BE Semiconductor Industries Earnings: Raising Valuation; We Expect a Strong 2024 and 2025

Narrow-moat BE Semiconductor Industries, or Besi, impressed with another very solid quarter, beating management’s guidance once again for both revenue and gross margins. Revenue grew by 29.4% sequentially, compared with expected growth of 15% to 25%, and gross margin came in at 65.1%, compared with guidance of 62% to 64%. Investors liked the results, and shares are up by 15% in Feb. 22 trading. We are raising our fair value estimate to EUR 110 per share from EUR 86 as we increase our forecast for hybrid bonding sales and raise long-term gross margins to 63%. Despite guidance of a 5% to 15% decline in sales for the next quarter, we expect 2024 will be strong as foundries and integrated device manufacturers increase their installed base of hybrid bonding systems. Besi expanded from three to nine hybrid bonding customers across all continents, reaching an installed base of 40 at year-end. We expect very strong sales in the next two years, reaching more than EUR 1 billion in 2025 compared with EUR 580 million in 2023. We also assume higher long-term unit pricing of hybrid bonding systems as Besi introduces new generations of machines with higher accuracy. Despite the raise in valuation, we still see the shares overvalued and recommend investors wait for more margin of safety. Our Capital Allocation Rating is Exemplary.