Digitalization And Onshoring Will Transform Semiconductor Manufacturing

Key Takeaways

• Accelerated revenue and margin growth is likely as swift spec win conversions and high facility utilization enable VAT Group to capitalize on strong semiconductor industry demand.
  
• Diversification into adjacent markets and rising product value in advanced semiconductor manufacturing enhance earnings stability and support sustained margin expansion.
  
• Heavy reliance on the semiconductor sector makes VAT Group vulnerable to cyclical shocks, currency risks, supply chain disruptions, and technological shifts challenging future growth and profitability.

Catalysts

Develops, manufactures, and sells vacuum and gas inlet valves, multi-valve modules, motion components, and edge-welded metal bellows.

• Analyst consensus expects spec wins to materialize into revenue over 3 to 5 years, but the sheer magnitude and pace-27% year-on-year growth in spec wins and a rapidly growing adjacent pipeline-suggest VAT Group could see a step-change in revenue growth, likely well ahead of current consensus, as these wins begin converting faster with high fab build-out rates and customer urgency.
  
• While analysts broadly believe that new facilities in Malaysia and Romania will drive incremental growth, the actual operational leverage appears underestimated: with Malaysian capacity at 90% utilization, Switzerland at 65%, and Romania ramping, VAT can immediately absorb demand surges and flex output without major incremental capex, providing significant upside for both revenue and EBITDA margin.
  
• The intense push for semiconductor manufacturing onshoring, particularly through over 100 new fabs globally and China's drive for tech self-sufficiency, underpins a multi-year, non-cyclical capex cycle that could extend VAT's growth runway and reduce order volatility, supporting durable top-line growth and backlog expansion.
  
• The rising complexity of advanced semiconductor nodes and packaging (e.g., Gate-All-Around, 2nm, EUV) is leading to sharply higher vacuum valve content per tool and higher average selling prices, structurally lifting VAT's gross margins as its products become even more mission-critical for process reliability.
  
• Adjacency and diversification initiatives-growing adjacencies already at a 45% sales increase year-on-year with a goal to nearly double their share of revenue by 2027-unlock new, less-cyclical gross profit streams in fields like advanced materials and photovoltaics, enhancing earnings stability, smoothing cyclicality, and providing additional margin expansion.

VAT Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on VAT Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming VAT Group's revenue will grow by 22.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 22.5% today to 29.4% in 3 years time.
• The bullish analysts expect earnings to reach CHF 506.7 million (and earnings per share of CHF 16.8) by about July 2028, up from CHF 211.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 28.1x on those 2028 earnings, down from 42.2x today. This future PE is greater than the current PE for the GB Machinery industry at 18.9x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.99%, as per the Simply Wall St company report.

VAT Group Future Earnings Per Share Growth

Risks

• Close to 80% of VAT Group's business is directly linked to the semiconductor sector, resulting in high customer and industry concentration; this creates vulnerability to cyclical downturns in semiconductor capital expenditure, which could negatively affect both revenue and earnings.
  
• The company faces substantial foreign exchange headwinds, particularly from the continued strengthening of the Swiss franc against major trading currencies such as the U.S. dollar; this persistent FX pressure erodes reported EBITDA margins and net income, especially since VAT is unable to pass on price increases to customers in response to currency fluctuations.
  
• Long-term secular trends like rising geopolitical tensions and deglobalization threaten to disrupt supply chains, especially given VAT's increased exposure to Asian and specifically Chinese markets, intensifying order unpredictability and potentially causing volatility in future revenue streams.
  
• Innovation and R&D investments remain high, but there is an ongoing risk that VAT's technological edge could be eroded by faster or lower-cost Asian competitors offering alternative vacuum valve solutions, leading to price pressure and shrinking net margins over time.
  
• The sustained industry trend toward miniaturization, integration, and adoption of alternative semiconductor manufacturing technologies (such as EUV lithography or additive manufacturing) may structurally reduce the need for large-scale vacuum solutions, thereby shrinking VAT's addressable market and impacting long-term revenue growth.

Valuation

• The assumed bullish price target for VAT Group is CHF410.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of VAT Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF410.0, and the most bearish reporting a price target of just CHF282.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CHF1.7 billion, earnings will come to CHF506.7 million, and it would be trading on a PE ratio of 28.1x, assuming you use a discount rate of 5.0%.
  
• Given the current share price of CHF298.2, the bullish analyst price target of CHF410.0 is 27.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.