Tokyo Electron Leveraging Semiconductor Math, And Looking For Share Gain Opportunities

 

I had a finance professor as an undergrad who liked to say “math works”, and when it comes to the math on semiconductor capex, the math still works for Tokyo Electron (OTCPK:TOELY) (8035.T) (“TEL”). New demand from end-markets like autos, consumer, data center, industrial, medical, and wireless is likely to drive at least mid-single-digit chip volume growth over the next decade, and increasing production complexity means ever-higher capital intensity.

TEL also has credible opportunities to continue gaining share in its core semiconductor production equipment (or SPE) markets, while also driving further progress in margins, with management targeting 30%-plus operating margins when it reaches JPY 2T in revenue.

Where the math stops working for me is valuation. I realize we’re in a bullish cycle for SPE capex spending and that drives higher multiples, but the stock really doesn’t work on a GARP basis. That’ll be fine for some investors, and I do certainly understand using Tokyo Electron as a play on ongoing capex spending growth, but I’ve too many cycles in this sector to want to play the game of musical chairs.

 

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Tokyo Electron Leveraging  Semiconductor Math, And Looking For Share Gain Opportunities