| | Here's the H & Q report from 7/20:
**** Chase H&Q **** Chase H&Q **** Chase H&Q ****
Company: Mattson Technology
Price: 28.75
Recommendation: Buy
Notes: a, b,f
Date: 7/20/00
1 of 2 Mattson reveals record bookings, revenues and earnings once again.
* Mattson Technology announces Q2C00 EPS of $0.30, easily surpassing our EPS
estimate of $0.23 and the street consensus of $0.24. Likewise, Q2C00 revenues
climbed $50.1 million from our estimate of $46.5 million.
* Q2C00 bookings push 14% beyond the prior quarter to $65.7 million, with
company book-to-bill reflecting a solid 1.31:1.0, while we had forecasted the
capital equipment industry to be 1.25:1.
* Japanese orders account for 15% of Q2C00 bookings, up from 0% Q1C00, all of
which were 300mm tools.
* Shares of Mattson are currently trading at a 17.6 times C01 earnings. This
represents a 23% discount relative to their capital equipment peer average of
22.9 times. The company's stock has recently come under pressure following
the merger announcement. We believe Mattson will benefit both strategically
and financially from the acquisitions. Given the continued momentum and solid
fundamentals we feel that the discount is unjustified.
* For Q3C00, we are bumping our revenue and EPS estimates to $54.0 million and
$0.33, from $50.0 million and $0.25, respectively. For CY00, our current
revenue and EPS forecast are $207.2 million and $1.20, versus our previous
estimates of $194.1 million and $1.02, respectively. We are keeping our post-
merger C01 estimates in tact at $720 million and $1.64 EPS.
* We are re-iterating our buy rating.
1999 A 2000 E 2001 E
Q1 EPS $-0.16 $0.21 $0.35
Q2 EPS -0.01 0.30 0.38
Q3 EPS 0.02 0.33 0.44
Q4 EPS 0.08 0.35 0.47
FY EPS -0.05 1.20 1.64
FY REVS (M) 103.5 207.2 720.0
CY EPS -0.05 1.02 1.64
CY P/E NM 23.9 17.5
FY Ends Dec Current Price $28.75
52-Week Range $10-50 Market Cap (M) $630
Shares Out (M) 21.9 Book Value $8.64
Net Cash/Share $5.72 3-Year EPS Growth NM
CY00 P/E-to-Growth NM
Impressive Q2 Results. Mattson Technology announced yesterday its
quarterly results for Q2C00. The company reported impressive EPS of $0.30 on
revenue of $50.1 million. Actual reported EPS improved over both our forecast
of $0.23 and the street consensus of $0.24. Revenues showed strong gains of
18% sequential growth, but more impressively, net income reflected quarterly
sequential growth of a substantial 62.5%. This dramatic increase in net
income shows the company's continued financial leverage as gross margin
expanded and R&D expenses as a percentage of revenue was reduced.
Bookings grow 14% sequentially. The company generated bookings of $65.7
million for Q2C00, once again the highest in their history. With this growth,
their book-to-bill ratio equates to 1.31:1.0, down slightly from 1.35:1.0 in
Q1C00, yet greater than our forecasted industry average of approximately
1.25:1.0. As previous quarters have represented, photoresist strip continues
to make up a strong majority of bookings at 78.5% of the total, at $51.6
million. The remaining CVD, RTP/Epi, and parts/service made up $6.3 million,
$6.4 million, and $1.4 million respectively. Increased sales efforts in Japan
paid off as Japan accounted for 15% of Q2C00 bookings from nothing in Q1C00.
Thus, Japan seems to be back on track. Rounding out geographic bookings,
North America remains strong at 34%, the Pacific Rim 29%, and Europe 21%. We
also note that backlog increased 22% to $86.5 million, another record high for
the company, providing clear visibility of solid Q3C00 and Q4C00 revenues and
earnings.
300mm gaining momentum. It appears that 300mm is growing faster than
even the company had expected. It turns out that the previously mentioned 15%
bookings in Japan were all 300mm tools. The company also hopes to soon
announce a large European 300mm customer (we believe to be Infineon), and
expects 300mm to account for 20-25% of 4th quarter bookings. We believe the
company's early development of 300mm tools will likely help them to gain
incremental market share heading into the 300mm transition.
Benefits of merger. The company also reviewed the recent announcement of
its intent to acquire the semiconductor equipment division of Steag AG as well
as CFM Technologies. We recently published a note discussing our view of the
deal following the announcement. Please see "Mattson acquires Steag''s
Semiconductor Equipment Division and CFM", published June 29, 2000 for
details. To summarize: the deal, which is expected to close in January
2001, will be accounted for using the purchase method. Goodwill of
approximately $350 million will have to be written off over the next 4 to 5
years, as well as in-process R&D of approximately $125 million to be entirely
written off in Q1C01. The acquisitions will expand Mattson's product lines
into wet processing, and greatly increase their RTP exposure by acquiring the
number two market share leader, Steag. We believe that these acquisitions are
strategically positive for the company, as product line synergy and critical
mass should both boost the company's market presence and financial efficiency.
Financial Highlights. The quarter reflected strong EPS of $0.30, on
increased revenues of $50.1 million. Due to high operating leverage of the
company, slight improvements in top line growth generated significantly
increased profits and EPS, as shown in this quarter's financial results. The
gross margin improved slightly to 51.0%, up from 49.3% in Q4C99, due mainly to
higher margin CVD shipments. We had expected a 50.0% gross margin. R&D as a
percentage of revenue decreased from 14.8% to 13.7% in Q1C00. We had projected
16% for the quarter, as we had expected significant hiring in R&D engineering.
We since learned that the company continues to search for quality engineers.
Thus, part of the reason for the significant decrease in overhead was slower
than expected hiring during the quarter. Management continues to expect the
hiring pace to pick up in the coming quarters, bringing R&D back to more
historic levels. SG&A however did increase slightly as a percentage of sales
to 26% from 24.9%, whereas we expected it to be closer to 25%. Please see
exhibit 1 for a detailed breakdown of our estimates vs. actual results. This
was mainly due to increased sales and service personnel in Japan, accounting
for approximately $500,000 of the $6.9 million R&D expense for Q2C00. The
aforementioned merger also contributed close to $100,000 to the SG&A figure of
$13 million for the quarter.
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