Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" data-smartkarma-citation="entities:18107:1" rel="noopener">Advantest Corp (6857 JP)</a> yesterday announced Q1 results, with Revenues/OP/NP at record levels, a H1 div hike of 30%, guidance well ahead of consensus, and a buyback.  </li>
<li>They also announced a Mid-Term Plan revision which shows forward guidance better than consensus. </li>
<li>The buyback is smaller than the last one BUT float is not what you think it is. Understanding float dynamics here is key.</li>
</ul>



Advantest Corp (6857 JP) yesterday announced Q1 results, with Revenues/OP/NP at record levels, a H1 div hike of 30%, guidance well ahead of consensus, and a buyback.  
They also announced a Mid-Term Plan revision which shows forward guidance better than consensus. 
The buyback is smaller than the last one BUT float is not what you think it is. Understanding float dynamics here is key.


Advantest (6857) - Strong SoC Sales, Record Profits, Bullish Guidance, and a Buyback (+ Index Flow)

Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, Japanese equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<ul>
<li>FY Mar-22 sales and profits exceeded guidance, as expected. New orders declined slightly in 4Q but remained above sales.</li>
<li>Unfortunately, Disco has decided to stop disclosing orders and the order backlog. A cynic would say this signals the peak of the cycle. </li>
<li>1Q guidance looks conservative. That should be no surprise and no catalyst for the stock price. Shipments of blade dicers are forecast to decline by 10%. Beware. </li>
</ul>


FY Mar-22 sales and profits exceeded guidance, as expected. New orders declined slightly in 4Q but remained above sales.
Unfortunately, Disco has decided to stop disclosing orders and the order backlog. A cynic would say this signals the peak of the cycle. 
1Q guidance looks conservative. That should be no surprise and no catalyst for the stock price. Shipments of blade dicers are forecast to decline by 10%. Beware. 


Disco (6146 JP): Orders Peaking, Blade Dicer Shipments Forecast to Decline

<ul>
<li>3Q results were above guidance, as expected. Full-year guidance looks conservative, as usual. New orders ahead of sales, pointing to one or two good quarters ahead. </li>
<li>Shares down 10% since the beginning of January. Valuation reasonable but not compelling given the risk of a cyclical peak in SPE demand this year.</li>
<li>Uncertainty likely to keep the shares in a trading range.</li>
</ul>


3Q results were above guidance, as expected. Full-year guidance looks conservative, as usual. New orders ahead of sales, pointing to one or two good quarters ahead. 
Shares down 10% since the beginning of January. Valuation reasonable but not compelling given the risk of a cyclical peak in SPE demand this year.
Uncertainty likely to keep the shares in a trading range.


Disco (6146 JP): Valuation Reasonable but Not Compelling

Disco's share price has rebounded by 10% since October 5 in conjunction with the announcement of record quarterly sales and profits on October 21 (results for 2Q of FY Mar-22).But new orders received peaked six months earlier (in 4Q of FY Mar-21) and management is guiding for declines in sales, operating profit and the operating margin in the three months to December.Even assuming a tendency to low-ball and a conservative forex assumption (¥105/$), further sustainable growth looks unlikely.The shares are now selling at 20x management's EPS guidance for the nine months to December, extrapolated out to Mar-22 on the assumption that 4Q EPS will be the average of 1Q, 2Q and 3Q. However, operating profit gearing to changes in sales is nearly 50%, leaving substantial risk on the downside as the semiconductor shortage eases and orders for silicon wafer dicing and grinding equipment plateaus and then retreats.

Disco's share price has rebounded by 10% since October 5 in conjunction with the announcement of record quarterly sales and profits on October 21 (results for 2Q of FY Mar-22).But new orders received peaked six months earlier (in 4Q of FY Mar-21) and management is guiding for declines in sales, operating profit and the operating margin in the three months to December.Even assuming a tendency to low-ball and a conservative forex assumption (¥105/$), further sustainable growth looks unlikely.The shares are now selling at 20x management's EPS guidance for the nine months to December, extrapolated out to Mar-22 on the assumption that 4Q EPS will be the average of 1Q, 2Q and 3Q. However, operating profit gearing to changes in sales is nearly 50%, leaving substantial risk on the downside as the semiconductor shortage eases and orders for silicon wafer dicing and grinding equipment plateaus and then retreats. 

