Süss Microtec

Süss MicroTec Germany/ Semiconductors Post results note Investment Research 7 November 2013 Hold Warning for 4Q13 – exiting permanent bonder clusters from Buy Downgrade to ‘Hold’ / PT lowered to EUR 8 (11) Share price: EUR 7.98 The facts: SMHN released 3Q13 sales of EUR 38.9m which was nearly perfectly closing price as of 06/11/2013 Target price: EUR 8.00 in line with our forecast of EUR 38.7m and better than the FactSet consensus of from Target Price: EUR EUR 37.8m. We noted a solid top line development in the Lithography segment 11.00 (revenues of EUR 27.8m vs. EUR 24.0m) and in Photomasks (EUR 6.5m vs. EUR Reuters/Bloomberg SMHNn.DE/SMH GY 5.0m). However, Bonder clearly fell short of expectations (EUR 3.1m vs. EUR 8.0m). Daily avg. no. trad. sh. 12 mth 82,024 The gross margin was released at 32.2% and was thus better than we expected Daily avg. trad. vol. 12 mth (m) 654.51 Price high 12 mth (EUR) 10.08 (28.9%). This deviation should be the reason for the better EBIT performance in the Price low 12 mth (EUR) 6.63 quarter. SMHN achieved an operating result of EUR 1.8m which compares to our Abs. perf. 1 mth 16.1% EUR 0.3m (FactSet EUR 0.2m). Abs. perf. 3 mth 16.8% SMHN published a net result of EUR 1.2m and an EPS of EUR 0.06. This Abs. perf. 12 mth 6.4% compares to our forecast of EUR -0.7m and EUR minus 0.03, respectively. The Market capitalisation (EURm) 152 consensus stood around break-even here. Current N° of shares (m) 19 We noted a very strong cash flow as the company released net cash at quarter end Free float 100% of EUR 21.9m, up EUR 2.4m qoq. EUR 8.9m were paid for the building in Garching. SMHN collected EUR 11m customer pre-payments in the third quarter. Key financials (EUR) 12/12 12/13e 12/14e Sales (m) 164 130 148 3Q13 bookings were released at EUR 34.3m which was close to our expectation EBITDA (m) 19 (15) 9 of EUR 35m and thus, the SMHN guidance mid-point of EUR 30-40m. EBITDA margin 11.3% nm 6.2% EBIT (m) 12 (22) 4 SMHN released yesterday evening that the company will exit the production of EBIT margin 7.2% nm 2.9% permanent bonder cluster tools, but keep the manual equipment manufacturing Net Profit (adj.)(m) 7 (17) 3 here. Nevertheless, the step will cause one-offs amounting to EUR 8.3m. ROCE 6.0% -16.7% 3.3% Net debt/(cash) (m) (33) (25) (28) Furthermore, the outlook for sales was revised for FY13e from EUR 150m to EUR Net Debt Equity -0.3 -0.2 -0.2 125-135m as SMHN has to face delays in final acceptances of larger contracts. For Net Debt/EBITDA -1.8 1.6 -3.1 Int. cover(EBITDA/Fin.int) (516.1) 40.8 (24.7) this reason, management also lowered the EBIT outlook from EUR minus 10-15m to EV/Sales 0.8 1.0 0.9 EUR minus 22-27m. The 4Q13 bookings forecast came in again at EUR 30-40m. EV/EBITDA 7.1 nm 13.9 Our analysis: 3Q13 appears solid, but the implicit outlook for 4Q13 is very EV/EBITDA (adj.) 7.9 nm 13.9 EV/EBIT 11.3 nm 29.7 disappointing. The delta to the underlying EBIT forecast is about EUR 3.7m and P/E (adj.) 22.1 nm nm thus, despite usually seasonally stronger, SMHN will not be able to post profits in the P/BV 1.3 1.4 1.4 December period. The on-going delays and non-performance to the guidance is in our OpFCF yield -3.4% 2.9% 2.1% Dividend yield 0.0% 0.0% 0.0% opinion a massive blow to the story, even more than exiting permanent bonder cluster EPS (adj.) 0.38 (0.90) 0.15 tools, which we can partly understand. This might not necessarily affect the BVPS 6.65 5.75 5.91 opportunities in the temporary bonding space as SMHN clarified in the analyst call. DPS 0.00 0.00 0.00 We have now assumed a rather skeptical stance as we base on qualitative management statements about the segments for the near term future. As EUV will 11.0vvdsvdvsdy most likely not drive the Photomask business too soon and as improvements at Süss 10.5 10.0 Photonics might come later next year, while so far there has not been much progress 9.5 at temporary bonding, we have lowered our model assumptions significantly as 9.0 can be seen overleaf. Furthermore, SMHN stated that 1/delayed tool shipments into 8.5 8.0 1Q14 come with no gross margin contribution. 