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$KLIC Update
It's been a while since I posted a memo on here, so if you don't mind, I'm going to riff on Kulicke and Soffa($KLIC or "K&S"), a company which I have been aggressively bullish on since diving into a research process a month ago. Some of this I posted in the Semiconductor chat. I will follow this up with a broader semi industry update tomorrow. It's nearly past my bedtime right now.

So, I couldn't care less about a move from a day or a week. The real value will come when the Company re-rates as the market realizes this Company is 1) a secular in cyclical right tail investment with 2) lower future volatility. Both drive a higher multiple for the stock - look at front-end WFE, all trade at a premium to KLIC. Which, based on history, makes sense - it should. The front-end equipment market was historically plagued by similar exacerbated oscillations that the back-end has continued to experience; these equipment cycles are levered (high beta) to chip shipments. However, around the beginning of the last decade, a variety of necessary advancements in production technologies drove value to the front-end; the follow-on effect being more stable cycles as a result of faster equipment upgrade cycles and the ever-growing share of maintenance & service business on the equipment (more on this later). Value in the equipment market, even with advanced packaging, has mostly accrued to the front-end. But as I mentioned in my write-up, that is changing now.

It is this inflection point that is driving a fundamental change in Kulicke and Soffa's business model and is grounds for the oncoming rerating. Packaging equipment is now a necessary part of the front-end along with most other parts of the chip production process. This is a necessary requirement as packaging is now being used to improve PPAC (power, performance, area, cost) through tighter integrations and connectivity. Especially as we move towards a heterogeneous packaging paradigm, combining all different types of processors and components onto a single substrate (or even chip), the packaging needs to be contemplated on the front-end. This will not happen immediately, as design capabilities continue to develop to incorporate packaging, and customers build out these capabilities. This will drive more stability in the Company's order flow and faster upgrade cycles, just like the front-end has experienced. $AMAT $KLAC $LRCX and Tokyo Electron all trade at NTM EBITDA multiples around 17-18x; $KLIC trades at 9.7x (on light consensus). I'm leaving out $ASML from these multiple discussions because it trades at a rightful premium to all (more than happy to elaborate on this). K&S is trading at a 35% discount to its peers larger peers. $FORM is trading at 30.5x NTM P/E and BE Semiconductor, a leader in flip-chip packaging, is trading at 23.5x. There is no other way for me to say this except KLIC IS GOING TO RERATE HIGHER. Assuming just 20x on my 2022 earnings estimate of $5.50, $KLIC should be trading at $110... just quick BOE analysis that triangulates nicely with my EPV analysis of $105.

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Furthermore, I just got an update from IR on all things, they just had a big TCB design win for a 7nm crypto mining use case - which beat out flip-chip. This is important to understand given the industry dynamics. When flip-chip came around in the early 2000s, it was supposed to supplant wire bond (which KLIC is the undisputed industry leader). Fast forward 20 years, wire bonding is still the packaging methodology for 80% of all ICs. So now with TCB, which will be the logical method for SiC and other advanced packaging techniques, KLIC has the durability of wire bond and upside from TCB (they also have flip-chip but BESI is the leader in the room).

Ok, all of this being said, I don't even contemplate the massive growth driver percolating in the company... miniLED. The Company's miniLED line is a result of its acquisition of Assembleon back in 2015 (for 1.1x revenue, no less). Without going into the details, miniLED is the next-gen OLED and enables the resurgence of LCD. Apple just announced miniLED screen for the iPad right? I'm still trying to confirm, but am pretty sure KLIC won the design for the packaging equipment for the miniLED screens used for the iPad. This is MASSIVE. Because then they will be the logical choice for when this transitions over to the MacBook and given the experience, I'd give it a high probability they win the Android business next year. This is ALL upside for me though, with just the base case display and core packaging business, the stock should be at $70 right now.

Last quick comment. MiniLED represents a $2.5B revenue opportunity for a company currently doing $1B in revenue run rate. And at higher margins. I could go on... additionally, big note on the updated earnings guidance is that K&S' supply chain has eased - so they are able to meet capacity demands, while everything remains tight ahead of them for their customers. What a beautiful setup.

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SINGAPORE, April 19, 2021 /PRNewswire/ -- Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) ("Kulicke & Soffa", "K&S" or the "Company"), today announced that it expects revenue to be approximately $340 million and non-GAAP earnings per share to be approximately $1.20 for the second fiscal quarter, ended April 3, 2021.
Strong demand for K&S solutions continued to stem from the general semiconductor, automotive and LED end-markets throughout the second fiscal quarter. In addition, the Company has continued to drive adoption of its leading-edge semiconductor offerings supporting high-density assembly, and also its advanced LED solutions supporting emerging mini-LED capable displays.
Fusen Chen, President and Chief Executive Officer, stated, "We remain very focused in supporting our customers' capacity expansion plans while also delivering new solutions that address fundamental challenges within the growing assembly market. Separately, we have also made significant progress to mitigate near-term supply chain constraints, which improves our outlook into the fiscal second half."
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