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Kulicke & Soffa (KLIC) 16.42 +0.48: Before the open, Kulicke & Soffa reported Q3 revenue of $129.3MM (+5.8% Y/Y) vs. Reuters Research consensus of $131.3MM and guided for Q4 revenue of $150MM vs. consensus at $131.3MM. Q3 EPS came in at ($0.57) on multiple charges. By our calculation, excluding one-time items and tax benefits/impact, EPS came in at ($0.11)-($0.12) against consensus of ($0.11); Reuters Research is publishing Q3 EPS of ($0.17) assuming a 7% tax rate. Cash flow was $14MM in the quarter.
Management is seeing strength from all customer segments. Q3 bonder production was at over 600 units vs. plan at 500 unit. Backlog increased from $55MM in June to $68MM in Sept, and turns business is improving across all product segments. KLIC's capacity and ability to meet demand is being constrained by the availability of raw materials. As a result, the company is on allocation mode to customers.
Management expects company will achieve breakeven at the $150MM revenue level.
Margins
Gross margin improved 220 bps Y/Y to 25.0% on improved economics from higher capacity utilization.
Operating expense as a percent of revenue, excluding one-time items, improved 1610 bps to 28.1% on aggressive expense control.
SG&A as a percent of revenue improved 1150 bps Y/Y to 19.5%. R&D declined by $4.8MM Y/Y or, as a percent of sales, by 430 bps to 6.9%.
Product Segment
Equipment revenue (40.7% of total revenue) increased 14.9% Y/Y to $52.6MM. Gross margin expanded 1380 bps Y/Y to 37.4%. Operating expense as a percent of revenue, excluding one-time items, improved 1950 bps to 30.4%.
Packaging Materials revenue (35.2% of total revenue) grew 6.0% Y/Y to $45.5MM. Gross margin declined 350 bps to 23.4%. Operating expense as a percent of revenue, excluding one-time items, improved 600 bps to 12.4%.
Advanced Packaging revenue (3.6% of total revenue) contracted 6.4% to $4.7MM. Negative gross margin. Operating expense as a percent of revenue, excluding one-time items, improved 7720 bps to 19.9%.
Test revenue (20.5% of total revenue) declined 6.9% Y/Y to $26.6MM. Gross margin dropped 1140 bps to 10.9%. Operating expense as a percent of revenue, excluding one-time items, improved 1050 bps to 38.0%.
Valuation
KLIC is trading at 1.7x Reuters Research consensus C03 revenue of $496.2MM (+6.8% Y/Y) and 1.4x C04 of $596.1MM (20.1% Y/Y); 78.5x C04 EPS of $0.21. On an inverted DCF/EVA basis, KLIC's valuation implies that it will need to grow revenue in the high-teens to 20% range and expand gross and operating margins by more than 2000 bps over the next 10 years to justify the current valuation.
Summary
Operationally, management has put in place a cost structure that should allow KLIC to deliver on the margin expansion implied in our model. Gross margins across product segments should expand as KLIC realizes greater economies from higher capacity utilization and firmer pricing environments. Operating and net margins can also be expected to expand as the company grows the top-line.
KLIC is benefiting from the resurgence in semiconductor capital equipment expenditures. With back-end capacity utilization running in the high-70% to low-80% range, revenue growth can be expected to accelerate over the coming quarters as spending in back-end equipment catches up with recent investments in front-end systems. KLIC may exceed the high-teens growth rate, providing limited upside, to the degree that the semiconductor industry grows in excess of the high-teens, and/or back-end equipment capacity bottlenecks the fab process. We would wait for a pullback to initiate a new position or until there is greater clarity that KLIC may exceed the growth rate implied in our model.--Ping Yu, Briefing.com |
