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Amtech Systems: Not Seeing Daylight
Posted by: Mark Lin (IP Logged)
Date: November 15, 2012 09:57AM

Amtech Systems (ASYS) was founded in 1981 and entered the solar market in 2006. It manufactures capital equipment, including silicon wafer handling automation, thermal processing equipment and related consumables used in fabricating solar cells, LED and semiconductor devices. The company's wafer handling, thermal processing and consumable products currently address the diffusion, oxidation, and deposition steps used in the fabrication of solar cells, LEDs, semiconductors, MEMS and the polishing of newly sliced silicon wafers.

Valuation

ASYS is a net-net trading at 0.38x P/NCAV and 0.27x P/B. This is a new historical low for ASYS, with its previous historical trough at 0.41x P/B in March 2009. ASYS achieved a five-year book value per share CAGR of 22.4% and 10-year book value per share CAGR of 9.2%.

Financial and Business Risks

ASYS is debt-free with cash of $42.3 million, representing 57% of its current market capitalization of $74.2 million.

The solar energy sector is dependent upon governmental subsidies that are not guaranteed to continue. A decline in these subsidies would reduce ASYS' ability to grow its business in this market.

ASYS currently sells to a relatively small number of customers, its operating results will likely continue to depend on the ability of these customers to sell products that require ASYS' equipment in their manufacture. Yingli accounted for 15%, 28% and 4% of its net revenues in 2011, 2010 and 2009, respectively. Many of its customer relationships have been developed over a short period of time and certain customers are in their early stages of development.

Changing customer demands, supplier lead-times and uncertainty surrounding new product launches expose ASYS to risks associated with excess inventory. Long lead-times for important system components sometimes require ASYS to carry higher levels of inventory and make larger purchase commitments. ASYS may be unable to sell sufficient quantities of products in the event that market demand changes, resulting in increased risk of excess inventory. Inventory days for the trailing 12 months spiked to 153 days from an average of 80 days for the past two years.

Business Quality and Capital Allocation

ASYS is a global supplier of solar and semiconductor process equipment and automation systems. It is the market leader in the supply of diffusion furnaces for the solar industry, with a total installed production capacity of greater than 15 GW or an equivalent of 600 systems. ASYS' diffusion furnaces enable customers to produce high-quality solar cells with higher efficiencies and result in lower total cost of ownership.

ASYS is a key equipment supplier to the world's leading solar cell manufacturers. It has developed a large and growing global customer base and currently provide systems and equipment to many of the world's leading solar cell manufacturers. Asia represents one of the largest and fastest growing solar cell manufacturing regions in the world and Asian customers represented 88% of net revenues in 2011.

ASYS has built a leading technology platform based on the successful integration of six strategic acquisitions, several value-added collaboration and partnership agreements as well as an aggressive internal product innovation program. Its most recent acquisition in 2011 was Kingstone Technology, a Shanghai-based technology company specializing in ion implant solutions for the solar and semiconductor industries.

ASYS does not pay a cash dividend.

Conclusion

Analysts expect losses for ASYS to continue into fiscal year 2013, with book value and cash levels expected to take a hit. A net-net in a capital intensive, cyclical industry with losses eroding book value, is not as attractive as a dividend-paying profitable net-net with nominal book value growth. Valuations are very attractive, but I will pass on this one.

Disclosure

The author does not have a position in any of the stocks mentioned.


Stocks Discussed: ASYS,
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