IQE

LN: IQE

£386.5m market cap

48.56p last close

IQE is the leading supplier of epitaxial compound semiconductor wafers globally. The principal applications include radio frequency semiconductors, devices for optical networks, vertical cavity lasers, infrared semiconductors and power electronics.

Investment summary

IQE’s reduced guidance for FY19 revenues of £136–142m (vs £140–160m previously) reflects primarily the greater than anticipated disruption to its major US wireless customers as a result of the US/China trade war. There is good evidence to support a recovery in the medium term: the qualification of products and tools in the Asian supply chain for both 3D sensing and wireless RF is encouraging, while exposure to 5G remains attractive. However, the timing of a recovery is difficult to gauge and with Q120 expected to be seasonally quiet we downgrade our FY19 and FY20 revenue estimates by 5.3% and 15% respectively, with FY19 EPS reduced from a 0.5p profit to a 0.8p loss and FY20 EPS reduced from 2.3p to 0.3p.

Y/E Dec
Revenue (£m)
EBITDA (£m)
PBT (£m)
EPS (p)
P/E (x)
P/CF (x)
2017A 154.6 37.1 24.5 3.38 14.4 11.3
2018A 156.3 28.4 14.0 1.38 35.2 21.8
2019E 139.4 9.1 (8.0) (0.82) N/A 55.9
2020E 152.1 20.9 3.0 0.28 173.4 19.9
Industry outlook

We view the transaction positively despite the estimates downgrade. Firstly, it enables IQE to restructure the operation and reduce losses. Secondly, it enables IQE to focus the development and manufacturing assets on MBE opportunities in Asia that are emerging because of the localisation of Asian technology supply chains in response to the US-China trade war. This includes epitaxy for 5G applications.

Last updated on 19/11/2019
Sector
TMT
Share price graph
Balance sheet
Forecast net debt (£m) 17.6
Forecast gearing ratio (%) 6
Price performance
%
1m
3m
12m
Actual (21.2) (14.4) (19.1)
Relative* (22.9) (16.8) (23.3)
52-week high/low 98.0p/47.6p
*% relative to local index
Key management
Phil Smith Chairman
Drew Nelson CEO
Tim Pullen CFO

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