Siltronic (WAFGn.DE)

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1 Europe/Germany Equity Research Semiconductor Equipment Rating (from NEUTRAL) OUTPERFORM [V] Price (20 Mar 17, ) Target price ( ) (from 45.00) Market Cap ( m) 1,695.0 Enterprise value ( m) 1,538.3 Target price is for 12 months. [V] = Stock Considered Volatile (see Disclosure Appendix) Research Analysts Achal Sultania achal.sultania@credit-suisse.com Quang Tung Le quangtung.le@credit-suisse.com Siltronic is the world s fourth largest producer of hyper-pure silicon wafers, with the company operating production facilities in Europe, Asia and the US. Siltronic develops and manufactures wafers with diameters of up to 300 mm, which are used in computers, smartphones, flat-panel displays, navigation systems, automotive engine control systems and many other electronic applications.. Siltronic (WAFGn.DE) UPGRADE RATING From commodity to scarcity Raising estimates and TP materially; upgrade to Outperform. We continue to see evidence that wafer price negotiations are progressing well, with signs of further price increases along with its sustainability. As such, we raise our 2017/2018 revenue and EBITDA estimates for Siltronic by 6%/15% and 21%/46%, respectively. Our revenue estimates are 5%/ above consensus. We see EPS rising from 0.40 in 2016 to 3.00 in 2017E and further to 4.85 in 2018E. We raise our TP to 73 (from 45) implying ~30% potential upside, and hence upgrade the shares to Outperform (from Neutral). More signs of price hikes and its sustainability. We estimate ~60% of Siltronic sales come from 300mm wafers, with ~30% from 200mm and ~ from 150mm wafers. Demand for 300mm wafers at ~5.3mn wafers per month has been roughly on par with installed capacity during Q416. But with no further capacity additions (except for debottlenecking projects which can add 1-2% extra capacity pa), and 300mm demand continuing to grow at ~5% pa, we see increasing signs of ongoing wafer price hikes based on commentary from wafer makers (Siltronic, SUMCO, GlobalWafers) and also some customers (TSMC). We model 300mm wafer prices for Siltronic to go up by 20% in 2017, and another in 2018, as different customer contracts get renegotiated over the next 3-9 months. Further, we are also starting to see constraints on 200mm wafers, where we model 5% pa price hikes for 2017/18. Strong sales growth, improving margins. Siltronic's guidance remains a bit vague for 2017 given ongoing price renegotiations ( 1bn+ of sales and 20%+ EBITDA margin). However, given our view that wafer volumes will grow 5%/4% and prices go up by 12%8% on a blended basis for 2017/2018, we model sales of 1.13bn (+21% yoy)/ 1.25bn (+11% yoy). Given the high level of fixed cost structure (labour and D&A related) and lower hedging loss ( 11mn benefit), we believe EBIT margins can rise from 27mn (3% margin) in 2016 to 134mn/ 204mn (12%/16% margins) in 2017/2018. This will result in EBITDA growing from 146mn (16%) in 2016 to 310mn (25%) in TP of 73. Our TP is based on 7.0x EV/EBITDA on our 2018E EBITDA of 310mn. For EV calculations, we use net cash of 175mn ending Q416, along with 162mn of unfunded pension as debt (total pension of 395mn). Risks to our call are i) sustainability of wafer price hikes and ii) material weakness in JPY/USD allowing peers in Japan to take share by pricing aggressively. Financial and valuation metrics Year 12/15A 12/16A 12/17E 12/18E Revenue ( m) , ,253.4 EBITDA ( m) Adjusted net income ( m) CS EPS (adj.) ( ) Prev. EPS ( ) ROIC (%) P/E (adj.) (x) P/E rel. (%) EV/EBITDA (x) Dividend (12/17E, ) 0.00 Net debt/equity (12/17E,%) Dividend yield (12/17E,%) 0.0 Net debt (12/17E, m) BV/share (12/17E, ) 23.7 IC (12/17E, m) Free float (%) 