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Research: TMT
AT&S is the largest provider of high-density interconnect (HDI) printed circuit boards (PCBs) globally. While Q420 performance was affected by the COVID-19 lockdown in China, AT&S is well placed to benefit from rising demand in the medium term for interconnected devices, data servers and autonomous vehicles. Management is investing <€1bn over the next five years in expanding its integrated circuit (IC) substrate capacity fivefold, with the aim of doubling revenues to €2bn with a 25–30% EBITDA margin.
AT&S |
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18 May 2020 |
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AT&S is the largest provider of high-density interconnect (HDI) printed circuit boards (PCBs) globally. While Q420 performance was affected by the COVID-19 lockdown in China, AT&S is well placed to benefit from rising demand in the medium term for interconnected devices, data servers and autonomous vehicles. Management is investing <€1bn over the next five years in expanding its integrated circuit (IC) substrate capacity fivefold, with the aim of doubling revenues to €2bn with a 25–30% EBITDA margin.
FY19/20 performance in line with revised guidance
Revenue declined by 2.7% y-o-y during FY19/20 to €1,000.6m, beating revised guidance of €960m. The decline was attributable to lower volumes in the mobile devices segment and continued reduction in demand in the industrials segment, although IC substrate demand was strong. The catch-up effects expected for Q419/20 failed to occur because of the temporary disruption to the group’s facilities in China caused by COVID-19. EBITDA reduced by 22.2% to €194.5m with a 4.9pp fall in EBITDA margin to 19.4%. The reduction was in line with revised guidance of 18–20% and relates inter alia to the unfavourable product mix and capacity underutilisation in mobile devices and higher R&D costs. Investment in capex doubled to €218.5m, resulting in a €96.4m increase in net debt to €246.7m.
Demand for data strengthening
All of the group’s production sites are operational at present and there is no sign of supply chain shortages. Management expects revenue and EBITDA in Q120/21 to be at Q119/20 levels but has not provided full year guidance. It is possible that the pandemic will cause some mobile phone launches to be delayed. Visibility in the automotive sector is limited and demand from the industrial segment is expected to continue to be weak. However, current forecasts indicate that demand for IC substrates will remain strong. The programme for expanding IC substrate capacity remains broadly on track despite the pandemic. This capability puts AT&S in a good position to benefit from rising demand for advanced IC substrates for high-performance computing modules needed for artificial intelligence (AI) analysis of large data sets and radio frequency modules in 5G smartphones and wearables.
Valuation: Trading at a discount to peers
The shares trade on prospective EV/EBITDA multiples that are at a discount to the mean of our sample of eight listed PCB manufacturers, which includes Unimicron Technology and Zhen Ding Technology (year 1: 4.6x vs 6.4x, year 2: 2.8x vs 5.8x). Given that AT&S generates better than average EBITDA margins (year 1: 17.6% vs 15.2%), this discount does not appear justified.
Consensus estimates**
Source: Refinitiv. Note: *Preliminary data. **Revised since 26 March 2020 trading update. |
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Research: Financials
JDC Group is ready to scale up. Development costs for its bancassurance advisory, administration and service platform are stabilising, and last year it was successful in winning some large client contracts. These new contracts underpin consensus revenue growth forecasts for the next few years. As a platform with a recurring revenue base, JDC’s business model is not very vulnerable to the COVID-19 crisis. A valuation of 14.2x consensus FY20e EV/EBITDA does not seem demanding compared with international peers.
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