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Kulicke and Soffa Industries: The Market Is Looking Past The Present To The Future

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Silicon wafer for manufacturing semiconductor of integrated circuit.

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The marketplace sewage somewhat of a wake-up telephone erstwhile Kulicke and Soffa Industries (NASDAQ:KLIC), a supplier of instrumentality and different solutions for nan semiconductor and LED markets, released its latest net report. The study came successful mixed pinch immoderate bully and immoderate not truthful good. There were large drops successful nan apical and nan bottommost statement owed to slumping demand, but location was besides an outlook calling for a rebound successful request successful nan adjacent future. The banal has retreated aft nan report, but it is still sitting connected awesome gains aft a large rally successful caller months. Why will beryllium covered next.

The early overshadows nan present

KLIC fell short of estimates for nan apical line, but it did negociate to surpass expectations for nan bottommost line. Still, Q1 gross declined by 38.5% QoQ and 61.8% YoY to $176.2M. And if that looks bad, past net were moreover worse off. GAAP EPS declined by 77.3% QoQ and 88.2% YoY to $0.25 and non-GAAP EPS declined by 68.9% QoQ and 83.1% YoY to $0.37.

Keep successful mind that EPS sewage a boost from KLIC buying backmost shares. The non-GAAP weighted-average of shares outstanding dropped to 57.7M successful Q1 FY2023, down from 58.8M successful Q4 FY2022 and 63.3M successful Q1 FY2022. Cash, rate equivalents and short-term investments totaled $795.6M. The array beneath shows nan numbers for Q1 FY2023.

(GAAP)

Q1 FY2023

Q4 FY2022

Q1 FY2022

QoQ

YoY

Revenue

$176.233M

$286.313M

$460.888M

(38.5%)

(61.8%)

Gross margin

50.3%

46.3%

52.2%

400bps

(190bps)

Operating margin

6.7%

23.6%

32.8%

(1690bps)

(2610bps)

Income from operations

$11.822M

$67.544M

$151.110M

(82.5%)

(92.5%)

Net income

$14.589M

$64.904M

$133.606M

(77.5%)

(89.1%)

EPS

$0.25

$1.10

$2.11

(77.3%)

(88.2%)

(Non-GAAP)

Operating margin

11.5%

25.7%

34.2%

(1420bps)

(2270bps)

Income from operations

$20.219M

$73.569M

$157.831M

(72.6%)

(87.2%)

Net income

$21.768M

$70.240M

$138.819M

(68.9%)

(84.3%)

EPS

$0.37

$1.19

$2.19

(68.9%)

(83.1%)

Source: KLIC

Guidance calls for Q2 FY2023 gross of $150-190M, a diminution of 55.8% YoY astatine nan midpoint. The forecast calls for GAAP EPS of $0.16, positive aliases minus 10%, a diminution of 91.4% YoY astatine nan midpoint and non-GAAP EPS of $0.25, positive aliases minus 10%, a diminution of 87.2% YoY astatine nan midpoint.

Q2 FY2023 (guidance)

Q2 FY2022

YoY (midpoint)

Revenue

$150-190M

$384.3M

(55.8%)

GAAP EPS

$0.16, +/- 10%

$1.86

(91.4%)

Non-GAAP EPS

$0.25, +/- 10%

$1.95

(87.2%)

KLIC had immoderate bully news to spell on pinch nan bad news

However, nan diminution is slowing down, successful portion owed to comps turning favorable. On a sequential basis, gross and non-GAAP EPS are expected to diminution by 3.5% and 32.4%, respectively, astatine nan midpoint. Furthermore, nan Q1 study included nan pursuing statement:

“The near-term macro situation remains dynamic, though we proceed to expect a play of improving request successful our 2nd fiscal half driven by emblematic seasonal improvements wrong higher-volume markets, a larger weighting of precocious packaging and precocious show gross and an improving book-to-bill ratio.”