69.2 EV/IC (12/17E, (x) 4.5 Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Siltronic (WAFGn.DE) Price (20 Mar 2017): 56.5; Rating: (from NEUTRAL) OUTPERFORM [V]; Target Price: (from 45.00) 73.00; Analyst: Achal Sultania Income statement ( m) 12/15A 12/16A 12/17E 12/18E Revenue ,127 1,253 EBITDA Depr. & amort. (121) (119) (115) (106) EBIT Net interest exp. (12) (11) (10) (9) Associates PBT (10) Income taxes (11) (7) (27) (40) Profit after tax (20) Minorities Preferred dividends Associates & other 6 3 (8) (10) Net profit (14) Other NPAT adjustments (6) (3) 8 10 Reported net income (20) Cash flow ( m) 12/15A 12/16A 12/17E 12/18E EBIT Net interest (2) (1) (1) 0 Cash taxes paid (7) (5) (27) (40) Change in working capital 12 (12) (25) (25) Other cash and non-cash items Cash flow from operations CAPEX (59) (97) (100) (75) Free cashflow to the firm Acquisitions Divestments Other investment/(outflows) (40) (39) 0 0 Cash flow from investments (99) (136) (100) (75) Net share issue/(repurchase) Dividends paid Issuance (retirement) of debt Cashflow from financing (32) Changes in net cash/debt 140 (20) Net debt at start 24 (116) (96) (157) Change in net debt (140) 20 (61) (121) Net debt at end (116) (96) (157) (277) Balance sheet ( m) 12/15A 12/16A 12/17E 12/18E Assets Total current assets Total assets 1,041 1,057 1,114 1,215 Liabilities Total current liabilities Total liabilities Total equity and liabilities 1,041 1,057 1,114 1,215 Per share 12/15A 12/16A 12/17E 12/18E No. of shares (wtd avg.) (mn) CS EPS (adj.) ( ) (0.50) Dividend ( ) Free cash flow per share ( ) Key ratios and valuation 12/15A 12/16A 12/17E 12/18E Growth/Margin (%) Sales growth (%) EBIT growth (%) Net income growth (%) EPS growth (%) EBITDA margin (%) EBIT margin (%) Pretax profit margin (%) (1.0) Net income margin (%) (1.5) Valuation 12/15A 12/16A 12/17E 12/18E EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Dividend yield (%) P/E (x) (112.2) Credit ratios (%) 12/15A 12/16A 12/17E 12/18E Net debt/equity (%) (23.3) (22.6) (31.6) (45.4) Net debt to EBITDA (x) (0.9) (0.7) (0.6) (0.9) Interest coverage ratio (x) Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates Company Background Siltronic makes silicon wafers, which is sold to semiconductor foundry companies who make chips like Intel, Samsung, TSMC, Toshiba, who then either make the chips and sell it to end consumers or to device manufacturers like Apple, HP, Lenovo, etc. Blue/Grey Sky Scenario Our Blue Sky Scenario ( ) (from 72.00) Our blue sky scenario assumes the potential for a 15% increase in our 2018 EBITDA estimate driven by wafer unit growth remaining above 5% pa, along with 300mm wafer pricing going up by 30% as we assume in our base case, but also 200mm/150mm wafer prices going up by pa. This, combined with FY2 EV/EBITDA multiple of 7.5x (in-line with the historic average for peers in Japan), would result in a blue sky valuation of 90. Our Grey Sky Scenario ( ) (from 28.00) Our grey sky scenario assumes potential for 25% decrease in 2018 EBITDA estimates driven by wafer unit growth remaining around low single-digits pa, along with 300mm wafer pricing going up by 15% but 200mm/150mm wafer prices remaining flattish. This, combined with FY2 EV/EBITDA multiple of 4.5x (in-line with the historical range for Siltronic since the IPO), would result in a grey sky valuation of Share price performance Sep- 15 Jan- 16 May- 16 Sep- 16 Jan- 17 WAFGn.DE DEUTSCHE BORSE DAX INDEX The price relative chart measures performance against the DEUTSCHE BORSE DAX INDEX which closed at on 20/03/17 On 20/03/17 the spot exchange rate was 1/Eu 1.- Eu.93/US$1 Siltronic (WAFGn.DE) 2

