Cymer (CYMI) Message Board

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Technology Stocks : Cymer (CYMI)

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From: mopgcw	7/25/2010 2:15:29 PM
	1 Recommendation Read Replies (1) of 25960

CS: Cymer Inc. (CYMI) OUTPERFORM S. Kumar CP: US$ 33.76 TP: US$ 38 CAP: US$ 1b Reassuring Quarter, Lowering Estimates and Target Price to $38 (from $45) Bottom-line: Recall going into earnings our concern was primarily around long term market share trends in EUV and immersion; but we noted positives on TCZ and upside from a stronger cycle overall. CYMI significantly beat Q2 (70c reported, vs. cons 53c) - but implied Q3 EPS guidance of 60c missed cons by 4c due to a sharp rise in opex. Some may view the increase in CYMI's R&D as a negative, but to us, after having spent the earlier part of this week with ASML understanding the importance of EUV, this was the most reassuring aspect from CYMI's quarter. The increase in R&D demonstrates CYMI's commitment to EUV (this product cycle matters to valuation thought process today as it helps buffer downside concerns in 2012), will help to maintain leadership in EUV. The higher RD expense will also buffer concerns its customers may have on the relatively high GMs reported by CYMI (costs have to be recouped somewhere). That said we do have to lower CY11 EPS by ~33c to reflect the higher opex - our new SOTP valuation method points to a revised price target of $38 (prior $45). Leave Outperform rating unchanged as we agree with long term strategy more now; also may have left some room for gross margin beats to our new model. We have lowered our 2010E from $2.61 to $2.52, and our 2011E from $3.10 to $2.77. Valuation: We think most of CYMI's 2011 revenues will be driven by service/spares - which will be less cyclical, and warrants a higher multiple (we use 12x). The core litho system revenues warrant a premium multiple to rest of SCE (similar to how ASML trades at a premium to rest of SCE) as litho grows faster over time. We arrive at an SOTP based valuation of $38 for CYMI. We would revisit our PT if company can sustain higher gross margins or improve product margins on EUV/TCZ.

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