The Q1 results and Q2 guidance do not animate confidence, but KLIC managed to compensate pinch an outlook suggesting nan worst of nan diminution is complete and an betterment is to beryllium expected successful nan adjacent term. KLIC provided immoderate information points suggesting this much. Book-to-bill, for instance, accrued to 1.29 successful Q1, nan first clip since mid-2021 that it exceeded 1. This suggests request is recovering and it should not return agelong earlier nan effect tin beryllium seen successful nan quarterly results. From nan Q1 net call:

“our book-to-bill ratio exceeded 1 for nan first clip since June of 2021. While near-term inventory digestion and nan macro improvements are basal to support manufacture growth, these information points supply further assurance to our outlook.”

A transcript of nan Q1 FY2023 net telephone tin beryllium found here.

In a motion of confidence, KLIC is already preparing for a rebound successful marketplace request by expanding accumulation capacity.

“the gross that will beryllium generated from this further capacity successful precocious packaging and precocious show will astir apt again beryllium much important successful ’24, right? And we are inquiring. But successful bid to hole for that successful ‘24 we are now expanding our accumulation facilities”

KLIC expects a stronger 2nd half owed to strengthening request to thief extremity FY2023 pinch gross of astir $840M. Keep successful mind that galore semiconductor companies person made akin remarks regarding an H2 rebound, including an manufacture bellwether for illustration TSMC (TSM).

“So, astatine this moment, we expect our 2nd half will beryllium amended than nan first half. So, overall, I deliberation that astatine this infinitesimal we are comfortable astatine nan statement gross of $840 million, owed to China COVID business that really person immoderate softness successful our ’23, but it could effect america successful Q2, and we expect possibly widen a small spot longer into Q3.”

If Q2 gross comes successful arsenic suggested by guidance and gross successful H1 is simply a mixed $346M, past this implies H2 gross of astir $494M, a 42.8% sequential increase.

The banal has priced successful a recovery, which could go a problem if it doesn’t arrive

Estimates expect nan numbers to get better. Consensus estimates expect non-GAAP EPS of $1.40-2.02 connected gross of $736-842M successful FY2023. This is expected to summation to $1.69-4.10 connected gross of $800-1,200M successful FY2024. In comparison, KLIC earned $6.14 connected gross of $1,517.6M successful FY2021 and $7.45 connected gross of $1,503.6M successful FY2022. While estimates disagree pinch immoderate much aliases little optimistic, nan wide statement is that though nan numbers person taken a beating, they will get amended from present connected out.

KLIC

Market cap

$3.11B

Enterprise value

$2.37B

Revenue (“ttm”)

$1,218.0M

EBITDA

$352.7M

Trailing non-GAAP P/E

9.78

Forward non-GAAP P/E

30.75

Trailing GAAP P/E

10.40

Forward GAAP P/E

39.81

PEG ratio

N/A

P/S

2.64

P/B

2.64

EV/sales

1.94

Trailing EV/EBITDA

6.71

Forward EV/EBITDA

19.84

Source: Seeking Alpha

However, if estimates beryllium to beryllium excessively optimistic and nan betterment does not play retired arsenic expected, past that could beryllium a problem pinch multiples wherever they are. The array supra shows immoderate of nan multiples KLIC trades at. Note really nan guardant multiples are overmuch higher than nan trailing ones. For instance, KLIC trades astatine 39.8 times guardant GAAP net pinch a trailing P/E of 10.4.

The quality betwixt nan 2 shows really overmuch net are expected to diminution successful nan adjacent 12 months compared to nan erstwhile 12 months. The marketplace expects nan guardant aggregate to travel down arsenic KLIC recovers from nan existent downturn, but if this does not happen, a substitute will person to beryllium recovered for nan shortfall successful earnings, which successful each likelihood will travel successful nan shape of a diminution successful nan value of nan stock.

It’s frankincense worthy mentioning that location rather a fewer retired location who are betting connected this. Short liking stands at 7.9M shares, which translates to a short float of 14.3%. While guidance whitethorn beryllium optimistic that nan quarterly numbers will get amended successful nan coming quarters, not everyone is convinced that will beryllium nan case.

The marketplace has fixed KLIC nan use of nan doubt

While location whitethorn beryllium doubters retired there, nan banal has nevertheless benefited from buyers positioning themselves successful anticipation of a rebound successful quarterly earnings. The banal has rallied successful nan caller year, continuing nan tally that started precocious past year. The floor plan beneath shows really nan banal has gained 23.7% YTD.

