Here is the write up from the Jefferies upgrade today
The main point to highlight from our note is that our new forecast of 30% revenue growth in 2023 is by far the highest across our coverage.
You?ll have heard our views that the wider semiconductor sector is heading into a downcycle which could result in steep cuts to orders and earnings over the next 12-18 months. In light of all that, we expect an average revenue growth rate of 8% for 2023 across our coverage, with the risk clearly to the downside given the current environment of weakening demand and rising inventories - In that context, our 30% forecast for Aixtron makes this company a clear outperformer in the sector over the next couple of years.
And not only that, but we actually think our forecasts are conservative - That all put us significantly ahead of consensus: our 2023 and 2024 earnings estimates are 58% and 48% ahead
Why are we so confident on Aixtron?
We see three key pillars of growth for this company over the next few years: MicroLED, Silicon Carbide and Gallium Nitride:
MicroLED - we think this could go on to become the company?s largest revenue driver by far - Most important point to highlight here is that once it reaches commercialisation, MicroLED screens are going to be everywhere - whether it?s in wearable devices, smartphones, laptops, TVs, AR/VR headsets
In other words this will be a huge market ? and Aixtron are very well placed with a 100% share on the equipment side. Also important is the fact that we think Aixtron have got Apple as a customer here - who they?re going to start shipping to in commercial volumes from Q4 of this year - Ahead of what we think will be a microLED-based Apple Watch launched in H2 2024.
If that Apple Watch launch goes well, then clearly there?s a possibility that Apple release a MicroLED iPhone - And we think that could mean an order 10x the size of the one they?ve got for the Apple Watch. So adding it all together, we think MicroLED could be a EUR 2 billion opportunity for Aixtron from Apple alone, and that?s not accounting for iPads, Android smartphones and TVs.
On Silicon Carbide, we think this side of the business is finally inflecting.
Aixtron have said they?re now working with TWO major customers here ? we think the second is On Semi in the US. They have said that they?re doubling their Silicon Carbide capacity both this year and next, to get to a run rate of $1bn revenues by 2023, which would put them on a par with STMicro
So if we?re right and Aixtron are supplying equipment to them, clearly they?re in a very good spot to grow their share of this market over the next 12-24 months as that customer ramps.
Finally, on Gallium Nitride ? this is another high growth market, we think it?s growing at about 80%, where Aixtron again have a 100% share.
In other words every GaN chipmaker is their customer - To put that growth potential a different way ? Infineon said that their GaN revenues in 2021 were EUR 5m. but their bookings are 1 billion ? so clearly huge amount of demand for this technology
Why is this stock cheap?
Shares are trading on 24x 2023 EPS, which is about 15% below their long-term average. We think consensus will get upgraded through the year, particularly as and when management raise FY guidance which they typically start doing from around Q2, and that together with resilient multiples is where we think a good amount of share price upside could come from over the next 12 months. Summary: we?re upgrading Aixtron today, we think the company will out-grow the rest of our coverage over the next 24 months, we?re significantly ahead of consensus, and we see upside to our forecasts.
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