Besi Earnings: Growth Expected to Ramp Up in H2 2024; Raising Fair Value Estimate to EUR 120

Narrow-moat BE Semiconductor Industries' first-quarter revenue was within expectations at EUR 146 million, an 8.3% sequential decline. Gross margins beat management estimates for the seventh consecutive quarter, at 67.2% compared with management’s guidance of 64%-66%. The outlook for the second quarter is what likely disappointed investors and sent shares down 3% in early April 25 trading. Orders came in at EUR 127 million (EUR 166 million last quarter) and management said it expects flat sequential revenue in the second quarter with an expected acceleration in second-half 2024, a statement we have heard from many semiconductor companies. Even if we see further delays into 2025, these will just be delays in growth, in our view, as long-term demand for Besi’s mainstream and hybrid bonding assembly systems is solid. We raise our fair value estimate to EUR 120 per share to adjust for the time value of money, with shares remaining 17% overvalued. If shares get closer to our fair value estimate, we believe Besi will be a good long-term investment with its industry-leading gross margins, high market share, and exceptional capital allocation skills. Our fair value estimate represents a forward price/earnings of 42 for 2024 and 29 times for 2025.