3 Key charts Figure 1: We expect wafer volumes to grow 5% in 2017 for the overall industry 40% 30% 20% Figure 2: Jan-17 wafer data for Japan shows both volumes and pricing going up (Feb and Mar 2017 are assumed to be normal seasonal for volumes with flat mom pricing to estimate Q117 trends) 30% 25% 20% 15% 0% E 5% 0% -5% Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Q117E -20% - -30% -40% Silicon wafer shipments (mn sq inches), % change yoy Semiconductor industry revenues ($ bn), % change yoy -15% -20% Wafer volumes (% change yoy) Wafer pricing in JPY (% change yoy) Wafer pricing in USD (% change yoy) Source: Gartner, Credit Suisse estimates Source: METI (Japan data), Credit Suisse estimates Figure 3: We model 18% revenue growth for overall wafer market (+5% units and +12% blended pricing) 50% 40% 30% 20% 0% - -20% -30% -40% Silicon wafer revenues (US$ mn), % change yoy Semiconductor industry revenues ($ bn), % change yoy Source: Gartner, SIA, Credit Suisse estimates E Figure 4: We expect significant improvement in EBITDA margins at Siltronic driven by price hikes Adjusted EBITDA Margin (%) 35% 30% 25% 20% 15% 5% 0% 12% 13% 14% 13% 16% 22% 25% E 2018E SUMCO Shin-Etsu Siltronic SunEdison Semi GlobalWafers Source: Company data, Credit Suisse estimates Figure 5: We model 21%/11% sales growth for Siltronic in 2017/2018 Siltronic revenue model E 2018E Silicon wafer market (mn sq. inches) 10,390 10,734 11,047 11,599 12,063 % change yoy 11.3% 3.3% 2.9% 5.0% 4.0% Silicon wafer pricing ($ per sq. inch) % change yoy -6.0% -4.8% -4.5% 12.4% 8.0% Silicon wafer industry revenues ($ mn) 8,304 8,170 8,029 9,476 10,644 % change yoy 4.6% -1.6% -1.7% 18.0% 12.3% Siltronic market share (%) 14% 13% 13% 13% 13% Siltronic sales ($ mn) 1,132 1,034 1,029 1,203 1,341 FX (EUR / USD) Siltronic sales ( mn) ,127 1,253 % change yoy -2.5% 9.1% 0.2% 20.8% 11.2% Source: Company data, Credit Suisse estimates Figure 6: which will drive EBITDA margins from 16% in 2016 to 25% in 2018 Siltronic financials ( mn) E 2018E Revenues (adjusted) ,127 1,253 % change yoy -2.5% 9.1% 0.2% 20.8% 11.2% Gross profit Gross margin (%) 7.7% 17.5% 18.4% 24.0% 26.8% R&D expenses (66) (64) (66) (70) (72) as % of sales 7.7% 6.9% 7.1% 6.2% 5.8% Selling expenses (32) (35) (33) (35) (36) as % of sales 3.7% 3.7% 3.6% 3.1% 2.9% G&A expenses (17) (19) (21) (21) (23) as % of sales 2.0% 2.0% 2.2% 1.9% 1.8% Other income / (expenses) 17 (42) (25) (10) 0 Adjusted EBIT (32) EBIT margin (%) -3.7% 0.3% 2.9% 11.9% 16.3% D&A Adjusted EBITDA EBITDA margin (%) 13.8% 13.3% 15.6% 22.1% 24.7% Source: Company data, Credit Suisse estimates Siltronic (WAFGn.DE) 3

4 Siltronic (WAFGn.DE) 4 Figure 7: Solid double-digit growth ahead for Siltronic driven by steady volume growth and sharp rise in wafer prices Breakdown of Siltronic sales E 2018E 300mm wafers Industry volume shipments (mn sq inches) 6,087 6,453 6,726 7,156 7,514 % change yoy 16% 6% 4% 6% 5% Siltronic market share (%) --- assumed 13% 13% 13% 13% 13% Siltronic volume shipments --- assumed % change yoy 8% 0% 4% 6% 5% Blended Industry price per sq inch ($) for polished wafers % change yoy -6% -6% -4% 20% FX ( to $) Siltronic price per sq inch ( ) Siltronic sales from 300mm wafers ( mn) --- A % change yoy 1% 13% 0% 32% 15% 200mm wafers Industry volume shipments (mn sq inches) 2,555 2,713 2,771 2,854 2,940 % change yoy 6% 6% 2% 3% 3% Siltronic market share (%) --- assumed 14% 13% 13% 13% 13% Siltronic volume shipments --- assumed % change yoy 2% -5% 2% 3% 3% Blended Industry price per sq inch ($) for polished & epitaxial wafers % change yoy -5% -5% -2% 5% 5% FX ( to $) Siltronic price per sq inch ( ) Siltronic sales from 200mm wafers ( mn) --- B % change yoy -3% 7% 1% 12% 8% Smaller Diameter or SD wafers (150mm or less) Industry volume shipments (mn sq