Company Reports

We keep our fair value estimate of Sumco at JPY 1,940 per share after making minor changes to our model. While Sumco may see a larger recovery in the second half of 2024, we reckon the company is overvalued, as its ongoing expansion in Japan strains its balance sheet and it is letting its peer GlobalWafers have a monopoly in high-end wafers in the US from 2025.

We keep our Sumco fair value estimate at JPY 1,940, despite the disappointing outlook for the first half of 2024, as the firm echoes chipmakers’ comments as to a second-half recovery, and there is higher visibility on new foundries in Japan. Sumco is overvalued, in our opinion, as we believe the market discounted solvency risks following Sumco’s higher debt levels to fund its countercyclical expansion drive.

Sumco is the second-largest semiconductor-grade silicon wafer manufacturer in the world, with more than 20% market share. Its main sites are in Japan and Taiwan, and smaller ones in Indonesia and the U.S. We believe the company has turned too conservative in expansion after being devastated by previous overexpansion before the global financial crisis of 2007-09. Hence, we foresee Sumco’s five-year sales CAGR to be 7.5%, slightly underperforming the 8% of the semiconductor silicon wafer market due to market share loss to GlobalWafers. Like other semiconductor companies, Sumco benefits from demand growth in data centers, artificial intelligence, and automotive electronics.

We maintain our fair value estimates for Globalwafers, Sino-American Silicon, or SAS, Sumco, and National Silicon Industry Group, or NSIG, at TWD 590, TWD 227, JPY 1,940, and CNY 4.10, respectively, after the common message of a sluggish fourth quarter to be followed by a mild recovery in 2024. SAS is our top pick in the sector as they are best positioned to benefit from incremental semiconductor factories in the U.S. and profitability has been resilient despite the current downturn. NSIG is extremely overvalued in our view as its market capitalization is on par with its larger peers despite being only 25% of the size in terms of revenue, and it is unlikely to generate free cash flow before 2027.

We trim our fair value estimates for Sumco and National Silicon Industry Group to JPY 1,940 from JPY 2,220 and CNY 4.10 from CNY 5.50, respectively, after both firms indicated the second half will be tougher than we thought. Sumco remains fairly valued as although its long-term growth outlook trails the industry average, it has strong market share in high-end wafers to support expansion. We reiterate our view that NSIG is extremely overvalued as its market capitalization is on par with its larger peers despite only being 25% of the size in terms of revenue.

Sumco is the second-largest semiconductor-grade silicon wafer manufacturer in the world, with more than 20% market share. Its main sites are in Japan and Taiwan, and smaller ones in Indonesia and the U.S. We believe the company has turned too conservative in expansion after being devastated by previous overexpansion before the global financial crisis of 2007-09. Hence, we foresee Sumco’s five-year sales CAGR to be 6.6%, slightly underperforming the 8% of the semiconductor silicon wafer market due to market share loss to GlobalWafers. Like other semiconductor companies, Sumco benefits from demand growth in data centers, artificial intelligence, and automotive electronics.

We initiate coverage on semiconductor silicon wafer producers Sumco, GlobalWafers, Sino-American Silicon Products, or SAS, and National Silicon Industry Group, or NSIG, with fair value estimates of JPY 2,220, TWD 590, TWD 227, and CNY 5.50 per share, respectively. GlobalWafers and SAS are the most undervalued relative to our fair value estimates, and hence our picks in the sector. We think the market is worried about pricing pressure amid the current downturn and has discounted the prospects of secular growth in semiconductors. Conversely, NSIG is grossly overvalued to our fair value estimate, with a market cap larger than GlobalWafers today despite only having one-fourth of GlobalWafers' market share. We think the market assumes NSIG will unseat GlobalWafers as the third-largest wafer producer in 10 years’ time despite being technologically behind.

Sumco is the second-largest semiconductor-grade silicon wafer manufacturer in the world, with more than 20% market share. Its main sites are in Japan and Taiwan, and smaller ones in Indonesia and the U.S. We believe the company has turned too conservative in expansion after being devastated by previous overexpansion before the global financial crisis of 2007-09. Hence, we foresee Sumco’s five-year sales CAGR to be 6.6%, slightly underperforming the 8% of the semiconductor silicon wafer market due to market share loss to GlobalWafers. Like other semiconductor companies, Sumco benefits from demand growth in data centers, artificial intelligence, and automotive electronics.