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Aixtron – lagging peers, but pieces coming together for an expected
standout 2021+, with lots of upside potential not reflected in numbers.
upgrade to OFI
unlike its semi equipment peers (+107$ vs. SOFL⁄Euro Tech +60$⁄+25$), 2019 was a
difficult year for Aixtron with shares flat as end-markets remained weak and the 2018 3D
sensing overbuild limited customer orders. Despite such challenges we would argue that
2019 was still robust, with Aixtron expecting to reach the lower end of its sales guidance at
€260M (VS. GUIDE €260-290M) DESPITE A C€30M pushout of its partial ApEFFA tool into 2020.
More importantly, as we look forward we see a multitude of growth drivers, many of which
could represent a true step change for the stock. FIe see the largest drivers as:
OLED (Samsung) opportunity: FIhile the qualification process with Samsung is
taking longer than many expected, the opportunity still remains. Importantly
SamsuNG’S RECENT FIVE-year plan to invest $11bn in display illustrates its
commitment to re-ENTER oled tv. tHE SUCCESS OF WHICH WILL DEPEND ON sAMSUNG’S
ability to increase manufacturing efficiency (e.g. reduce material wastage) which it
plans to achieve with AIXTRON’S DEPOSITION TECHNOLOGY. gIVEN sAMSUNG’S
commitment we view a higher likelihood of success for qualification, but still
acknowledge the technical risks around the process. If Aixtron were able to ship a
full tool for high volume manufacturing, we woULD EXPECT AROUND €100-200m of
SALES (VS. 2021 GROUP SALES OF €330M). wE WOULD ONLY EXPECT THIS IN 2021/22.
Si¢: FIith the recent rush to expand Si¢ capacity (e.g. ¢ree $1bn capex plan, ST
acquisition of Norstel), it is unsurprising that this will be a significant growth
opportunity. The key question for investors will be how much share Aixtron will
have, with Tokyo Electron currently leading. Aixtron is currently targeting 50$ share
on a market of 50-60 tools on a tool ASp of $3.5-4m representing a sales
oPPORTUNITY TO aIXTRON OF €105-140m (vs. our 2021 power Electronic sales of €54m).
FIith Aixtron taking share at ¢ree and gaining significant share with others, we
expect to see a significant uptick in 2021⁄22.
MicroLED: The other area of considerable upside potential is MicroLED where
Aixtron is a clear market leader with the only multi-wafer tool capable of high
volume production. FFeeco remains considerably behind as they struggle with wafer
uniformity. FIe only expect MicroLED to have a material impact on Aixtron from
2021+ and look for any form of product road map from major OEMs (e.g. whether
Apple decides to move to MicroLED in its next gen watch).
Return of 3D⁄Opto: FIhile 2019 3D sensing demand was largely supported by prior
capacity build out in 2018, we think customers will need to return to expand
capacity in 2020⁄21. Our industry work predicts a significant ramp in 3D sensing
smartphone units in 2020⁄21 to 277m⁄350m (vs. 170m in 2019) driven by greater
adoption in Android. Adding further upside would be the potential adoption of
world-facing 3D by Apple which would increase our 2020 3D module unit estimate
to c320m, almost doubling 2019 levels. given that Aixtron supplies both the likes of
IqE (into Lumentum) and FFpE¢ (into FIin Semi), it is largely insulated from supply
chain shifts. (See our recently published note on ams for further detail on our 3D
sensing industry forecasts: ams: The Odd ¢ouple, published 17 December 2019).
given the lack of visibility we do not include the OLED, Si¢ or MicroLED opportunity in
our numbers, but we do expect these to gather pace from 2h20 through 2021. If even
one of these were to materialize to the upside, we could see sales potentially c25$+
above our current forecast 2021⁄22 levels. FIe think the return of 3D orders will boost
sales in 2020⁄21, and help mitigate any lingering cycle concerns (our industry research
leads us to conclude that FFpE¢ could increase orders in 2020). The pushout of the
ApEFFA order into 2020 skews growth rates, but once excluded we now forecast 2020
growing modestly at 5$, increasing rapidly to 21$ in 2021.
gIVEN aIXTRON’S MORE NASCENT BUSINESS PROFILE WE HAD HISTORICALLY RELIED ON p/bv AS OUR
primary valuation multiple, with other profitability-based metrics (e.g. EFF⁄EBIT & pE) being
less useful. FIe believe this has started to change, with 2021 profit multiples now looking
more reasonable to us, as Aixtron returns to more meaningful profitability. Importantly we
THINK THAT GIVEN aIXTRON’S GROWTH POTENTIAL, along with the high barriers to entry in the
compound semis industry, it remains attractive on a valuation basis vs. semi cap peers (see
figure 13⁄14). FIe acknowledge that it may take time and patience for these opportunities
to come to fruition with some cycle drag in the near-term, but see this as an opportunity for
investors to get in early at an attractive valuation. FIe now base our price target on a 19x
2021e ev/ebit, IMPLYING A €12 PRICE target, leading us to upgrade our rating to Overweight
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