ASML: Export Restriction Priced In Already; Upgrade To Buy

seekingalpha09-24

I upgraded ASML to a ‘Buy’ with a one-year price target of €810 per share, reflecting the stock's current pricing of China export restrictions.Despite China's progress in EUV technology, I believe ...

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Upgrade To Buy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; 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color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nASML: Export Restriction Priced In Already; Upgrade To Buy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-24 03:19 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4722785-asml-export-restriction-priced-in-already-upgrade-to-buy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>I upgraded ASML to a ‘Buy’ with a one-year price target of €810 per share, reflecting the stock's current pricing of China export restrictions.Despite China's progress in EUV technology, I believe ...</p>\n\n<a href=\"https://seekingalpha.com/article/4722785-asml-export-restriction-priced-in-already-upgrade-to-buy\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ASMLF","symbol_name":"ASML Holding N.V.","start_time":0,"source_url":"https://seekingalpha.com/article/4722785-asml-export-restriction-priced-in-already-upgrade-to-buy","article_id":"2469166127","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2151265313/image_2151265313.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2469166127","pubTimestamp":1727119170,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I upgraded ASML to a ‘Buy’ with a one-year price target of 810 per share, reflecting the stock's current pricing of China export restrictions.Despite China's progress in EUV technology, I believe they","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"ASMLF":"ASML Holding N.V.","ASML":"阿斯麦"},"translate_title":"ASML：出口限制已计入价格；升级购买","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ASML":0.9,"ASMLF":0.9},"content_text":"I upgraded ASML to a ‘Buy’ with a one-year price target of €810 per share, reflecting the stock's current pricing of China export restrictions.Despite China's progress in EUV technology, I believe they are still a decade behind ASML, mitigating immediate competitive threats.ASML's near-term revenue may decline by 8% in FY24, but I remain optimistic about long-term growth driven by AI, automotive chips, and IoT.I believe the expanded export restrictions have minimal financial impact on ASML, and I anticipate a 14% organic revenue growth rate from FY25 onwards.Pixelbizz I downgraded ASML Holding N.V. (NASDAQ:ASML) to 'Sell' in July 2024, arguing the near-term risk of China's export restrictions. Since then, the stock price has declined by more than 16%. In hindsight, I made the right call by cashing out my ASML positions. Recently, Shanghai Microelectronics Equipment filed a patent application covering an Extreme Ultraviolet (EUV) lithography machine, and I think China has made some early progress in the EUV market. Meanwhile, the Dutch Government added 1970i and 1980i to the export restriction list. I think most of these risks are now reflected in their stock price; therefore, I added ASML to my portfolio again and upgraded to a 'Buy' rating with a one-year price target of €810 per share, or $904 in USD. Export Restriction & China's Progress in EUV Technology As discussed in my previous article, the Biden administration informed its allies that it was planning the most severe trade restrictions if ASML continued to sell advanced semiconductor technologies to China. On September 7th, the Dutch government expanded their export control measure to advanced semiconductor manufacturing equipment. As a result, ASML needs to obtain a license if they export 1970i and 1980i immersion deep ultraviolet (DUV) machine, spare parts, and software updates to China. As shown in the table below, the Dutch government has outlined very specific export restrictions for lithographic equipment. Dutch Government As reported by Financial Times in September 2024, US and Japan were close to reaching a deal to curb exports to China's chip industry, a strategic move aimed at further restricting EUV/DUV-related exports to China. However, the potential export restriction from Japan would have an impact more on Japanese semiconductor equipment companies. At the same time, Shanghai Microelectronics Equipment filed a patent application covering an Extreme Ultraviolet (EUV) lithography machine in September. Local Chinese media praised their progress in the high-end EUV market. As reported by the media, there are two products in the market right now:  One DUV lithography machine operates at a wavelength of 193 nm, with a resolution below 65 nm and an overlay accuracy below 8 nm; The other DUV machine operates at a wavelength of 248 nm, with 110 nm resolution and 25 nm overlay accuracy,  In contrast, ASML's DUV can operate at a resolution of below 38 nm with an overlay accuracy of 1.3 nm. Shanghai Microelectronics Equipment launched their DUV lithography machines with 90 nm resolution in 2018. Since then, the company has attempted to advance into the 65 nm market; however, their progress has been significantly impacted by U.S. government export restrictions on high-end chips and semiconductor manufacturing equipment. After six years, they have finally advanced to 65 nm in the DUV lithography machine. I estimate China is still at least a decade behind ASML's technology. As such, I am not overly concerned about China's progress in the lithography machines market. Outlook and Valuation Update As discussed in my previous coverage, ASML delivered an impressive booking growth in Q2 FY24. As depicted in the chart below, it is evident that ASML has already bottomed out their booking growth over the past few quarters. As revenue growth typically lags several quarters behind their booking growth, I anticipate their revenue growth will start to recover starting in FY25. ASML Quarterly Results For their near-term growth, I am considering the following factors:  On September 6th, ASML issued a release indicating the expanded export restriction will not have any impact on their financial outlook for 2024 or on their longer-term growth target. As discussed, ASML needs to obtain export licenses from the Dutch government for shipments of its TWINSCAN NXT:1970i and 1980i DUV immersion lithography systems. As ASML hasn't quantified the financial impact of the expanded China export restrictions, I estimate the sales of TWINSCAN NXT:1970i and 1980i DUV in China would be less than 1% of total revenue. Again, the Dutch government just requires ASML to obtain an export license before shipments. As such, ASML might or might not be able to sell their 1970i and 1980i to China going forward. I guess it is subject to the geopolitical relationship between the U.S. and China. As analyzed in my previous coverage, I anticipate FY24 will be a transition year for ASML as the semiconductor fabs normalize their manufacturing capacity. As such, I forecast ASML's revenue will decline by 8% in FY24. For the growth from FY25 onwards, I remain optimistic about ASML's growth potential, as the overall semiconductor market will be boosted by AI training/inference, as well as automotive chips and industrial/IoT. In my previous DCF model, I anticipated ASML would deliver 15% organic revenue growth. However, due to the expanded export restriction, I am reducing the normalized organic revenue growth rate to 14% in the current model.  On the margin side, I model 20bps annual margin expansion, driven by 10bps from gross profits due to price increases and 10bps from operating leverage from SG&A costs. As ASML continues to repurchase their own stock, I forecast the total number of shares outstanding will decline by 1% annually. With these assumptions, the DCF and free cash flow from equity (FCFE) can be summarized as follows: ASML DCF The cost of equity is calculated to be 13% assuming: a risk-free rate 3.6%; beta 1.51; equity risk premium 6.5%. Discounting all the FCFE, the one-year target price is calculated to be €810 per share, or $904 in USD. As such, the current stock price has already priced in the expanded export restrictions, according to my DCF model. Key Downside Risk During their Q2 FY24 earnings call, the management indicated their intention to increase capacity next year to meet the growing demands for their high-end EUV products. The company is ramping up their 2-nanometer capacity, as the foundry players plan to adopt 2 nm starting in the second half of 2025. I think it makes sense for ASML to expand their capacity, considering the strong recovery in bookings. Having said that, the capacity increase will put some pressure on their free cash flow growth in the near term, as the company is more likely to increase CAPEX in FY25. Conclusion  I think the current stock price has already priced in the near-term challenges related to the expanded China restrictions. ASML remains a respectable player in the EUV market, benefiting from global semiconductor growth. Therefore, I am buying back my ASML position and upgrading it to a 'Buy' rating with a one-year price target of €810 per share or $904 in USD.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"Policy And Regulatory,analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2469166127"}