and other equipment use to manufacture solar cells, until Chinese competition comoditized the business and made it impossible to profitably compete. To their credit, ASYS management always maintained a healthy net cash balance sheet to cushion the downside, a fact that remains true to this day (ASYS has roughly $3 of net cash per share at present). Under activist pressure, ASYS wisely chose to exit the solar business line in 2019 and effectuated the divestiture in early 2020. Along the way, ASYS appointed a new CFO, Lisa Gibbs and a new CEO, Michael Whang.
We believe that following the appointment of new management and the overdue divestiture of the solar segment, ASYS is a new company with structurally higher margins, a sharper focus on defensible niche markets, and demonstrably better execution. Meanwhile, ASYS stands to capitalize on a widely-publicized semiconductor shortage and a step-function growth opportunity in its Silicon Carbide / LED segment that could combine to take annual earnings power towards $1.50 or more, which could drive the stock to $20, and possibly much higher. Here are some key observations and points in support of our thesis:
Framing the Upside Opportunity and Near-Term Catalysts:
ASYS should post solid financial results in the coming quarters, with revenues of $25 million and low double digit operating margins driving significant earnings power of ~$.20 / quarter exiting its fiscal year in September. However, we see much more significant upside potential in fiscal 2022 as capacity expansion in the semis segment enables higher ship rates and as the SiC cycle kicks in. In F2022, we forecast $1.55 of earnings on 130m of revenue, with further upside to $2.00+ possible in F2023 as the SiC cycle strengthens.
There is a scarcity of investible plays on silicon carbide adoption, and as a result the ASYS story could be met with excitement as SiC becomes a larger part of its revenue and earnings base. While CREE has been the most significant public markets beneficiary of the SiC cycle, capital equipment supplier Aixtron AG ( AIXA GY), which we are also invested in, has recently been an under-the-radar standout due to its participation in the Gallium Nitride (GaN) power electronics, mini-LED, and SiC investment cycles, and after a significant raise to its annual order, revenue and EBIT guidance yesterday, AIXA shares now trade for nearly 5x Street 2022 revenue estimates. While AIXA is admittedly a superior business, with similar gross margins to ASYS but 20% EBIT margins due to its greater scale, ASYS’s SiC segment could potentially command a similar valuation due to its 50%+ multi-year CAGR and strong operating leverage. At 5x our 2022 revenue estimate, the SiC segment would command a $150 million valuation and be worth $10.50 / share.
Meanwhile, we believe ASYS’s semi segment should trade for around 13x our estimated 2022 earnings for the business of $.75, based on a discounted multiple to SCE group peers, which generally trade for between 16x and 20x 2022 EPS. Consequently, with nearly $3 in net cash on its balance sheet, we believe ASYS can be purchased today for a 20%+ discount to its fair value ex silicon-carbide. When factoring in the value of the SiC business, ASYS begins to look extremely asymmetric. We believe there is potentially $10 - $20 of upside potential to the stock over a 6 – 18 month period, while downside should be cabined to roughly 1x EV / trough sales, or approximately $7 / share. Given the improved execution by ASYS management in recent years and the looming inflection in SiC, we do not see a realistic path for shares to revisit the $5 range even in a semi downcycle, but even were we to concede such a potential scenario, the risk / reward to shares sub $10 remains very attractive.
Catalysts to look out for in the coming months, besides quarterly earnings, include further product and order announcements, as well as Cree’s progress towards ramping wafer starts in its Mohawk Valley fab.
Finally, it is worth pointing out that corporate governance at ASYS seems to have improved following the involvement of two activist investors (Privet Fund and Harbert) over the past two years – to give credit where it is due. New management is saying and doing the right things, and we believe further optimization of the messaging to shareholders and an eventual investor day are logical medium-term events for the Company. There is a board vacancy that stands to be filled, and we believe that at a certain juncture, ASYS will participate in semiconductor industry consolidation either as a buyer, or more likely, as a seller.
One key trading risk to point out is the illiquidity of Amtech shares. Outside of days where orders are announced or following quarterly reports, this stock trades 50 – 250k shares per day outside of naturals crossing. For example, there is currently a low six figure seller of shares advertising a clean-up, but once that seller is gone it may be hard to purchase shares. Conversely, once purchased, the stock will likely be hard to part with outside of regular liquidity events like earnings. C’est la vie in micro-cap land!
Order announcements, 2H earnings ramp, positive SiC newsflow, new sell-side coverage (unlikely near-term but possible medium-term with SiC ramp), investor day (medium-term), gradual discovery outside of the deep value / microcap investment community
|show sort by|
Are you sure you want to close this position AMTECH SYSTEMS INC?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea AMTECH SYSTEMS INC for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
You currently do not have message posting privilages, there are 1 way you can get the privilage.
Apply for or reactivate your full membership
You can apply for full membership by submitting an investment idea of your own. Or if you are in reactivation status, you need to reactivate your full membership.
What is wrong with message, "".