The Nikkei reports that order-to-delivery lead times for silicon wafer dicing machines, most of which are made by Disco, have expanded from 1 to 3 months to 5 to 8 months. And since Disco recognizes revenue on an acceptance basis, the order-to-sales lag could be even longer. Disco told the media, "We are making individual adjustments with clients and striving to meet the delivery time." (Nikkei Asia, April 15, 2021)This implies that the company is at full capacity, and that sales and profits are likely to remain strong for another two quarters. FY Mar-21 guidance looks conservative. FY Mar-22 guidance is likely to be front-loaded, 1H stronger than 2H due to lack of visibility more than six months out.Lead times for wire bonders and other equipment are reportedly as long as 12 months and there is widespread concern about double ordering in the semiconductor supply chain. With growth hitting physical limits and valuations having gone to new highs at what appears to be the top of the cycle, we continue to recommend selling into strength.

The Nikkei reports that order-to-delivery lead times for silicon wafer dicing machines, most of which are made by Disco, have expanded from 1 to 3 months to 5 to 8 months. And since Disco recognizes revenue on an acceptance basis, the order-to-sales lag could be even longer. Disco told the media, "We are making individual adjustments with clients and striving to meet the delivery time." (Nikkei Asia, April 15, 2021)This implies that the company is at full capacity, and that sales and profits are likely to remain strong for another two quarters. FY Mar-21 guidance looks conservative. FY Mar-22 guidance is likely to be front-loaded, 1H stronger than 2H due to lack of visibility more than six months out.Lead times for wire bonders and other equipment are reportedly as long as 12 months and there is widespread concern about double ordering in the semiconductor supply chain. With growth hitting physical limits and valuations having gone to new highs at what appears to be the top of the cycle, we continue to recommend selling into strength.

Disco (6146 JP): 5-To-8 Month Lead Times in the Price

Japan

Lasertec Corporation develops, designs, manufactures and markets photomask inspection systems to make semiconductor devices, confocal scanning laser microscopes and liquid crystal display (LCD) inspection systems.

Renesas Electronics Corporation researches, develops, designs and manufactures electronic components such as semiconductors and integrated devices.

ADVANTEST CORPORATION produces semiconductor testing devices and electronic measuring instruments.  The Company's products include large-scale integration (LSI) test systems, memory test systems, dynamic test handlers, network analyzers, electronic meters, optical testing devices, and signal sources.

SUMCO Corporation manufactures silicon wafers for the semiconductor industry. The Company produces silicon wafers used to produce solar batteries as well as ultra-high purity quartz used to produce vessels for silicon manufacturing process. SUMCO markets its products worldwide.

ROHM COMPANY LIMITED manufactures custom linear integrated circuits and semiconductor devices for use primarily in consumer electronics.  The Company has plants and sales offices worldwide.  Rohm's subsidiaries include Wako Electric and Apollo Electronics.

SCREEN Holdings Co Ltd.  manufactures and sell semiconductors, FPD devices, commercial printing and printed circuit boards(PCB). The company also provides additional services for its products.

SHINKO ELECTRIC INDUSTRIES CO., LTD. designs, manufactures, and markets advanced electronic materials, such as semiconductor packages, including leadframes, and PLP(Plastics Laminated Packages).  The Company markets its products worldwide through a network of sales offices in such places as the Philippines, Germany, and Hong Kong.

RORZE CORPORATION manufactures printed circuit board conveyers and wafer handlers for semiconductor manufacturing.  The Company also produces sorters and vacuum chamber robots, as well as controllers and stepping motor drivers used in various automation systems.  Rorze provides parts replacement and repair services for its products.

TOKYO SEIMITSU CO., LTD. manufactures and sells semiconductor manufacturing equipment and measuring instruments.  The Company produces wafer probing machines, wafer dicing machines, electron beam lithography systems, wafer inspection systems, and chemical mechanical planarizers (CMP) systems.