KLIC chart

Source: finviz.com

It’s worthy mentioning that KLIC is not nan only semiconductor banal to person rallied successful caller months. Almost each semis have. For instance, nan iShares PHLX Semiconductor ETF (SOXX) has gained 24% YTD, which is almost nan aforesaid arsenic KLIC. It’s not conscionable KLIC that has rallied, it’s nan full sector.

Two awesome factors person supported nan rally. The first is that nan semiconductor manufacture is predicted to rebound successful nan 2nd half of nan year, successful statement pinch KLIC’s ain forecast. KLIC is by nary intends nan only 1 who believes that, while nan semiconductor marketplace is admittedly successful a slump correct now, things will soon get better.

The 2nd is nan domiciled of nan Fed. The Fed has go little hawkish compared to overmuch of past year. Rate hikes, for instance, person gone from 75 ground points to conscionable 25. Recent statements from Fed governors propose that while nan Fed will proceed to hike, nan worst of nan complaint hike rhythm is over. All this has led to expectations of a Fed pivot, or, astatine nan very least, a Fed that is little of a headwind that it was successful 2022.

Semis person benefited from 2 tailwinds, a little restrictive Fed argumentation and a rebound successful nan semiconductor market, which will presumably lead to amended quarterly results than what galore semiconductor companies person reported recently. As agelong arsenic these 2 factors are present, nan rally is apt to continue.

Investor takeaways

There is decidedly an statement to beryllium made for agelong KLIC. It’s existent caller net person looked horrible, but location is logic to judge nan bottommost is in. Whether it's KLIC’s ain outlook aliases that of different companies successful nan semiconductor space, nan statement is that nan bottommost is either successful aliases adjacent to it. This is why nan marketplace has ignored nan large net declines arsenic shown successful nan latest study and multiples that immoderate would reason connote that KLIC is overvalued astatine existent valuations.

However, while it’s tempting to beryllium a portion of an ongoing rally, I americium neutral connected KLIC. The Fed and an expected betterment person supported nan banal rally, but either could move astir to derail nan rally. The forecast from guidance is calling for a bottommost successful H1, but it would not beryllium nan first clip nan forecast gets revised.

Recall that guidance erstwhile called for FY2023 gross to stay level compared to FY2022 astatine astir $1.5B, but nan latest outlook thinks it will beryllium much for illustration $840M, a large difference. Furthermore, moreover if H1 turns retired to beryllium nan bottommost and net commencement to improve, location is nary telling really agelong it will return earlier net get backmost to wherever they were successful FY2021-2022.

KLIC will only gain $0.41 successful position of GAAP and $0.62 successful position of non-GAAP successful H1 according to guidance. This translates to a P/E ratio of 68 and 44, respectively, if net successful H2 do not amended from wherever they presently are. The marketplace expects net to emergence successful nan coming quarters to bring down multiples, but if it doesn’t, nan banal is overvalued astatine existent levels. The betterment successful book-to-bill is simply a affirmative motion net are group to rise, but it remains to beryllium seen whether book-to-bill will enactment supra 1 aliases if Q1 turns retired to beryllium a fluke. Some be aware is warranted.

The Fed could besides go a spoiler. Fed argumentation aliases nan cognition of what nan Fed will do has been a tailwind for stocks for illustration KLIC successful caller months, but that could quickly change. There is aft each a logic why short liking is truthful elevated. Take distant nan Fed and if net maturation disappoints, nan marketplace is near pinch a banal that is costly by astir metrics.

Bottom line, agelong KLIC is worthy considering, but it’s not without important risk. If nan Fed maintains its existent people and earning amended arsenic predicted, nan banal has a chance to proceed nan rally. In nan end, it comes down to whether 1 is consenting to judge nan consequence of looking past nan coming and presume nan early will play retired arsenic predicted for KLIC. Because if it doesn’t, nan shorts whitethorn conscionable person nan past laugh.

This article was written by

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Welcome to my author's site. As an avid follower of SeekingAlpha, I return awesome liking successful articles posted arsenic nan taxable matter is often thing that appeals to me. However, I will sometimes brushwood an article that I mightiness not work together with. My intent is to coming an replacement position to readers that they whitethorn want to return into account. I dream you find my articles absorbing and informative.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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