ASML Holding N.V.

ASML Details

ASML Holding N.V. (NASDAQ: ASML) is a leading chip-making equipment manufacturer. It designs and manufactures the lithography machine, an essential component in chip manufacturing. It services various high-end customers, including Intel, which uses its machines to create microchips used in many electronic devices, including smartphones and laptops.

Sale of Technical Glas Division: On April 30, 2021, the company sold the technical glass division of its subsidiary Berliner Glas Group to Glas Trösch Group, a Swiss family-owned company. This division comprised 2 German companies that produce display glass and touch assemblies, which now operate under Glas Trösch’s brand name ‘EuropTec’.

2020-2022 Share Buyback Program: On January 22, 2020, ASML announced a new 2020-2022 share buyback program to repurchase and cancel up to EUR 6 billion of shares. As of July 16, 2021, the company repurchased ~85.7% of the total limit under the program, totaling ~11.56 million shares for an aggregate repurchase value of EUR 5.14 billion.

Q2FY21 Results: ASML reported an increase of 20.88% in net revenue to EUR 4.02 billion in Q2FY21 (ended July 04, 2021) compared to EUR 3.33 billion in Q2FY20 (ended June 28, 2020), attributable to higher demand for its products in all market segments. Gross margin improved by 270 bps YoY to 50.9% in Q2FY21. The impact of the strong performance was reflected in its operating performance, wherein it reported an upside of 36.89% YoY in its income from operations to EUR 1.24 billion in Q2FY21, with a 360 bps improvement in the operating margin. Net income in Q2FY21 was EUR 1.04 billion vs. EUR 751.0 million in Q2FY20. As of July 04, 2021, ASML’s cash balance (including short-term investments) was EUR 5.37 billion, with total debt of EUR 4.62 billion.

Key Risks: ASML generates the majority of its revenue from a limited number of customers. In FY20, its largest customer accounted for 31.4% of its net sales. Hence, the loss of any of its key customers could hurt its financials. In addition, the semiconductor industry is highly volatile. Any downturn in demand could impact ASML’s operations. Furthermore, ASML depends on a limited number of suppliers for its key components. Any lag in the supply of the requisite quantity or unfavorable pricing could distort its operations and affect its overall performance.

Outlook: As of Q2FY21, ASML expects clocking revenue in the range of EUR 5.2 – 5.4 billion in Q3FY21, with a gross margin to the tune of 51% – 52%. It also anticipates incurring R&D and general & administrative expenses of EUR 645 million and EUR 180 million, respectively. For FY21, ASML forecasts achieving 35% YoY growth in net sales, with gross margin ranging between 51% - 52%.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ASML Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ASML’s stock price has increased 28.04% and 94.62% in the past 6 and 9 months, respectively, and is currently trading ahead of its 52-week range of USD 343.25 to USD 723.01. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 62.91. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 631.81. Considering the significant uptick in the stock price, we believe the current share price sufficiently reflects the company’s strong track record and growth potential and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the current price of USD 730.78, up 1.36% as of July 22, 2021, 2.15 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

AMC Entertainment Holdings, Inc.

AMC Details

AMC Entertainment Holdings, Inc. (NYSE: AMC) is the world’s largest theatrical exhibition company. As of July 21, 2021, it owned, operated, or had an interest in ~950 theatres and 10,500 screens worldwide. In Q1FY21, US markets accounted for 92.52% of AMC’s total revenue. As of July 22, 2021, the company’s market capitalization stood at USD 20.46 billion.

Equity Issues: On June 03, 2021, the company completed an at-the-market (ATM) equity program of 11.55 million shares and raised new equity capital of ~USD 587.4 million, at an average price of ~USD 50.85 per share. This offering aims to boost AMC’s balance sheet and provide it the flexibility to overcome current challenges and seize future opportunities.

Earlier, On June 01, 2021, AMC signed an agreement to raise USD 230.5 million via issuance of 8.5 million Class A equity shares (representing less than 1.7% of its issued share capital) to Mudrick Capital Management, LP at a price of approximately USD 27.12 per share. The proceeds from this issue are to be used for new acquisitions, investments in existing infrastructure, and debt reduction.

Q1FY21 Results: AMC reported total revenues of USD 148.3 million for Q1FY21 (ended March 31, 2021), compared to USD 941.5 million in Q1FY20, registering a sharp decline of 84.25% YoY, attributable to an 88.8% decline in attendance primarily due to the COVID-19 pandemic. The impact of the weak topline performance reflected on the operating performance of the company, where AMC reported a negative adjusted EBITDA of USD 294.7 million in Q1FY21 vs. adjusted EBITDA of USD 3.1 million in Q1FY20. In addition, AMC’s average screens operated declined by 24.2% YoY in Q1FY21. Net loss for Q1FY21 was USD 566.9 million in contrast to USD 2.18 billion in Q1FY20.

Key Risks:  AMC operates in the entertainment industry, which suffered a massive hit due to the outbreak of the COVID-19 pandemic. Should this declining trend continue, it will impact the discretionary spending of consumers on entertainment and leisure activities, which could harm the company's financials. In addition, AMC faces competition from other film delivery methods, such as video streaming, Premium video-on-demand (PVOD), syndicated cable, and satellite television. An increase in demand for these alternatives (witnessed during the pandemic) could be detrimental to AMC’s operating performance.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AMC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AMC's stock price has increased 1,149.66% and 1,093.59% in the past 6 and 9 months, respectively, and is currently trading at the mid-point of the 52-week range of USD 1.91 to USD 72.62. The uptick results from the company superseding GameStop Corp. as the Reddit Investors’ new favorite “meme stock”. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 43.09.  We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 31.98. Considering the unprecedented uptick in the stock price, we believe the current share price abundantly reflects the company’s fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 37.24, down 8.69% as of July 22, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

• The reference data in this report has been partly sourced from REFINITIV.

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