Intrinsic value of Kulicke&Soffa Industries - KLIC

Previous Close

$24.99

  Intrinsic Value

$38.49

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  Rating & Target

str. buy

+54%

Previous close

$24.99

 
Intrinsic value

$38.49

 
Up/down potential

+54%

 
Rating

str. buy

We calculate the intrinsic value of KLIC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  892
  978
  1,068
  1,162
  1,260
  1,361
  1,467
  1,577
  1,691
  1,809
  1,933
  2,061
  2,194
  2,333
  2,477
  2,628
  2,784
  2,948
  3,118
  3,296
  3,482
  3,676
  3,878
  4,090
  4,311
  4,543
  4,785
  5,039
  5,305
  5,583
Variable operating expenses, $m
  593
  650
  709
  770
  834
  900
  969
  1,040
  1,115
  1,192
  1,261
  1,344
  1,431
  1,522
  1,616
  1,714
  1,816
  1,923
  2,034
  2,150
  2,271
  2,398
  2,530
  2,668
  2,812
  2,964
  3,122
  3,287
  3,461
  3,642
Fixed operating expenses, $m
  164
  167
  171
  175
  178
  182
  186
  190
  195
  199
  203
  208
  212
  217
  222
  227
  232
  237
  242
  247
  253
  258
  264
  270
  276
  282
  288
  294
  301
  307
Total operating expenses, $m
  757
  817
  880
  945
  1,012
  1,082
  1,155
  1,230
  1,310
  1,391
  1,464
  1,552
  1,643
  1,739
  1,838
  1,941
  2,048
  2,160
  2,276
  2,397
  2,524
  2,656
  2,794
  2,938
  3,088
  3,246
  3,410
  3,581
  3,762
  3,949
Operating income, $m
  135
  161
  189
  218
  248
  279
  312
  346
  381
  418
  469
  509
  551
  594
  640
  687
  736
  788
  842
  899
  958
  1,020
  1,084
  1,152
  1,223
  1,298
  1,376
  1,458
  1,544
  1,634
EBITDA, $m
  158
  186
  215
  245
  276
  309
  343
  379
  416
  454
  494
  536
  580
  625
  672
  722
  773
  827
  884
  942
  1,004
  1,068
  1,136
  1,206
  1,280
  1,358
  1,439
  1,525
  1,614
  1,708
Interest expense (income), $m
  1
  1
  3
  4
  6
  8
  10
  12
  14
  16
  19
  21
  24
  26
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  72
  76
  81
  86
  92
Earnings before tax, $m
  134
  158
  184
  211
  240
  269
  300
  332
  365
  400
  447
  485
  524
  565
  608
  652
  699
  747
  798
  851
  907
  965
  1,026
  1,089
  1,156
  1,226
  1,300
  1,377
  1,457
  1,542
Tax expense, $m
  36
  43
  50
  57
  65
  73
  81
  90
  99
  108
  121
  131
  142
  153
  164
  176
  189
  202
  215
  230
  245
  260
  277
  294
  312
  331
  351
  372
  393
  416
Net income, $m
  97
  116
  134
  154
  175
  196
  219
  242
  266
  292
  327
  354
  383
  413
  444
  476
  510
  546
  583
  621
  662
  704
  749
  795
  844
  895
  949
  1,005
  1,064
  1,126

