Rising Costs Will Press Margins As Clean Energy Lifts Outlook

Key Takeaways

• Margin pressure from high costs and large-scale investments may limit near-term profit growth, despite rising demand for silicon wafers in renewable energy and semiconductors.
  
• Policy uncertainty, intense global competition, and rapid technology shifts could affect SAS's ability to sustain revenue growth and maintain profitability in evolving markets.
  
• Margins and profitability are under pressure from oversupply, rising costs, volatile investment holdings, weak wafer demand, and heavy dependence on government support.

Catalysts

Engages in the research and development, design, production, and sale of semi-conductor silicon materials and components, rheostats, and optical and communications wafer materials.

• While long-term electrification and digitalization are expected to drive robust demand for high-quality silicon wafers across both renewable energy and advanced semiconductor sectors, SAS currently faces margin pressure from elevated power costs and significant depreciation tied to recent and ongoing capacity expansions, which could dampen near-term earnings despite revenue tailwinds.
  
• Although SAS benefits from accelerating global investment in clean energy, with corporate ESG-driven demand for renewables forecasted to grow at a compound annual rate above 20 percent in Taiwan, future revenue realization may be hindered by ongoing policy volatility, project approval delays, and aggressive overseas price competition that challenge the pace and profitability of new project deployments.
  
• While the push for supply chain localization and security, especially in semiconductors, favors SAS's regional production strategy and positions it well for multi-year customer agreements, persistent uncertainties around tariffs, currency fluctuations, and the timing and reliability of government subsidies (such as the CHIPS Act in the U.S.) cloud visibility on how quickly these advantages will translate into sustainable revenue and margin expansion.
  
• Despite group-wide efforts to diversify into higher-value products such as 12-inch and specialty semiconductor wafers and advanced materials like SiC and GaN, there are risks that rapid technology shifts or further declines in average selling prices-especially in oversupplied segments-will impact net margins if SAS is unable to continually differentiate its product mix and scale up efficiently in new growth areas.
  
• SAS's attractive dividend policy, supported by strong cash flows and a historically high payout ratio exceeding 70 percent, emphasizes the company's financial discipline; however, the need to balance substantial capital expenditures for technology upgrades and strategic alliances with continued shareholder returns could strain free cash flow if market or operational setbacks extend, possibly limiting the pace of long-term earnings growth.

Sino-American Silicon Products Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Sino-American Silicon Products compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Sino-American Silicon Products's revenue will grow by 10.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.1% today to 10.6% in 3 years time.
• The bearish analysts expect earnings to reach NT$11.5 billion (and earnings per share of NT$19.55) by about August 2028, up from NT$3.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, down from 19.9x today. This future PE is lower than the current PE for the TW Semiconductor industry at 27.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.29%, as per the Simply Wall St company report.

Sino-American Silicon Products Future Earnings Per Share Growth

Risks

• Persistent price competition and oversupply in both the global semiconductor and renewable energy sectors have already caused year-over-year revenue declines at SAS, and continued downward pricing pressure could compress gross margins and reduce long-term earnings growth.
  
• Rapidly rising electricity costs in core manufacturing bases such as Taiwan, as well as higher depreciation tied to recent large capital expenditures, are likely to dilute gross margins and put near
• and medium-term pressure on net profitability as new capacity ramps up.
  
• SAS's financial results are exposed to volatility in mark-to-market valuation of its Siltronic AG holdings, which has already led to significant non-cash losses and considerable swings in reported net profit and EPS, undermining the predictability of earnings available for dividends and shareholder returns.
  
• The weak demand for 6-inch and 8-inch silicon carbide wafers, exacerbated by high inventory levels in the supply chain and sluggish demand in end-markets such as electric vehicles, highlights a vulnerability to rapid technological change and cyclical downturns, risking underutilization and lower revenue growth from new materials.
  
• The company's positive outlook relies heavily on government support, such as subsidies under the U.S. CHIPS Act and favorable renewable energy policies in Taiwan; any delay in receiving subsidies, unfavorable policy shifts, or the imposition of new tariffs could increase costs, reduce competitiveness, and lengthen payback periods for major expansions, ultimately risking net margins and the timing of return on investment.

Valuation

• The assumed bearish price target for Sino-American Silicon Products is NT$125.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sino-American Silicon Products's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$203.0, and the most bearish reporting a price target of just NT$125.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NT$108.7 billion, earnings will come to NT$11.5 billion, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 11.3%.
  
• Given the current share price of NT$105.5, the bearish analyst price target of NT$125.0 is 15.6% 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.