inches) 1,748 1,628 1,614 1,614 1,614 % change yoy 6% -7% -1% 0% 0% Siltronic market share (%) --- assumed 15% 14% 14% 13% 13% Siltronic volume shipments --- assumed % change yoy -7% -13% -1% -5% 0% Blended Industry price per sq inch ($) for polished & epitaxial wafers % change yoy -5% -5% -2% 0% 0% FX ( to $) Siltronic price per sq inch ( ) Siltronic sales from SD/CLE wafers ( mn) --- C % change yoy -11% -1% -2% -2% 0% Total Siltronic Industry volume shipments (mn sq inches) 10,390 10,794 11,110 11,624 12,067 % change yoy 11% 4% 3% 5% 4% Siltronic market share (%) --- assumed 14% 13% 13% 13% 13% Siltronic volume shipments --- assumed 1,417 1,370 1,409 1,461 1,516 % change yoy 3% -3% 3% 4% 4% Blended Industry price per sq inch ($) for polished & epitaxial wafers % change yoy -6% -6% -3% 13% 7% FX ( to $) Siltronic price per sq inch ( ) Total Siltronic sales ( mn) (A + B + C) ,127 1,253 % change yoy -3% 9% 0% 21% 11% Source: Company data, Credit Suisse estimates 1a 2a 2b 2c ) Wafer volumes industry to see mid single digit growth. We model 5%/4% volume growth for the overall wafer market in 2017/2018. Within this, we expect 300mm wafers to grow slightly faster at 6%/5% followed by 3% pa growth for 200mm and flat volumes for 150mm or lower diameter wafers. 2) Significant price increase for 300mm wafers. We model wafer prices for 300mm diameter size to go up by 20% in 2017 followed by another in 2018 as demand here is already starting to outgrow supply and no capacity additions happening (only 1-2% extra capacity due to debottlenecking projects). With demand growing at ~5% pa, we believe we will ongoing rounds of price negotiations along with sustained price hikes. For 200mm wafers, we model 5% pa price hikes and then flat pricing for 150mm wafers. 3) Solid top-line growth ahead. With wafer volumes growing at mid single digit pa and blended prices rising by 20% spread over , we believe that Siltronic s sales can see growth of 21%/11% in 2017/ March 2017

5 Siltronic (WAFGn.DE) 5 Figure 8: Samsung and TSMC are the biggest wafer purchasers globally; TSMC already indicating about wafer prices starting to rise Smartphones and PCs biggest wafer demand generator Solid-State Drives 6% Mobile Infrastructure 4% Media Tablets & Tablet PCs 5% Switches, Hubs, Modems, etc. 6% Automotive 8% Others 43% IM Flash 1% Inotera 1% Others 14% Appliances, Video Players, etc. 8% Top 10 semi companies accounting for ~55% of wafer demand GF 3% Source: Gartner, Company data, Credit Suisse research Intel 3% UMC 3% Smartphones 21% Industrial 11% Samsung 17% TSMC Toshiba 7% SK Hynix 7% Micron 5% Desktop, Notebook & Server PC 17% 300 mm, 59% IM Flash 2% Inotera 2% GF 3% Intel 5% 300mm wafer to be ~60% of shipment area in 2016 < 100 mm, 1% Others 22% UMC 2% Micron 8% SK Hynix 125 mm, 3% 150 mm, 12% Samsung 24% Toshiba 200 mm, 25% and even more ~75% of demand for 300mm wafers, with Samsung leading the pack TSMC 11% 22 March 2017

6 Siltronic (WAFGn.DE) 6 Figure 9: We believe that Siltronic shares can trade on 7.0x EV/EBITDA on FY2 estimates, which is roughly the average of its two Japanese peers since 2010; this drives our TP of 73 implying around 30% potential upside Adjusted EBITDA Margin (%) Source: Thomson Reuters, Credit Suisse research 35% 30% 25% 20% 15% 5% 0% 12% 13% 14% 13% 16% 22% 25% E 2018E SUMCO Shin-Etsu Siltronic SunEdison Semi GlobalWafers Source: Credit Suisse estimates EV/sales and EV/EBITDA metric of wafer companies over time EV/Sales (x) EV/EBITDA (x) FY1 FY2 FY3 FY1 FY2 FY3 SUMCO (current) Shin-Etsu (current) Siltronic (current) Average (current) --- A SUMCO (avg. since 2010) Shin-Etsu (avg. since 2010) Siltronic (avg. since IPO in mid-2015) Average (historic) --- B EBITDA margin