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Final MKSI Presentation

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Final MKSI Presentation

  1. 1. Senior Analyst Tomás Valladares Analysts Dylan Melton Hayden Dunning Thanh Cong
  2. 2. Table of Contents I. Investment Thesis II. Company Overview III. Industry Overview IV. Valuation V. Appendix
  3. 3. Investment Thesis: MKS Instruments (NASDAQ/MKSI) MKS Instruments, Inc. provides instruments, systems, subsystems, and process control solutions that measure, monitor, deliver, analyze, power, and control critical parameters of manufacturing processes worldwide. Recommendation: Buy Current Price: $156.87 Target Price: $188.77 Investment Thesis ● MKS Instruments is focused on growth in their industry by performing successful acquisitions to reach new markets ● Promising end market opportunities in industrial semiconductors ● Have been experiencing stable demand that is expected to increase Merits ● Niche market leader ● Diversified product line ● Promising acquisition of Atotech Risks ● Future results are subject to fluctuations ● Global business regulations ● Top 10 customers make up 44% of revenue
  4. 4. Company Overview ● Founded in 1961 ● Initial Public Offering (IPO) in 1999 ● Market cap of $8.5B Headquarters in Andover, MA ● 5,800 employees ● 9 domestic locations ● 5 international locations
  5. 5. Business Model ● MKSI is a global provider of instruments, systems, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity. Products are used for tech, health sciences, industrials, and research and defense. Top 5 Customers Customers % revenue Lam Research Corp 12.40% Applied Metals 10.90% Tokyo Electron Ltd 5.89% ASML Holding NV 5.69% Samsung 2.91% Top 5 Suppliers Suppliers Rev. Involvement Gooch & Housego PLC 2.41% nLight Inc 0.72% Lumentum Holdings Inc 0.11% Brooks Automation Inc 0.09% Berkshire Hathaway <0.01%
  6. 6. Revenue Breakdown Segment Revenue (millions) Revenue % Vacuum and Analysis 1405.9 60.34% Light and Motion 689.6 29.60% Equipment and Solutions 234.5 10.06%
  7. 7. Industry Outlook ● Demand for Semiconductor Manufacturing is expected to expand over the five years ● Industry exports are expected to increase at an annualized rate of 4.4% to $22.3 billion over the next five years. Average Chip Revenue ($B)
  8. 8. Competitor Comparison
  9. 9. Gross margin Operating margin (EBIT) Net profit margin Return on assets (ROA) MKSI 47.37% 20.09% 15.03% 9.57% Brooks 45.79% 8.99% 7.23% 4.22% Ultra Clean 19.39% 9.68% 5.55% 7.31% Advantest 56.37% 21.83% 22.31% 17.93% Average 42.23% 15.15% 12.53% 9.76% Profitability
  10. 10. Inventory Turnover Asset Turnover A/R Turnover MKSI 2.86 0.69 6.63 Brooks 4.41 0.67 5.26 Ultra Clean 5.35 1.12 9.54 Advantest 2.28 0.87 7.01 Average 3.725 0.8375 7.11 Efficiency
  11. 11. Revenue 5 yr CAGR Gross Profit 5 yr CAGR Operating Income (EBIT) 5yr CAGR Diluted EPS Dvd P/O MKSI 12.34% 13.02% 57.56% 8.57 8.32% Brooks 12.22% 17.34% 42.68% 1.59 18.97% Ultra Clean 21.68% 26.77% 53.70% 2.13 0% Advantest 18.48% 16.81% 35.41% 3.73 0% Average 12.94% 14.79% 47.34% 4.01 5.46% Growth
  12. 12. P/E EV/EBITDA EV/Revenue MKSI 15.57 10.97 10.66 Brooks 54.58 32.56 22.88 Ultra Clean 18.48 10.26 4.12 Advantest 21.87 33.47 1.83 Average 27.625 21.815 21.815 Price Multiples
  13. 13. Current Ratio Debt/Equity Total Debt/Total Assets MKSI 5.05 39.19% 26.45% Brooks 2.31 7.86% 5.82% Ultra Clean 2.81 84.32% 28.28% Advantest 3.16 4.03% 2.80% Average 2.666 27.08% 15.84% Financial Health
  14. 14. SWOT Analysis ● Strengths ○ High and increasing barriers to entry ○ Well diversified ○ Mature, low debt, stable EBIT ● Opportunities ○ High performance drivers ○ Revenue forecasted to increase at an annualized rate of $2.4 billion over the next five years ● Threats ○ Industry and customer concentration ○ Integration of acquired businesses ○ High revenue concentration ● Weaknesses ○ Low profit vs sector average (rank 60th) ○ Subject to unforeseen risks in the global supply chain and consumer demand ○ Revenue is limited by supply challenges