2/The sales break-even point 7.5 increased to EUR 130-140m due to an unfavorable product mix expectation. 3/We 7.0 6.5 expect EUR 5-6m EBIT-loss being taken out by exiting permanent bonding and thus, Okt 12 Nov 12 Dez 12 Jan 13 Feb 13 Mrz 13 Apr 13 Mai 13 Jun 13 Jul 13 Aug 13 Sep 13 Okt 13 Nov 13 the segment will remain loss-making in FY14. 4/Inventory equals 2/3 of sales, Source: Factset SUESS MICROTEC Tec Dax (Rebased) probably not a problem for 4Q13 write-downs, but a FY14e risk, we reckon. Shareholders: Conclusion & Action: We revise our recommendation down to ‘Hold’/under review from ‘Buy’ and lower our DCF based PT from EUR 11/under review to EUR 8. For company description please see summary table footnote Analyst(s): Adrian Pehl, CFA +49 69 58997 438 [email protected] Produced by: All ESN research is available on Bloomberg (“ESNR”), Thomson-Reuters, Capital IQ, FactSet Distributed by the Members of ESN (see last page of this report) Süss MicroTec 3Q13 review in EUR m 3Q13a 3Q13e delta 3Q12 yoy 2Q13 qoq Order intake 34.3 35.0 -2% 36.6 -6% 36.7 -7% Sales 38.9 38.7 1% 40.7 -4% 24.9 56% Rep. EBIT 1.8 0.3 500% 1.6 11% -11.7 n/a Rep. EBIT margin 4.5% 0.8% 380bp 3.9% 60bp -46.9% n/m Adj. EBIT 1.8 0.3 500% 1.8 -2% -7.5 n/a Adj. EBIT margin 4.5% 0.8% 380bp 4.4% 10bp n/m n/m Rep. net result 1.2 -0.7 n/a 0.4 173% -9.1 -113% Rep. EPS 0.06 -0.03 n/a 0.02 173% -0.49 -113% Sources: company data, equinet estimates Estimate changes in EUR m FY13 old FY13 new change FY14 old FY14 new change FY15 old FY15 new change Sales 150 130 -14% 196 148 -25% 226 188 -17% Rep. EBIT -11.0 -22.0 100% 18.4 4.3 -77% 29.4 18.0 -39% EBIT margin -7.3% -17.0% -960bp 9.4% 2.9% -650bp 13.0% 9.6% -340bp Rep. EPS [EUR] -0.58 -0.90 55% 0.55 0.15 -73% 0.99 0.64 -35% Sources: equinet estimates Discounted Cash Flow model Phase I Phase II Phase III EUR m 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Sales 129.6 147.5 188.0 218.5 235.5 247.3 259.6 272.6 286.3 300.6 306.6 Sales growth -20.9% 13.8% 27.5% 16.2% 7.8% 5.0% 5.0% 5.0% 5.0% 5.0% 2.0% EBIT (22.0) 4.3 18.0 28.5 34.3 24.8 26.0 27.3 28.7 30.2 30.8 EBIT margin -17.0% 2.9% 9.6% 13.1% 14.6% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Tax 4.6 (1.6) (6.3) (9.8) (11.5) (8.5) (8.9) (9.4) (10.0) (10.5) (10.9) Tax rate 21.0% 35.0% 34.0% 33.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% NOPAT (17.4) 2.7 11.7 18.7 22.8 16.3 17.1 17.9 18.8 19.6 19.9 Depreciation 6.8 6.6 4.9 4.4 4.5 4.7 5.0 5.2 5.5 5.8 6.2 in % of Sales 5.3% 4.5% 2.6% 2.0% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 2.0% Capex (11.3) (4.4) (5.6) (6.6) (7.1) (6.8) (7.1) (7.5) (7.9) (8.3) (6.3) in % of Sales 8.7% 3.0% 3.0% 3.0% 3.0% 2.8% 2.8% 2.8% 2.8% 2.8% 2.0% Provision delta (0.3) 0.9 0.9 0.9 0.9 0.6 0.6 0.6 0.6 0.6 0.3 in % of Sales -0.2% 0.6% 0.5% 0.4% 0.4% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% NWC delta 18.6 (1.2) (17.0) (12.8) (7.1) (4.9) (5.2) (5.5) (5.7) (6.0) (0.4) in % of Sales 14.4% -0.8% -9.0% -5.9% -3.0% -2.0% -2.0% -2.0% -2.0% -2.0% -0.1% Other current assets delta (4.0) 0.3 0.3 0.3 0.4 0.2 0.2 0.2 0.2 0.2 0.1 in % of Sales -3.1% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% Free Cash Flow -7.6 5.0 -4.9 5.0 14.3 10.0 10.5 11.0 11.4 11.9 19.8 FCF growth nm nm -198.2% -201.6% 187.6% -29.9% 4.9% 4.2% 4.3% 4.3% 65.9% Present Value FCF -7.5 4.5 -4.0 3.7 9.6 6.1 5.8 5.5 5.2 4.9 100.2 PV Phase I 6.3 MCap 136.3 Targ.

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