AT&S: strong underlying business development (Buy conf.)

– Buy confirmed, target price up to EUR 10.9: Reflecting AT&S’ business development, we had to mainly increase our margin assumptions for the coming years. We now arrive at a target price of EUR 10.9 (up from EUR 9.2) and confirm our Buy recommendation.

– 3Q14 gross profitability surprised us on the positive side (at 22.2%, an all-time high). When adjusting for the write-off related to the Alivh machinery (EUR 5.2mn), the EBIT margin was at 12%. 

– Confirmed FY14 guidance leaves room for upside: Although the March quarter marks the off-season (the weakest of the year), it should still contribute positively. We expect FY14 to grow 6.7% on the top line (guidance: +5%) at an EBITDA of 21% (guidance: 18-20%). This implies a normal seasonality in 4Q14, with revenues at EUR 127mn, an EBITDA margin at 16.5% and a slightly positive bottom line.

– 2015ff profitability expectations increased: As the improved utilization and increasing share of automotive demand in the high-end (HDI) segment provides stability to the results, we believe that AT&S could keep EBITDA margins between 18% and 20%. 

– Chongqing to add value: With the production of IC-substrates approaching, we expect its value to be gradually reflected in the share price. With Chongqing in place, AT&S should be able to earn its cost of capital (ROCE >10%). 

– Biggest risk – launch schedule of Apple: With an estimated revenue share of 25-30% from Apple, a delay of mass products would harm AT&S’ results.