  15. 15. Comp Sheet Porter’s Five Forces ● Potential Entrants - Low ○ High barriers to entry decreases the risk along with high startup costs ○ Barriers to entry are set to increase ● Suppliers - Medium ○ MKSI is largest company focused on gas for semiconductors ● Buyers - Low ○ High startup costs means it is unlikely that buyers will produce on site ○ MSKI does not face many direct competitors ● Threat of Substitutes - Very low ○ Industry products have high complexity ● Competitive Rivalry - Low ○ Many players in this sector do business together and benefit each other
  16. 16. ● Broad end market possibilities. E.g. Increase use of semiconductors in industrial applications. This increase was seen in the Q3 earnings call. ● Atotech acquisition lets them expand customer market by reaching the growing demand ● Atotech has 65% of revenue from electronics, they will strengthen the electronics supply chain ● MKSI, along with competitors, is experiencing stable demand ● Semiconductor downstream market growth Revenue Drivers
  17. 17. Comp Sheet Growth Expectations ● Advanced electronics manufacturing segment double digit CAGR growth 2020-2025 ● 4.2% annualized revenue growth in the Semiconductor Machinery Manufacturing Industry expectations 2021-2026 ● Downstream market growth is expected to increase MKSI industry revenue ● Analyst projections and target price are consistent with our findings from relative valuation
  18. 18. Valuation
  19. 19. Comp Sheet Firms Revenue (M) EBITDA (M) EV / Revenue EV/EBITDA P/E P/B 5yr Average FCF Yield MKSI $2,693.80 $765.60 2.99 10.97 16.953 3.07 6.07% Brooks $1,097.60 $243.30 6.96 32.56 66.151 5.88 2.51% Ultra Clean $1,665.70 $214.80 1.36 10.26 21.174 2.6 4.61% Advantest $3,223.30 $900.70 4.65 33.47 21.724 6.3 7.56% Industry Avg (Damodaran) $1,404.45 $383.24 5.14 18.69 24.83 3.24 3.80% Sources: Bloomberg Terminal and Damoradan Online (10/21/2021) Comp Sheet
  20. 20. Market Approach Firm MSKI EPS * Comp P/E MKSI BVPS * Comp P/B MKSI Competitors: MKSI Equity Value Per Share Brooks Automation $566.91 $277.54 Ultra Clean Holdings. $181.46 $122.72 Advantest $186.17 $297.36 Industry Median (Bloomberg) $212.79 $152.93 Market Approach
  21. 21. Free Cash Flow Approach Firm ((MKSI FCF / comp 5yr fcf yd) - net debt)/diluted shares outstanding MKSI Competitors MKSI Equity Value Per Share Brooks Automation $ 340.63 Ultra Clean Holdings. $ 185.76 Advantest $ 113.36 Industry Average (Bloomberg) $ 225.42 Free Cash Flow Yield Approach
  22. 22. Industry Range Industry Range
  23. 23. Comp Sheet Weighted Average Cost of Capital
  24. 24. Historical Metrics Revenue
  25. 25. Historical Metrics Profit Margins
  26. 26. Historical Metrics Share Price
  27. 27. Investment Thesis: MKS Instruments (NASDAQ/MKSI) MKS Instruments, Inc. provides instruments, systems, subsystems, and process control solutions that measure, monitor, deliver, analyze, power, and control critical parameters of manufacturing processes worldwide. Recommendation: Buy Current Price: $156.87 Target Price: $188.77 Investment Thesis ● MKS Instruments is focused on growth in their industry by performing successful acquisitions to reach new markets ● Promising end market opportunities in industrial semiconductors ● Have been experiencing stable demand that is expected to increase Merits ● Niche market leader ● Diversified product line ● Promising acquisition of Atotech Risks ● Future results are subject to fluctuations ● Global business regulations ● Top 10 customers make up 44% of revenue
  28. 28. Appendix
  29. 29. Income Statement
  30. 30. Income Statement
  31. 31. Balance Sheet Assets
  32. 32. Balance Sheet Liabilities & Shareholders Equity
  33. 33. Statement of Cash Flows
  34. 34. Statement of Cash Flows
  35. 35. Statement of Cash Flows
  36. 36. DCF Select Operating Data
  37. 37. DCF Balance Sheet & Other Data
  38. 38. DCF Free Cash Flow Buildup
  39. 39. DCF Weighted Average Cost of Capital
  40. 40. DCF Equity Valuation Range
  41. 41. Questions?

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