Focus On SiC And GaN Technologies Will Position The Company To Capture High-Growth Opportunities In EVs And Renewable Energy Sectors

Key Takeaways

• Localized production enhances supply chain resilience, reducing tariffs and freight costs, potentially improving net margins.
  
• Investments in advanced technologies and capacity expansion are poised to boost revenue and strengthen earnings.
  
• Rising electricity costs and geopolitical uncertainties, along with valuation losses in Siltronic AG, could pressure GlobalWafers' future revenue and profit margins.

Catalysts

Researches, designs, develops, and manufactures semiconductor ingots and wafers in Taiwan and internationally.

• Localized production strengthening GlobalWafers' supply chain resilience is a catalyst that could minimize tariffs and freight costs, bolstering the company's cost structure and thereby potentially improving net margins.
  
• The new long-term agreements signed in Q1 2025 reflect strong customer commitment, which is expected to contribute significantly to revenue growth.
  
• The ongoing investments in advanced packaging technology and silicon photonics are anticipated to boost wafer consumption, likely aiding in revenue expansion.
  
• The $100 billion global capacity expansion initiative, which includes brownfield and greenfield projects, is expected to bolster production capabilities, ultimately supporting revenue growth and potentially improving earnings.
  
• The significant focus on SiC and GaN technologies positions GlobalWafers to capture opportunities in high-growth sectors, such as EVs and renewable energy, potentially enhancing future earnings and revenue streams.

GlobalWafers Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GlobalWafers's revenue will grow by 15.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.7% today to 24.1% in 3 years time.
• Analysts expect earnings to reach NT$23.5 billion (and earnings per share of NT$48.96) by about March 2028, up from NT$9.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, down from 18.3x today. This future PE is lower than the current PE for the TW Semiconductor industry at 27.9x.
• 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 9.39%, as per the Simply Wall St company report.

GlobalWafers Future Earnings Per Share Growth

Risks

• GlobalWafers experienced an 11.4% decline in consolidated revenue year over year for 2024, largely due to industry challenges and increased electricity costs in Taiwan, which could impact future revenue and profits.
  
• The company's profitability in 2024 was adversely affected by valuation losses from its holdings in Siltronic AG, whose stock price fell nearly 50%. Although described as an accounting loss, this could affect perceived net margins and earnings stability.
  
• There are significant geopolitical and economic uncertainties, such as tariffs, fluctuating exchange rates, and interest rates, which could impact revenue and net margins due to changes in cost structures and demand.
  
• The semiconductor industry is subject to ongoing inventory adjustments, which may dampen immediate recovery and anticipated earnings growth, particularly in the first half of 2025.
  
• Expansion projects increase short-term spending due to capital expenditures, depreciation, and potential unused capacity costs, all of which may pressure net margins and future earnings.

Valuation

• The analysts have a consensus price target of NT$472.615 for GlobalWafers 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 NT$620.0, and the most bearish reporting a price target of just NT$363.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$97.3 billion, earnings will come to NT$23.5 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 9.4%.
• Given the current share price of NT$376.5, the analyst price target of NT$472.62 is 20.3% 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.