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Soitec: Credit score Suisse is a little more optimistic on the valuation – 11/14/2022 at 10:00 am

(AOF) – Credit Suisse raises its target price from EUR 263 to EUR 272 and confirms its outperformance view on Soitec. Taking into account the group’s half-year results, the research department raised its full-year growth forecast to 17% from 13%. After also gaining more transparency on the positive impact of exchange rates, the broker also increased its EBITDA estimates from 2% to 8% for the period 2023-2026.

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Important points

– World leader with 2/3 of the market for the manufacture of semiconductors using SOI (silicon wafer) technology, recognized by all major energy and electronics companies, granting a virtual monopoly;

– Sales of 1 billion euros, of which 61% in Asia, 25% in Europe and 14% in the United States;

– Business model based on 3 areas of expertise – Epitaxy and Smart Cut and Smart Stacking – serving 4 mass markets: smartphones, automotive, data centers and IoT;

– Three reference shareholders in the capital – BPI France (10.35%), the Chinese NSIG Sunrise (10.35%) and CEA Investissement (7.31%), Eric Meurice as Chairman of the 12-member Board of Directors and Pierre Barnabé as General Manager;

– Solid balance sheet with EUR 1 billion in equity versus EUR 518 million in debt.

challenges

– Strategy 2026, funded with 1.4 billion euros, aiming to triple sales to 2.3 billion euros and an operating margin of 40%;

– Innovation strategy with 2 unique technologies – Smart Cut and Smart Stacking – and 2 areas of expertise – Epitaxy and Composites – for 4 mass markets: smartphones, automotive, cloud and mobile telecom infrastructure and IoT;

– R&D with 11% of turnover (39th patent applicant in France and 2nd ETI with 3,700 patents of which 2,700 are active),

– Co-development partnerships with CEA, Leti etc. or customers and suppliers,

– Focus on vertical integration of circuits and base materials for qubits;

– Environmental Strategy 2026 validated by the SBTi:

– Reduction of CO2 emissions in production and suppliers by 24.6% compared to 2020 and reduction of water consumption by 24%,

– Use of sea freight,

– Delivery of energy efficient products;

– Balanced distribution of production sites (Bernin, Hasselt, Shanghai and Singapore) to limit logistical risks;

– Ability to outperform the market through internal growth and through partnerships (Qualcomm and GlobalFoundries, STMicro, etc.) and unrivaled positions in silicon wafer substrates for cellular 4 and 5G, bolstered by the acquisition of EpiGAN;

– Increased visibility through upstream association with semiconductor manufacturers’ projects, hence the 2 factory expansions in 2022.

challenges

– Towards a sharp decline in the smartphone market from 2023, to be offset by offering 5G functionalities;

– Awaiting market launches in the areas of piezoelectric diversification, gallium nitride and silicon carbide and consequences of the MobiSIC project with Valeo and CEA-Leti;

– After 18% sales increase in H1, target 2022-2023: 20% sales increase and operating margin of around 36%.

Growing market and price pressure

According to SIA, global chip sales were $151.7 billion in the first quarter of 2022, up 23% year-on-year. Sales increased in all major regional markets and for all product categories. As global uncertainties, including the war in Ukraine and the health crisis, weigh on supply chains, demand for semiconductors continues to significantly outstrip supply. Manufacturers Samsung and TSMC have announced plans to increase their prices in an environment where industry players have a lot of leeway and benefit from increased bargaining power. However, wage increases and component prices could weigh on future performance.

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