for wafer players over time Source: Thomson Reuters, Company data, Credit Suisse estimates Siltronic TP of 73 based on FY2 EV/EBITDA of 7.0x Siltronic valuation using FY2 EV/EBITDA 2018E 2018E Sales ( mn) 1, E EBIT ( mn) 204 EBIT margin (%) 16.3% 2018E EBITDA ( mn) 310 EBITDA margin (%) 24.7% EV/EBITDA target multiple (x) 7.0 EV ( mn) 2,179 Net cash (Q416) (A) Net pension provision (Q416) (B) of which Unfunded pension obligations (Q416) ('C) Net debt incl. unfunded part of pension ( mn) (A - B) (13) Market Cap ( mn) 2,191 Siltronic FV per share ( ) 73.0 Source: Credit Suisse estimates 22 March 2017

7 Financial Model Figure 10: Siltronic: Annual income statement, year ending Dec in millions, unless otherwise stated E 2018E Sales(reported) % change yoy -14.4% 13.9% Sales (adjusted) 1, , ,253.4 % change yoy -15.0% -2.5% 9.1% 0.2% 20.8% 11.2% Gross profit (reported) Gross Margin (%) 9.3% 11.3% 9.1% Gross profit (adjusted) Gross Margin (%) 7.7% 17.5% 18.4% 24.0% 26.8% Selling expenses (reported) (34.5) (28.7) (30.5) as % of sales 4.0% 3.9% 3.6% Selling expenses (adjusted) as % of sales 3.7% 3.7% 3.6% 3.1% 2.9% G&A (reported) (18.9) (13.9) (16.0) as % of sales 2.2% 1.9% 1.9% G&A (adjusted) as % of sales 2.0% 2.0% 2.2% 1.9% 1.8% R&D (reported) (66.8) (58.8) (64.3) as % of sales 7.7% 7.9% 7.6% R&D (adjusted) as % of sales 7.7% 6.9% 7.1% 6.2% 5.8% Other operating income (reported) Other operating expenses (reported) (101.4) (81.4) (61.8) Other operating income (adjusted) Other operating expenses (adjusted) (61.8) (131.3) (77.2) (10.0) 0.0 of which FX hedging (45.7) (20.9) (10.0) 0.0 Loss from investment in JV (26.6) (42.5) (3.5) EBIT (reported) (84) (96) (17) EBIT margin (%) -9.7% -12.9% -2.0% EBIT (adjusted) (75.5) (87.3) (31.7) EBIT margin (%) -7.3% -10.0% -3.7% 0.3% 2.9% 11.9% 16.3% Reported D&A Adjusted D&A (excl. impairment) EBITDA (reported) EBITDA margin (%) 1.0% 3.6% 15.6% EBITDA (adjusted) EBITDA margin (%) 11.9% 12.9% 13.8% 13.3% 15.6% 22.1% 24.7% Interest income Interest expense (0.6) (0.3) (2.0) (4.1) (3.3) (2.0) (2.0) Other financial expense (5.7) (9.5) (6.3) (8.7) (9.1) (9.0) (9.0) Profit / (Loss) before taxes (reported) (84.4) (99.1) (24.8) Profit / (Loss) before taxes (adjusted) (75.9) (90.7) (39.4) (9.5) Income taxes (6.2) (10.2) (2.2) (10.6) (7.2) (27.0) (40.0) Tax rate (%) -7.3% -10.3% -8.9% % 45.3% 21.6% 20.5% Net Profit / (Loss) reported (90.6) (109.3) (27.0) of which attributable to Siltronic shareholders (90.6) (109.3) (16.0) of which attributable to non-controlling interest (11.0) Net Profit / (Loss) adjusted (82.1) (100.9) (41.6) (20.1) of which attributable to Siltronic shareholders (82.1) (100.9) (30.6) (14.0) of which attributable to non-controlling interest (11.0) (6.1) (3.3) Diluted EPS attributable to shareholders (reported) (1.81) (2.19) (0.64) Diluted EPS attributable to shareholders (adjusted) (1.64) (2.02) (1.22) (0.50) Diluted share count (mn) Source: Company data, Credit Suisse estimates Siltronic (WAFGn.DE) 7

8 Companies Mentioned (Price as of 20-Mar-2017) Apple Inc (AAPL.OQ, $141.46) GWC (6488.TWO, NT$216.0) Hewlett Packard Enterprise (HPE.N, $22.95) Intel Corp. (INTC.OQ, $35.43) Lenovo Group Ltd (0992.HK, HK$4.9) Micron Technology Inc. (MU.OQ, $26.21) SK Hynix Inc. ( KS, W47,600) SUMCO (3436.T, 1,700) Samsung Electronics ( KS, W2,095,000) Shin-Etsu Chemical (4063.T, 9,663) Siltronic (WAFGn.DE, 56.5, OUTPERFORM[V], TP 73.0) Taiwan Semiconductor Manufacturing (2330.TW, NT$191.5) Toshiba (6502.T, 190) United Microelectronics (2303.TW, NT$12.3) Disclosure Appendix Analyst Certification I, Achal Sultania, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for SK Hynix Inc. ( KS) KS Closing Price Target Price Date (W) (W) Rating 25-Apr-14 40,750 49,000 O 23-Jun-14 48,900 64, May-15 51,100 R 01-Jun-15 51,100 64,000 O 06-Jul-15 40,750 59, Jul-15 39,000 57, Aug-15 33,000 56, Oct-15 31,950 49, Jan-16 27,850 45, Apr-16 29,150 42, Sep-16 39,250 46, Oct-16 40,200 55, Jan-17 50,300 65, Jan-17 53,300 71,000 * Asterisk signifies initiation or assumption of coverage. 