“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in
Last close As at 25/03/2023
—
▲ 3.95 (13.55%)
Market capitalisation
266m
Research: TMT
IQE has announced that it will be closing its Singapore site by mid-2022 and transferring activity to its sites in North Carolina and Taiwan. The move will generate estimated annualised cash cost savings of c £4.8m so we have revised our FY22 estimates, raising adjusted EPS by 8%. Importantly it helps create an optimised platform for pursuing volume opportunities for MBE epitaxy used for long-wavelength VCSELs and healthcare applications.
IQE |
Optimising its MBE footprint |
Singapore site closure |
Tech hardware & equipment |
1 October 2021 |
Share price performance
Business description
Next event
Analysts
IQE is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
IQE has announced that it will be closing its Singapore site by mid-2022 and transferring activity to its sites in North Carolina and Taiwan. The move will generate estimated annualised cash cost savings of c £4.8m so we have revised our FY22 estimates, raising adjusted EPS by 8%. Importantly it helps create an optimised platform for pursuing volume opportunities for MBE epitaxy used for long-wavelength VCSELs and healthcare applications.
Year end |
Revenue (£m) |
EBITDA |
PBT* |
EPS* |
DPS |
P/E |
12/19 |
140.0 |
16.2 |
(7.0) |
(2.46) |
0.00 |
N/A |
12/20 |
178.0 |
29.9 |
3.2 |
0.29 |
0.00 |
164.0 |
12/21e |
169.5 |
27.4 |
0.1 |
(0.04) |
0.00 |
N/A |
12/22e |
182.4 |
39.5 |
7.3 |
0.68 |
0.00 |
69.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Creating an MBE centre of excellence
IQE’s Singapore operation manufactures epiwafers for photo detectors and radio frequency applications using molecular beam epitaxy (MBE) systems but is relatively underutilised. Following the site closure, most of its MBE reactors will be moved to IQE’s North Carolina site, and the remainder to its facility in Taiwan. By 2024 all of the MBE reactors at IQE’s Pennsylvania site will be moved to the North Carolina facility as well, creating an operation with the scale to take advantage of the opportunities for using MBE to make long-wavelength vertical cavity surface emitting lasers (VCSELs) that can be used below OLED screens in mobile devices, thus dispensing with the ‘notch’, and in eye-safe vehicle LiDAR as well as sensors for healthcare applications (see our thematic piece on laser diodes for details.)
Annualised cash cost-savings of c £4.8m
Management estimates that revenues will drop by £3m during FY22 because of the transition but the closure will save annualised cash costs of around £4.8m. Part of these costs are rent payments. Since the value of the lease had already been impaired under IFRS 16 rules, none of these rent payments currently go through the P&L. Combining this effect with the loss of revenues means that the annualised profit increase will be c £1m. Management expects that the cash costs associated with the closure will be c £2.5m, which we treat as an exceptional item.
Valuation: Recovery dependent on 5G roll-out
IQE’s share price has fallen by over 30% since the FY20 results in March. At current levels, IQE is trading at a discount to the mean EV/EBITDA multiples of the sample of companies engaged in manufacturing VCSEL epitaxy, giving potential for share price improvement. We believe that investors will welcome the profitability enhancement arising from the Singapore site closure. However, in our view share price recovery will require greater visibility of the timing of 5G infrastructure roll-out and of how well the recently launched iPhone 13 models with world-facing time of flight (ToF) functionality sell.
Changes to estimates
We adjust our FY22 estimates in line with the announcement, reducing both revenues and operating costs. The cost savings are applied for half a year as these commence after the site is closed. The impact of these changes is summarised below.
Exhibit 1: Revisions to estimates
FY20 |
FY21e |
FY22e |
|||||
Actual |
Old |
New |
% change |
Old |
New |
% change |
|
Revenue (£m) |
178.0 |
169.5 |
169.5 |
0.0% |
185.4 |
182.4 |
-1.6% |
Adjusted PBT (£m) |
3.2 |
0.1 |
0.1 |
0.0% |
6.8 |
7.3 |
7.4% |
Adjusted EPS (p) |
0.3 |
(0.0) |
(0.0) |
0.0% |
0.6 |
0.7 |
7.9% |
Capitalised R&D (£m) |
5.4 |
8.0 |
8.0 |
0.0% |
6.0 |
6.0 |
0.0% |
Property, plant and equipment (£m) |
5.0 |
25.0 |
25.0 |
0.0% |
10.0 |
10.0 |
0.0% |
Net (cash)/debt excluding finance leases at year end (£m) |
(1.9) |
11.5 |
11.5 |
0.0% |
(3.9) |
(3.7) |
-3.7% |
Source: IQE accounts, Edison Investment Research
Research: Financials
A strong end to FY21 means that Numis expects revenues of c £215m and prompts a further increase in our estimate. The near-term outlook is also very positive, with a number of IPOs in the pipeline. Market cycles will mean less favourable conditions at some point, but the success Numis has had in growing and broadening its franchise puts it in a good position to make further progress through these fluctuations.
Get access to the very latest content matched to your personal investment style.
