Report

VAT pretty much confirmed its preliminary figures for FY-22, thus the focus of analysts as well as investors could be on the outlook for 2023 instead. Order intake in Q4 dropped by 20.2% vs. the previous quarter and by 42.7% versus the previous year to CHF 249m. For the full year order intake also fell but less severe by 1.5% to CHF 1.2bn, due to a stronger H1-22. As a result, the book-to-bill ratio deteriorated again in Q4 to just 0.86x. Demand slowed significantly towards the end of the year as semiconductor investments dropped and restrictions on exports to China still hampered the business. Order intake was weaker than consensus estimates, especially for Q4-22. However, consensus estimates are from January 2023. Revenue in Q4 went up by 13.9% to CHF 291m yoy, but was 4.8% lower than in Q3-22. Revenue for the full year went up by 27.1 to over 1.1bn. Revenue was pretty much in line with estimates. As profitability also increased, the bottom-line grew disproportionally. The EBITDA margin went up by 0.8pp to 35.0%, resulting in EBITDA of around CHF 400m, an increase of 27.1% in FY-22. EBITDA for the full year was 3% above consensus estimates. Net income grew even more strongly by 41.1% to CHF 307m. EPS for the year was CHF 10.23, also an increase of 41.1%. Free cash flow increased by 16.6% to CHF 228m. EPS was 3% above expectations. Based on these strong results the board will propose a dividend per share of CHF 6.25, up from CHF 5.50. 

Order intake in the Valves segment dropped by 48.2% yoy to just 194.7m and was 20.2% weaker than in Q3. The lower Q4 order intake drove the FY-22 order intake growth down to negative 5.6%, resulting in order intake of CHF 971m. Semiconductors as well as Display & Solar contributed to the negative development. The former fell by 57.0% and the latter by 48.7% in Q4, while for the full year Display & Solar also had decreased intake in the double digits. At least Advanced Industrials had positive order momentum of 11.4% in Q4 yoy and 7.5% for FY-22. Segment revenue went up by 13.9% to CHF 257.8m in Q4 yoy, while it dropped versus the previous quarter Q3-22 by 5.6%, reflecting the weaker business development in H2.  For the full year revenue was up by 27.9% to CHF 933m. Semiconductors had the biggest yoy growth of 20.9% in Q4, while qoq growth was actually negative for all three product groups. For the full year growth was positive across all three. The segment EBITDA for the full year went up by 31.4% to CHF 355m, while the margin improved by 1.2pp. From 2023 onwards the Display & Solar business will be dissolved, moving the display part to Semiconductors and solar to Advanced Industrials. Order intake in the Global Service segment fell by 7.6% yoy to CHF 54.5m and by 19.9% from Q3-22. Order intake was down as customers adjusted their service-related inventory in Q4. For the full year order intake went up by 20.0% to CHF 239m. Sales went up by 15% in Q4 to CHF 57m, an increase of 5.3% qoq. FY-22 revenue went up by 23.7% to CHF 213m. As margins were quite stable, going up by 0.1pp to 45.4%, EBITDA went up by 24.2% to 96.6m.

The company expects 2023 to be rather moderated, especially for the new equipment business, as the company expects rather robust demand from its service business. As a result, VAT expects lower sales, EBITDA and EBITDA margin, net income and free cash flow. For Q1 sales are expected to be between CHF 210m to 230m, a decrease of 14% to 20% versus Q1-22.

Valuation

VAT Group currently trades at a 36.4x PE 23E, which is below its 5-year historical average of around 37.2x, but above the MSCI Switzerland Industrials Index (22.5x). On an EV/EBITDA level VAT trades at 23.3x, below its 5-year average of 25.1x and above the MSCI Switzerland Industrials (13.2x).

Conclusion

The 2022 results should not come to anyone's surprise, as they were pretty much as expected after the release of preliminary data. More importantly, the outlook for 2023 was rather conservative. Yet we still believe that VAT is more well positioned than other semiconductor equipment manufacturers, due to its more diverse customer base, inculding non semiconductor segments, and the higher share of services. In addition, we expect the company to return to growth the following year again and until then VAT should be well-equipped to whether a potentially weaker 2023. Thus, we reiterate our buy recommendation. 

Management Outlook

Q1 2023: Revenue of CHF 210m to CHF 230m.

2023: Lower revenue, EBITDA, EBIT, net income and free cash flow than in 2022.