Kulicke And Soffa Stock: Strong Growth Prospect Despite Economic Headwinds (NASDAQ:KLIC)


Investment thesis

Kulicke and Soffa Industries (NASDAQ:NASDAQ: KLIC) is a manufacturer and distributor of capital goods and tools used to produce semiconductor devices. Recently, the company announced that it had signed an agreement to acquire Advanced Jet Automation. I believe it event can act as a primary growth catalyst for the company in the coming period.

About Kulicke and Soffa Industries

KLIC is a producer and distributor of equipment and tools that are used to develop semiconductor devices, including high and low power discrete devices, light-emitting diodes (LEDs), integrated circuits and module modules. Powerful. The Company operates through two segments: Capital Equipment and Aftermarket Products & Services (APS). The company wins 86% of total revenues from the Capital Equipment segment, while 14% is generated of the Aftermarket Products & Services segment. The Capital Equipment segment serves customers in four end markets: General Semiconductor, Automotive & Industrial, LED and Memory. The company wins 70% of total revenue from the Capital Equipment segment of the General Semiconductor market. The company’s customer base is concentrated in the Asia/Pacific region and it generates 96% of its turnover in this region.

Revenue Segmentation Table

Revenue segmentation (KLIC Annual Report)

The semiconductor business is highly volatile and cyclical in nature. But over the long term, both the industry and the company have maintained strong growth. The company’s revenue and EPS increased by 13.44% and 24.97% CAGR respectively over 5 years. The company decided to acquire Advanced Jet Automation to accelerate its growth.

Acquisition of Advanced Jet Automation

Recently, the company announced that it has signed an agreement to acquire Advanced Jet Automation (AJA). After completion of the transaction, the company will own specific distribution assets and the operation of its subsidiary, Samurai Spirit Inc, which is a designer and producer of high-precision micro-distribution equipment in Taiwan. The acquisition gives KLIC access to the production of dispensing equipment capable of flux, solder paste, adhesive, epoxy and underfill applications. The most important part of this acquisition is AJA’s exclusive dispensing head actuator integrated with AI software that provides process positioning accuracy, which I believe can be a significant competitive advantage for the company. company. I believe this acquisition could be a primary growth driver for the company in the coming years, as it can enhance and expand the portfolio of electronic assembly, semiconductor and advanced display products and provide an entry wider in the distribution equipment market. AJA’s business and commercial position can help the company target long-term opportunities in the market for advanced packaging, mini and micro-LEDs, and electronic assembly. I believe that investors can expect accelerated growth in the coming years, as AJA’s products and technology fit perfectly with KLIC’s existing product portfolio and will provide access to the new market, which is expected to reach a $2 billion valuation in 2023. The effects of this acquisition will be visible in the second half of the 2023 financial year.

What is the main risk facing KLIC?

Volatile market environment

Even though the semiconductor industry cycle may be distinct from the state of the global economy, it is possible that it directly affects the demand for semiconductor units and, subsequently, semiconductor investment tools and equipment. Accordingly, changes in macroeconomic conditions impact business and financial results, both favorably and unfavourably. Customer spending is based on current and forecasted market demand for semiconductors and products that require semiconductors, such as cell phones, personal computers, consumer electronics, auto parts, electric vehicles and other industrial goods. Reduced demand, inconsistent inventory levels, fluctuations in interest rates, higher energy prices or other conditions that affect the macroeconomic environment could have an adverse impact on the financial position and results of operation of the business. These conditions include government, economic and fiscal instability, pandemics, etc.

Additionally, since the business has fixed costs that cannot fluctuate in response to changes in demand, volatility can impact the profitability of the business. Customers may become cautious and postpone orders due to widespread economic downturns until the situation is more evident. Significant declines in product demand due to the semiconductor device market or general economic conditions can negatively impact a company’s operations, finances and business.


The acquisition of Advanced Jet Automation could drive the company’s growth in the coming years as it can enhance KLIC’s existing product portfolio and provide access to the border distribution equipment market, which is expected to reach a $2 billion valuation in the years to come. KLIC is trading at $41.28 with a P/E ratio of 5.41x. After factoring in the growth driven by the acquisition of AJA, I estimate that the company’s FY2023 EPS could be $8.20, giving a forward P/E ratio of 5, 03x. After comparing the company’s futures P/E ratio with the industry median of 18.01x, we can clearly say that the company is undervalued as the company’s futures P/E is 72% lower than compared to the industry median. The company has a 5-year average price-to-earnings ratio of 17.61x, but the stock is trading significantly below and not picking up steam due to economic headwinds and a volatile market environment. I believe that after AJA’s integration into KLIC, the company may gain momentum but continue to trade below its traditional P/E ratio as I believe economic headwinds may continue to affect the share price in the coming period. I estimate that the company could be trading at a P/E ratio of 6.9x, giving the target price of $56.5, which represents a 37% upside from current levels of the price. stock.


The company has decided to acquire Advanced Jet Automation, which can act as a main growth factor in the coming years as it is in perfect synergy with KLIC’s existing activities and can provide access to the border distribution market. KLIC is trading at a forward P/E ratio of 5.03x with an EPS estimate of $8.20, compared to the sector median P/E of 18.01x. I believe that after the stock is fully integrated, the stock may gain momentum, but due to economic headwinds, it could trade below its traditional P/E ratio. After taking all of these factors into account, I think the company has 37% upside potential. That’s why I’m giving KLIC a buy rating.

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