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Alph 202106 Asml

ASML is a leading company in the semiconductor manufacturing sector, specializing in lithography machines that enable the production of smaller, more powerful microchips essential for technological advancements. With a market share exceeding 60% and impressive financial metrics, including a 17% annual revenue growth and high return rates, ASML is well-positioned for continued success. The outlook remains strong as major customers like TSMC, Samsung, and Intel increase their capital expenditures, indicating sustained demand for ASML's technology.

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49 views4 pages

Alph 202106 Asml

ASML is a leading company in the semiconductor manufacturing sector, specializing in lithography machines that enable the production of smaller, more powerful microchips essential for technological advancements. With a market share exceeding 60% and impressive financial metrics, including a 17% annual revenue growth and high return rates, ASML is well-positioned for continued success. The outlook remains strong as major customers like TSMC, Samsung, and Intel increase their capital expenditures, indicating sustained demand for ASML's technology.

Uploaded by

naveen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ASML (ASML NA): Providing the machines that underpin

digital transformation
Trent Masters – May 2021

An interconnected world
Our world is becoming more convenient. From heaters you can turn on from your phone,
to fridges that can tell you that they need refilling, to cars that help you drive; the world
around us is rapidly evolving to provide greater interconnectedness and convenience all
underpinned by remarkable advances in technology. These advances are about to take
another significant step forward as 5G, AI and high-performance computing facilitate
applications as advanced as fully autonomous driving.

At the heart of these technological advances are semiconductors. Semiconductors


provide the decision-making capabilities for modern electronics, and the explosive
growth in data and computing power dictates the need for these semiconductors to
become increasingly powerful. However, this increase in power cannot come with a
greater size as devices must remain small enough to remain useful.
ASML: At the cutting edge of the cutting edge
This is where ASML comes in. ASML is at the cutting edge of the cutting edge as it
creates the machines that sit at the front-end of the semiconductor manufacturing
process. Through a process called lithography, ASML machines use ultraviolet light to
print tiny features that form the basis of the microchip. Advances in ASML machines
allowing these printed features to get increasingly smaller allows semiconductor
technology to continue its march forward.

Due to the incredible complexity and investment required to replicate what ASML does,
they enjoy a powerful market position. There are only a handful of global players in the
lithography market, and ASML is estimated to hold >60% share. ASML have been
progressively increasing their market share over the last decade due to their focus on
developing the best technology and pricing according to productivity gains. Importantly,
in terms of the most advanced lithography systems (referred to as extreme ultraviolet
machines or EUV’s), ASML is out on its own as peers have struggled to make the
breakthroughs required to be successful in this area. As such as the demand for
technological advances intensifies, ASML’s market position becomes even stronger.

ASML: Exceptional financial returns


The remarkable capabilities and market position of ASML are evident in their financial
metrics. Revenue has been growing at 17% pa for the past 5 years and the return
metrics have been outstanding, with Return on Equity above 25% and Return on
Invested Capital above 30%. These return metrics will strengthen further given the
current momentum in the business.
Source: ASML Accounts, Factset financial data, Alphinity analysis

2021 is shaping up as another excellent year for ASML, with revenue expected to grow
+30% and earnings to lift 40-50% as demand for ASML machines continues to remain
strong.

ASML: Valuation and outlook


In terms of valuation, ASML is not cheap. The business currently trades on 42x PE CY21
so we need to have confidence that the growth and returns flowing from ASML will
continue over the medium term to justify such valuation metrics. On this front we look to
capex expectations for ASML’s key customers as an indication for ongoing demand as
the top 3 customers (Taiwan’s TSMC, South Korea’s Samsung and US based Intel)
account for more than 70% of total ASML revenue.

Source: ASML Annual Report 2020

On this front the outlook remains extremely promising as TSMC, Samsung and Intel
have all recently announced significant lifts in intended capex spending for the coming
years. TSMC have announced an intention to lift capex to $30bn in 2021 (from $18bn in
2020), Samsung announced a 30% lift in capex intentions out to 2030 with a projected
total spend of US$150bn, and Intel have announced a program that will see them move
further into building their own semiconductors using ASML technology. As such the
medium-term outlook for ASML remains bright.
Source: TSMC Accounts, Factset financial data

Conclusion
ASML is an exceptional business with a differentiated competitive position within an
industry undergoing secular growth. Not many companies in the world can do what they
do, and the future digitisation of the world relies on ASML capabilities to underpin future
development.

The return metrics of the business demonstrate this strong positioning with ROE’s
>25%, ROIC’s >30% and significant momentum in the earnings of the business. While
the current valuation of the business may look full, the earnings outlook combined with
business quality justifies current trading levels and as such ASML remains a core holding
for the fund.

Find out more

For more information, please contact your financial adviser, call the Fidante Partners
Investor Services team on +61 13 51 53

Disclaimer:
This material has been prepared by Alphinity Investment Management Pty Limited ABN 12 140 833 709 AFSL 356895
(Alphinity). It is general information only and is not intended to provide you with financial advice or take into account
your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or
damage as a result of any reliance on this information. Any projections are based on assumptions which we believe
are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of
future performance. Neither any particular rate of return nor capital invested are guaranteed.

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