Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Securities analyst covering electronics, precision equipment & robotics, engineering, construction, transport and other sectors for more than 25 years in Japan and 3 years in Korea. Permanent resident of Japan.

Senior Technology Analyst, Japanese Equities

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

Tokyo Electron (8035 JP): As Good as It Gets

Screen Holdings (7735 JP): Aiming at 2nm Process Technology

Tokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

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

On January 10, we wrote that demand for semiconductor equipment could exceed SEMI's growth forecast for 2021, that Tokyo Electron's guidance for FY Mar-21 was probably conservative, and that Investors in Tokyo Electron (TEL)... should benefit, even if the shares appear to be overbought. (see<a href="https://www.smartkarma.com/insights/tokyo-electron-8035-jp-semiconductor-shortage-points-to-stronger-year-ahead" target="_blank" data-smartkarma-citation="insights:46893" rel="noopener">Tokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead </a> ).  Since then, TEL has raised guidance, Intel and TSMC have announced big new capital spending plans, SEMI has raised its forecast of semiconductor equipment demand, and TEL's share price has risen by 24%. How much more upside is there?The shares are now selling at 34x management's EPS guidance for FY Mar-21 and 31x our estimate for FY Mar-22. These multiples are not high compared with those of other first-rate Japanese  precision manufacturing companies, but they are double what they were two or three years ago. It is tempting to say that valuations are extended in what remains a cyclical industry, but the greater risk to earnings growth, in our estimation, is high and rising depreciation and R&amp;D expenses as the company expands capacity and develops technology for the 2 nanometer node and beyond (See <a href="https://www.smartkarma.com/insights/screen-holdings-7735-jp-aiming-at-2nm-process-technology" target="_blank" data-smartkarma-citation="insights:49767" rel="noopener">Screen Holdings (7735 JP): Aiming at 2nm Process Technology</a> ).

On January 10, we wrote that demand for semiconductor equipment could exceed SEMI's growth forecast for 2021, that Tokyo Electron's guidance for FY Mar-21 was probably conservative, and that Investors in Tokyo Electron (TEL)... should benefit, even if the shares appear to be overbought. (seeTokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead  ).  Since then, TEL has raised guidance, Intel and TSMC have announced big new capital spending plans, SEMI has raised its forecast of semiconductor equipment demand, and TEL's share price has risen by 24%. How much more upside is there?The shares are now selling at 34x management's EPS guidance for FY Mar-21 and 31x our estimate for FY Mar-22. These multiples are not high compared with those of other first-rate Japanese  precision manufacturing companies, but they are double what they were two or three years ago. It is tempting to say that valuations are extended in what remains a cyclical industry, but the greater risk to earnings growth, in our estimation, is high and rising depreciation and R&amp;D expenses as the company expands capacity and develops technology for the 2 nanometer node and beyond (See Screen Holdings (7735 JP): Aiming at 2nm Process Technology ).

Tokyo Electron (8035 JP): Getting Ahead of Itself