Stormy Weather

 

Established in 1951 by Frederick W Kulicke and Albert Soffa; K&S is a provider of semiconductor packaging and electronics assembly equipment and parts. Served segments are: Automotive, consumer, communication, computing and industrial. Major markets are China, Taiwan, United States, Malaysia and Korea. 

The company relocated its corporate headquarter from United States to Singapore in 2010 and is listed in NASDAQ. 

 

Record Year

FYSep18 was a record year for the company. Revenue grew 10% with operating profit increasing 46%. Net profit was lower 55% due to hefty tax recognition of $120M. This was due to repatriation of profit back to U.S. under Trump's corporate tax cut programme. 

 

Merger & Acquisition

EA/APMR (formerly Assembleon) was acquired in Jan15 for $97.4M. In 4QSep17, the company recognised an impairment charge of $35.2M on goodwill.

Liteq a lithography provider for advanced packaging was acquired in Jul17 for Euro 25M. 

Four of five B.U. sales are consolidated. Hence it is difficult to determine how each business units and acquisitions are contributing to the top & bottom lines. 

 

Asset Re-allocation

Since 2016, K&S have been reducing long-lived assets in Singapore and increasing fixed assets  in China. China sales mix have increased from 25% in FYSep14 to 46% in FYSep18. Hence the shift do make strategic sense. Beside reducing time-to-market; it could lower cost as well. 

Note: The substantial increase in fixed asset in United States in FYSep17 was due to deferred income tax. About 2/3 was recognised by FYSep18. 

 

Challenges Ahead

Trade war between U.S. and China have resulted in lower demand from automotive, consumer, enterprise and industrial applications. As a result, revenue in 4QSep18 was lower by 14% and declined further to 26% in 1QDec18.

Macro data indicate that headwind is likely to persist in the near futurre. 

 

Glass half empty or full?

Ironically, while revenue is likely to fall, profitability could increase YoY in FYSep19 due to the hefty tax recognised in FYSep18.