80,000 60,000 40,000 20,000 O U T PERFO RM REST RIC T ED Target Price Closing Price KS 01- Jan Jan Jan Year Price and Rating History for Samsung Electronics ( KS) KS Closing Price Target Price Date (W) (W) Rating 06-May-14 1,346,000 1,760,000 O 07-Jul-14 1,292,000 1,740, Jul-14 1,295,000 1,720, Aug-14 1,242,000 1,700, Oct-14 1,162,000 1,680, Sep-15 1,122,000 1,630, Oct-15 1,325,000 1,785, Jan-16 1,152,000 1,690, Jan-16 1,145,000 1,550, Jun-16 1,333,000 1,702, Jul-16 1,507,000 1,790, Dec-16 1,759,000 2,400, Jan-17 1,908,000 2,650, Mar-17 2,010,000 2,900,000 * Asterisk signifies initiation or assumption of coverage. 3,060,000 2,560,000 2,060,000 1,560,000 1,060,000 O U T PERFO RM Target Price Closing Price KS 01- Jan Jan Jan Siltronic (WAFGn.DE) 8

9 3-Year Price and Rating History for Siltronic (WAFGn.DE) WAFGn.DE Closing Price Target Price Date ( ) ( ) Rating 20-Jul N * 02-Nov Mar Apr Oct Oct Jan Feb * Asterisk signifies initiation or assumption of coverage N EU T RA L Target Price Closing Price WAFGn.DE 01- Jan Jul Jan The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fundamentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst s expectation for the sector s fundamentals and/or valuation is cautious over the next 12 months. *An analyst s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. 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Target Price and Rating Valuation Methodology and Risks: (12 months) for Siltronic (WAFGn.DE) Method: For our TP of 73, we apply an EV/EBITDA multiple of 7.0x on our 2018 estimates. This 2018 EV/EBITDA multiple is roughly in-line with the historical average of Japanese peers, which have traded in the range of 6x to 9x with an average of 7.5x since 2010, which we believe is warranted given Siltronic's lower EBITDA margin profile. We rate the shares Outperform given the upside potential indicated by our TP as visbility for wafer price hikes and margin improves. Risk: Downside risks to our TP and Outperform rating include the following: i) a slowdown in the semiconductor industry (smartphones, PCs, tablets, consumer electronics, automotive & industrial products) impacting demand negatively for silicon wafers; ii) no improvement in the pricing environment for 300mm wafers despite us nearing a stage when demand may potentially outgrow installed capacity in the industry (for 300mm wafers); and iii) weak JPY vs. USD thereby allowing the two leading Japanese companies in this industry (SUMCO and Shin- Etsu Chemical) to continue to price aggressively as they can pass on cost advantage to their customers in the form of lower pricing. Upside risks to our TP include the following: i) more consolidation in the silicon wafer industry, which would result in a more rational pricing environment than what we have seen in the last 3-5 years; ii) a strong currency exchange rate for the JPY (JPY appreciating vs. USD) which would lead to margin pressure for Siltronic's two biggest competitors based in Japan; iii) a higher increase in prices for 300mm wafers in 2016 and beyond, if demand outstrips capacity production materially with no suppliers adding more capacity. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (WAFGn.DE, AAPL.OQ, 0992.HK, HPE.N, 6502.T, INTC.OQ, MU.OQ, KS, KS, 2303.TW, 2330.TW) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. 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