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Research: TMT
AT&S is the second largest manufacturer of high-end printed circuit boards (PCBs) globally. It is well placed to benefit from rising demand for data servers and interconnected devices. Management is partway through a programme to expand its integrated circuit (IC) substrate capacity at least fivefold, with the aim of trebling revenues to c €3bn by FY26 with an EBITDA margin of 27–32% (adjusted EBITDA margin of 16.0% in Q122) and becoming one of three largest suppliers of IC substrates globally.
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AT&S |
Making the future interconnected
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Technology |
Deutsches Eigenkapitalforum 2021
25 October 2021 |
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AT&S is the second largest manufacturer of high-end printed circuit boards (PCBs) globally. It is well placed to benefit from rising demand for data servers and interconnected devices. Management is partway through a programme to expand its integrated circuit (IC) substrate capacity at least fivefold, with the aim of trebling revenues to c €3bn by FY26 with an EBITDA margin of 27–32% (adjusted EBITDA margin of 16.0% in Q122) and becoming one of three largest suppliers of IC substrates globally.
Growing faster than mega-trend driven markets
AT&S’s high-end PCBs permit higher circuitry density than traditional circuit boards, resulting in electronic products that weigh less, perform faster and more efficiently, and come in smaller packages. These features are highly desirable for wearable, mobile and handheld electronic devices. Its high-density boards are also used in the automotive sector, where the amount of electronics per vehicle is growing rapidly, and in industry, where machine-to-machine communication is becoming increasingly prevalent. IC substrates are a critical part of microprocessors used in data centre servers, gaming devices and AI applications such as voice and image recognition. Management expects that this investment in capacity will reduce the group’s exposure to the smartphone market and generate revenue faster than the PCB/substrate market.
Expanding position in semiconductor value chain
IC substrate capacity doubled during FY21 as expansion of the Chongqing 1 plant was completed. Management expects volume substrate production at the Chongqing 3 plant to start in H222 and has recently decided to construct a new production site for IC substrates in Malaysia. Around half the €1.7bn investment in this site will be funded by customers. AT&S is also investing in module integration services, thus capturing 20% of module value rather than the 3% currently realised by providing just the printed circuit boards for modules.
Trading at a discount to peers
Based on consensus estimates the shares trade on prospective EV/EBITDA multiples that are at a discount to the mean of our sample of nine listed PCB and IC substrate manufacturers (year 1: 6.7x vs 8.1x, year 2: 4.8x vs 6.7x). Given that AT&S generates better than average EBITDA margins (year 1: 20.4% vs 18.0%), and is expected to show stronger than average revenue growth (CAGR FY0–3 20.0% vs 13.7%), the discount does not appear justified.
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Consensus estimates
Source: Refinitiv |
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