ULVAC, Inc. manufactures vacuum devices for industries such as semiconductor, electronics, chemical, pharmaceutical and food.  The Company's products include pumps, valves, gas analyzers, leak detectors, and surface profile measurement.

ASE Technology Holding Co., Ltd. offers assembly and testing services. The Company provides outsourced assembly, semiconductor testing, semiconductor packaging, and other related services. ASE Technology Holding operates in Taiwan.

MediaTek Inc. is a fabless semiconductor company for wireless communications and digital multimedia solutions. The company provides SOC system solutions for wireless communications, high-definition TV, optical storage, DVD and Blu-ray products.

Monolithic Power Systems Inc specializes in high-performance, integrated power solutions. The Company provides small, highly energy efficient, easy-to-use power solutions for systems found in industrial applications, telecom infrastructures, cloud computing, automotive, and consumer applications.

ON Semiconductor Corporation supplies analog, standard logic, and discrete semiconductors for data and power management. The Company's products include integrated circuits, and analog ICs. ON also offers discrete semiconductors in a variety of surface mount and standard packages.

Skyworks Solutions, Inc., a wireless semiconductor company, designs and manufactures radio frequency and complete semiconductor system solutions for mobile communications applications.  The Company provides front-end modules, radio frequency subsystems, and system solutions to wireless handset and infrastructure customers worldwide.

United Microelectronics Corporation designs, manufactures, and markets integrated circuits (ICs) and related electronic products.  The Company's main products are consumer electronic ICs, memory ICs, personal computer peripheral ICs, and communication ICs.

Microchip Technology Incorporated designs, manufactures, and markets microcontrollers, related mixed-signal and memory products, and application development systems for high-volume embedded control applications. The Company also designs, develops, and markets linear/mixed-signal, power management, and thermal management products.

Qorvo Inc, designs, develops, manufactures, and markets a variety of high performance analog and mixed signal integrated circuits for the communications markets. The Company's products are used for wireless communications applications such as cellular and PCS, cordless telephony, wireless LANs, industrial radios, wireless security and remote meter reading.

Entegris Inc. provides materials management products and services to the microelectronics industry on a worldwide basis.  The Company provides products such as wafer shippers, wafer transport and process carriers, pods, and work-in-process boxes.  Entegris also provides chemical delivery products such as valves, fittings, tubing, pipe, and containers.

LONGi Green Energy Technology Co., Ltd. develops, manufactures and sells silicon rods and silicon wafers. The Company's main products include 6 inch, 6.5 inch and 8 inch monocrystalline silicon rods and wafers.

LONGi Green Energy Technology (601012 CH)

DISCO CORPORATION manufactures abrasive and precision industrial machinery for cutting and grinding purposes.  The Company's products are applied in the semiconductor, electronics, and construction industries to produce consumer goods such as personal computers, digital cameras, video game systems, and Digital Video Disc (DVD) players.

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DISCO Corp (6146 JP)

Advantest (6857) - Strong SoC Sales, Record Profits, Bullish Guidance, and a Buyback (+ Index Flow)

Advantest runs a blowout Q1, announces guidance ahead of consensus, revises its MTP to be more bullish, raises divs and announces a buyback. The...

Travis Lundy

Disco (6146 JP): Orders Peaking, Blade Dicer Shipments Forecast to Decline

4Q results were above guidance and 1Q guidance looks conservative, but shipments of blade dicers are forecast to drop 10% in 1Q and consumables to...

Scott Foster

Disco (6146 JP): Valuation Reasonable but Not Compelling

3Q results ahead of guidance and FY guidance looks conservative, but this should have been expected. Valuation reasonable but not compelling due to...

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Disco (6146 JP): Sell into the Rebound

Disco reported record sales and profits in the three months to September, but new orders peaked six months earlier. Demand should decline as the...

Scott Foster

Disco (6146 JP): 5-To-8 Month Lead Times in the Price

With growth hitting physical limits, double-ordering in the semiconductor supply chain, and valuations at new highs, we recommend selling into...

Scott Foster

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