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Amtech Systems – ASYS
I started to look at the companies in the solar industry since the industry has been drastically depressed lately. I wanted to see if I could find an investment idea or two in the industry. I came across ASYS (Amtech Systems), which has a solid balance sheet and no long term debt, with a solid portfolio of products and patents.
ASYS is a global provider of thermal processing systems which includes related automation, parts and services for the solar / photovoltaic, semiconductor, silicon wafer and MEMS industries. In addition, ASYS also manufactures and sells polishing templates, steel carriers, double sided polishing and lapping machines to fabricators of LED’s, optics, quartz, ceramics, and metal parts. Amtech separates their business between the solar industry and the semiconductor industry. Amtech is a leading supplier of solar diffusion furnaces, including the next generation cell N-Type. The next generation process technology is the driver of increasing efficiencies and lowering costs to produce photovoltaics (PV).
Global installed PV capacity has grown from 1.5GW in 2000 to 39.5GW in 2010 and to 67.2GW in 2011. That is only 0.5% of the total electrical demand worldwide. IMS Research says that $25B in upgrades/replacements are needed over the next 4 years for 20GW of production. That translates into a needed $1.5B potential investment in CapEx for next generation upgrades, which is the market for ASYS. Today, the P-Type cell market is dominate with 90% of the PV market, but is anticipated to move below 75% and lower as the next generation N-Type ramps up. N-Type is more efficient, thus lowering the cost per watt. Just in 2011, the cost per watt for solar cells fell from $3.52/watt to $2.43/watt just in 2011 according to the Solarbuzz group. With the prices of solar cells falling quickly, it will soon be on par with other competing technologies to supply power to the grid.
ASYS has diversified their customer base over the past year. At the end of December 31st 2010, three customers accounted for 17%, 12%, and 10% for a total of 39% of ASYS’s revenue. At the end of December 31st 2011, only one customer accounted for 10% of revenues. It’s a positive sign to diversify the customer base, so that a few customers do not make up a majority of the revenue. Asia is the largest customer base, and is responsible for 68% of the revenue, followed by Europe at 24% and North America at 8%. China (included in Asian numbers) makes up 47% of the revenue, which declined from 58% in 2010. Europe has doubled from 12% to 24% of revenues in 2011, followed by a Asia-Other from 4% to 19%. ASYS has done a good job of building revenue outside of China and Taiwan, which saw large decreases in revenue.
The overall Solar industry has been hammered on the stock market recently, and $ASYS has been included in the devastation. The stock is off of it’s 52-week high by around 65% which is the reason that I took a further look at the stock. The solar industry is very cyclical and is reliant upon government subsidies to make the solar products viable. Costs to create solar products are decreasing, making the solar industry more viable, but the costs still do not compete with alternative energy products. Because there are substitute products (oil, gas, coal etc..) that create energy and are more affordable, a subsidy is used to make solar more competitive with the alternative products. Amtech Systems also has a semiconductor industry business that helps offset the solar business. The backlog at the end of December 2011 was $69.2M which is a drastic drop from $172.9M at the end of 2010. The company has seen a big hit to their revenues, backlog, and margins.
In the latest 10-k, the company states that to successfully implement the growth strategy, that the company will need to raise more money, either long-term debt, equity offerings or capital leases.
We need to evaluate and value the company based upon the assets, because growth cannot be depended on in the next couple of years as the industry is way down.
Reviewing the past financial statements, we can see a very cyclical business with very large swings in revenues and profits.
The above image shows the past 5 years of revenue, and the break down between solar and semiconductor. Solar has been a large majority of the revenue percentage over the past two years.
Above is a break down of the quarterly revenues over the past two years. This chart demonstrates the drop off in revenue in the first quarter of 2012.
- Patent portfolio, including leading technology in the higher efficiency next generation solutions
- Small amount of CapEx needed to scale business. Sales increased from $120M in 2010 to $247M in 2011, while the CapEx was $5.2M for 2011, an increase from $2.9M in 2010.
- Strong Balance Sheet – No long term debt
- $55M in cash with a market cap of $89M, so 61.8% of ASYS’s market cap is in cash.
- Tangible Book value per share = 10.37 – Trading at .911 of Tangle BV
- Reproduction costs of the assets = 13.85/sh – Trading at .68 of the reproduction costs to recreate the assets of ASYS
- ROA = 12%, ROE = 20% and CRIOC = 8%
- Trading just under NCAV – 9.67
- EV/EBITA under 1
- For the latest quarter, revenue has dropped 50% from the previous years quarter, from $52.7M to $24.7M. That is a very large drop.
- Cash dropped by ~12.5M during the quarter. Some of the cash was used to buy back stock ($4M), and a small amount for CapEx ($.465M).
- How much longer will the solar industry be down, and how long will ASYS continue to burn cash?
ASYS is currently trading under NCAV, with a strong balance sheet. There are risks that the down solar industry will take time to recover, and eat into the assets of the company. It’s difficult to understand the future of the industry, however, the research shows that the market is viable, and the solar cell costs per watt are being driven lower and arriving closer to par with other technologies. ASYS has 60% of their market cap in cash, and trading under NCAV provides downside protection. The upside is great if/when the solar industry starts to grow again, which looks to be in the next 1-2 years. With higher oil prices, the solar industry will begin to grow again, but how long will that actually take?
Note: I wrote this first post over a few days, since the start of this blog post, the share price has changed, subjecting my stated ratios and financial numbers to be slightly off.
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