New Singapore Fab Will Expand Capacity And Drive Technological Advancements

Key Takeaways

• Strategic partnerships and technological advancements position Siltronic for strong future growth through high wafer loading levels and leading-edge technology.
  
• Cost management and focusing on high-value segments aim to enhance resilience and significantly improve EBITDA margins despite current market challenges.
  
• Weak demand and high CapEx are negatively impacting Siltronic's revenue and net cash flow, with inventory and exchange rate issues compounding difficulties.

Catalysts

Provides hyperpure semiconductor silicon wafers in Germany, rest of Europe, the United States, Taiwan and Mainland China, Korea, and Rest of Asia.

• The ramp-up of a new fab in Singapore and anticipated prime qualifications by mid-2025 signal future capacity expansion and innovation, likely contributing to future revenue growth.
  
• Strategic partnerships and technological advancements position Siltronic to maintain high loading levels for leading-edge wafers, suggesting stable or increased revenue streams.
  
• Cost management initiatives, including reduced CapEx and efficiency improvements, position Siltronic to maintain resilience in EBITDA margins despite current market challenges.
  
• Siltronic’s long-term strategy, including focusing on high-value and technologically advanced segments, aims to enhance EBITDA margins significantly with the target for the Singapore fab to exceed 50%.
  
• Strong customer relationships and leading-edge technology offerings in the semiconductor value chain support Siltronic’s positioning for future growth, potentially boosting earnings and margins as demand normalizes.

Siltronic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Siltronic's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.5% today to 2.1% in 3 years time.
• Analysts expect earnings to reach €35.7 million (and earnings per share of €1.19) by about April 2028, down from €63.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €77 million in earnings, and the most bearish expecting €-14.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 59.7x on those 2028 earnings, up from 16.1x today. This future PE is greater than the current PE for the GB Semiconductor industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.75%, as per the Simply Wall St company report.

Siltronic Future Earnings Per Share Growth

Risks

• Siltronic is experiencing persistent weak demand in the wafer industry, resulting in a year-over-year sales decline of 7%, negatively impacting revenue.
  
• The company's net cash flow remains negative due to elevated CapEx levels and payment overhangs, potentially affecting net margins and overall financial health.
  
• Despite cost management efforts, the EBITDA margin has declined, and further depreciation is expected, affecting future earnings and profitability.
  
• Inventory levels in certain segments, like power, are still increasing, indicating the company's potential struggle to convert market growth into revenue due to inventory overhang.
  
• The firm is exposed to U.S. dollar exchange rate fluctuations, which could unfavorably impact revenues and EBITDA if the exchange rate moves unfavorably.

Valuation

• The analysts have a consensus price target of €53.636 for Siltronic based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €80.0, and the most bearish reporting a price target of just €36.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.7 billion, earnings will come to €35.7 million, and it would be trading on a PE ratio of 59.7x, assuming you use a discount rate of 9.8%.
• Given the current share price of €33.78, the analyst price target of €53.64 is 37.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.