BUY RECOMMENDATION. Switzerland. Vakuum Apparate Technik (engl.: vacuum device technology) CFA Institute Research Challenge.

Transcription

1 CFA Institute Research Challenge Switzerland Natalia Grudina Jeroen Zandbergen Vakuum Apparate Technik (engl.: vacuum device technology) Sam Wagner BUY RECOMMENDATION v Jonathan Pavillard Mark Temnikov

2

3 YOU Original Equipment Manufacturers (OEMs) Machinery Vacuum valves

4 GLOBAL VACUUM VALVE PURE-PLAYER Other countries 25% Americas 33% EMEA 14% Asia 53% End markets Asia 75% Source: VAT Geographical markets

5 GLOBAL VACUUM VALVE PURE-PLAYER Semiconductors 60% Displays 13% Sales Vacuum Valves Solar Industry & Research 3% 24% Source: VAT Market segments

6 BUY Recommendation CHF 158 Closing price April 13 th, 2018 CHF 160 CHF 140 CHF 120 CHF 100 CHF 80 CHF 60 CHF 40 CHF 181 Target price 15 % Upside

7 Mega trends drive end market Industry Outlook 5Y CAGR New end-markets Semiconductors +8.8% Healthcare Displays +4.1% Solar +4.4% Automotive Industry & Research +2.1% Aerospace Source: Team Assessment, VLSI

8 E 2019E 2020E Production steps per node size nm 14nm 10nm 7nm 5nm Need for cleanliness Node size 5 nm Dust Particle 35 nm 40% 35% 30% 25% 20% Sales percentage of vacuum equipment Source: VLSI, Team Assessment

9 % of total world supply in semiconductor components Other countries 14% Supply Today China VS % of total world demand in semiconductor components Other countries 62% Demand 2019 China Chinese R&D spending in the technological sector (USD Bn) F Source: PWC, McKinsey

10 100 Global capex in the semiconductor industry (USD Bn) Semiconductor equipment supplier market concentration Other 3 OEMs = 75% of market 50 Source: VLSI, Statista

11 New end market trends Rising need for vacuum Chinese R&D expansion

12 3 key customers >100 suppliers VS Low rivalry TOP 3 Suppliers 50% of VAT s net sales 22% of material expenses 16% combined marketshare Source: VLSI, VAT

13 Other 39% 2017 Global vacuum valves market (1.2 Bn USD) 45% Other 47% 2022 Global vacuum valves market 53% 5% 5% 6% Market share gains in growing main semiconductor market & Global reach Focus Relative size Innovation Source: VLSI, VAT, Team Assessment

14 VAT R&D / Sales 10% 5% 0% 7% 8% 8% 7.5% 3.5% 4.6% 4.5% 4.6% FY17 FY18E FY19E FY20E VAT Group AG Competitor Average 20% of workforce engaged in R&D 2-3 years average development cycle High barriers to entry Strong patent portfolio ~170 granted patents ~170 pending patents Sales ~25% of sales generated from products developed in the past 3 years Source: Thomson Reuters, VAT, Team Assessment

15 Strong value chain Market leadership Innovation

16 Revenue forecast Growth drivers 40% 36.3% 30% 23.6% 20% 16.7% 18.0% 13.2% 11.4% 11.2% 5.9% 10% 3.2% 0% FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E FY27E Source: VLSI, Team Assessment $ Pricing Volume effect Growing end-markets Opportunities in new markets Market share gains liberty Complexity in the product Reliance on VAT Ability to pass on FX and raw material price fluctuations

17 EBITDA margin bridge FY17 - FY22E 35% 33% 31% 29% 27% 25% 1.8% 33.1% 30.7% - 1.7% 2.3% EBITDA margin FY17 COGS Personnel expenses Other operating expenses EBITDA margin FY22E COGS Outsourcing affects COGS negatively: Suppliers increase their prices to take into account the depreciation of machinery Personnel expenses Outsourcing affects personnel expenses positively: Provides flexibility to adjust capacity Other operating expenses VATmotion program: Global sourcing and material planning Source: Team Assessment, VAT

18 High FCF margin & conversion $ Not capital-intensive (low capex / sales) 80% 70% 69% 67% 67% 73% 75% 10% 5% 3% 4% 7% 7% 5% 4% 4% 4% 60% 50% 40% 39% 50% 54% 0% FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E More efficient (decreasing operating cycle) 30% 20% 10% 0% 20% 15% 17% 22% 22% 24% 25% 11% FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E days FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E Source: Thomson Reuters, VAT, Team Assessment

19 Sales EBITDA margin EPS ROIC 40% 36% 35% 31% 31% 32% 35% 30% 30% 25% 25% 20% 20% 17% 15% 15% 10% 10% 6% 5% 5% 0% 0% 70% 60% 50% 40% 30% 20% 10% 0% 60% 33% 17% 25% 20% 15% 10% 5% 0% 20% 22% 22% Peers Source: Thomson Reuters, Team Assessment

20 Revenue Efficiency gains Shareholder value

21 Discounted free cash flow to firm Multiple valuation BUY + = CHF % 75% 25% Blended target price Upside potential Source: Team Assessment

22 Cost of debt 1.9% DCF TARGET: CHF 182 Cost of equity 9.8% WACC 9.4% Terminal 3.2% WACC 8.4% 8.9% 9.4% 9.9% 10.4% 4.2% 68% 49% 34% 22% 11% Terminal Growth (2027E) 3.7% 52% 44% 24% 18% 4% 3.2% 39% 32% 15% 10% -2% 2.7% 29% 23% 9% 1% -7% 2.2% 20% 14% 2% -3% -11% Source: Team Assessment

23 PEG - Ratio Peer Median % discount Comparability Highly Likely Somewhat Not likely Not at all Target CHF 177 Source: Thomson Reuters, Team Assessment

24 Low Medium Impact High Product quality Employee risks Customer concentration Technology M&A Failing guidance Natural Increasing competition ESG compliance Contraction in end-markets Taxation FX risks Lack of public track record Low Medium High Probability Source: Team Assessment

25 CHF per USD Exchange rate CHF per JPY 100 Exchange rate Effect on Swiss manufacturing companies 47 % Significant negative effects 34% Moderate negative effects Main concern Lower profit margins (in 90% of cases) Source: Datastream, IMF

26 s grow faster Rapid gain of market share Loss of 1 out of 3 biggest customers Failure to gain market share s grow slower than expected Blue/Grey sky scenario Blue sky: CHF 236 (+49%) Target price: CHF 181 (+15%) Current price: CHF 158 Grey sky: CHF 100 (-37%) Source: Team Assessment

27 BUY CHF 280 CHF 250 CHF 220 CHF 190 CHF 160 CHF 130 CHF 100 CHF 70 CHF 40 Apr-2016 Sep-2016 Jan-2017 Jun-2017 Nov-2017 Apr-2018 Target price CHF 181 (+15%) New end market trends Strong value chain Revenue Blended approach Rising need for vacuum Market leadership Efficiency gains Attractive upside Chinese R&D expansion Innovation Shareholder value Limited downside