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  832
  913
  997
  1,085
  1,176
  1,271
  1,370
  1,472
  1,579
  1,689
  1,805
  1,924
  2,049
  2,178
  2,313
  2,454
  2,600
  2,752
  2,911
  3,078
  3,251
  3,432
  3,621
  3,819
  4,026
  4,242
  4,468
  4,705
  4,953
  5,213
Adjusted assets (=assets-cash), $m
  832
  913
  997
  1,085
  1,176
  1,271
  1,370
  1,472
  1,579
  1,689
  1,805
  1,924
  2,049
  2,178
  2,313
  2,454
  2,600
  2,752
  2,911
  3,078
  3,251
  3,432
  3,621
  3,819
  4,026
  4,242
  4,468
  4,705
  4,953
  5,213
Revenue / Adjusted assets
  1.072
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
  1.071
Average production assets, $m
  134
  147
  160
  174
  189
  204
  220
  237
  254
  271
  290
  309
  329
  350
  372
  394
  418
  442
  468
  494
  522
  551
  582
  613
  647
  681
  718
  756
  796
  837
Working capital, $m
  167
  183
  200
  217
  236
  255
  274
  295
  316
  338
  361
  385
  410
  436
  463
  491
  521
  551
  583
  616
  651
  687
  725
  765
  806
  850
  895
  942
  992
  1,044
Total debt, $m
  41
  68
  96
  125
  155
  187
  220
  254
  289
  326
  364
  404
  445
  488
  533
  580
  628
  679
  732
  787
  844
  904
  967
  1,033
  1,101
  1,173
  1,248
  1,327
  1,409
  1,496
Total liabilities, $m
  276
  303
  331
  360
  390
  422
  455
  489
  524
  561
  599
  639
  680
  723
  768
  815
  863
  914
  967
  1,022
  1,079
  1,139
  1,202
  1,268
  1,336
  1,408
  1,483
  1,562
  1,644
  1,731
Total equity, $m
  556
  610
  666
  725
  786
  849
  915
  983
  1,055
  1,129
  1,205
  1,285
  1,369
  1,455
  1,545
  1,639
  1,737
  1,839
  1,945
  2,056
  2,172
  2,292
  2,419
  2,551
  2,689
  2,834
  2,985
  3,143
  3,309
  3,482
Total liabilities and equity, $m
  832
  913
  997
  1,085
  1,176
  1,271
  1,370
  1,472
  1,579
  1,690
  1,804
  1,924
  2,049
  2,178
  2,313
  2,454
  2,600
  2,753
  2,912
  3,078
  3,251
  3,431
  3,621
  3,819
  4,025
  4,242
  4,468
  4,705
  4,953
  5,213
Debt-to-equity ratio
  0.070
  0.110
  0.140
  0.170
  0.200
  0.220
  0.240
  0.260
  0.270
  0.290
  0.300
  0.310
  0.330
  0.340
  0.340
  0.350
  0.360
  0.370
  0.380
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
Adjusted equity ratio
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  97
  116
  134
  154
  175
  196
  219
  242
  266
  292
  327
  354
  383
  413
  444
  476
  510
  546
  583
  621
  662
  704
  749
  795
  844
  895
  949
  1,005
  1,064
  1,126
Depreciation, amort., depletion, $m
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  64
  67
  70
  74
Funds from operations, $m
  121
  140
  161
  182
  203
  226
  250
  275
  301
  328
  352
  381
  412
  444
  477
  511
  547
  585
  624
  665
  708
  753
  800
  849
  901
  955
  1,012
  1,072
  1,134
  1,200
Change in working capital, $m
  15
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
Cash from operations, $m
  106
  124
  144
  164
  185
  207
  230
  254
  279
  305
  329
  358
  387
  418
  450
  483
  518
  554
  592
  632
  673
  717
  762
  810
  860
  912
  967
  1,024
  1,085
  1,148
Maintenance CAPEX, $m
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -64
  -67
  -70
New CAPEX, $m
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
Cash from investing activities, $m
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -35
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -96
  -102
  -107
  -112
Free cash flow, $m
  83
  99
  117
  136
  155
  175
  196
  218
  241
  265
  287
  313
  340
  368
  397
  427
  459
  493
  527
  564
  602
  641
  683
  727
  772
  820
  870
  923
  978
  1,036
Issuance/(repayment) of debt, $m
  25
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  75
  79
  82
  86
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  25
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  75
  79
  82
  86
Total cash flow (excl. dividends), $m
  108
  126
  145
  165
  185
  207
  229
  252
  277
  302
  325
  352
  381
  411
  442
  474
  508
  543
  580
  619
  659
  702
  746
  792
  841
  892
  945
  1,001
  1,060
  1,122
Retained Cash Flow (-), $m
  -52
  -54
  -56
  -59
  -61
  -63
  -66
  -69
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -102
  -106
  -111
  -116
  -121
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -174
Prev. year cash balance distribution, $m
  416
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  472
  72
  89
  106
  124
  143
  163
  184
  205
  228
  248
  272
  298
  324
  352
  380
  410
  441
  474
  508
  543
  581
  620
  660
  703
  747
  794
  843
  894
  948
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  453
  66
  77
  87
  96
  104
  110
  115
  118
  119
  118
  116
  113
  109
  103
  97
  89
  81
  73
  65
  56
  48
  41
  34
  27
  22
  17
  13
  10
  7
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Kulicke and Soffa Industries, Inc. designs, manufactures and sells capital equipment and expendable tools, as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company supplies a range of bonding equipment. The Company operates through two segments: Equipment and Expendable Tools. The Equipment segment manufactures and sells a line of ball bonders, wedge bonders, advanced packaging and surface mount technology solutions. The Expendable Tools segment manufactures and sells expendable tools for a range of semiconductor packaging applications. It offers capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits, high and low powered discrete devices, light-emitting diodes and power modules. Its customers primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers, other electronics manufacturers and automotive electronics suppliers.

FINANCIAL RATIOS  of  Kulicke&Soffa Industries (KLIC)

Valuation Ratios
P/E Ratio 15.7
Price to Sales 2.2
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 12.9
Price to Free Cash Flow 15.9
Growth Rates
Sales Growth Rate 29%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 333.3%
Cap. Spend. - 3 Yr. Gr. Rate 21.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 1.8%
Total Debt to Equity 1.8%
Interest Coverage 105
Management Effectiveness
Return On Assets 10.5%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 12.8%
Ret/ On T. Cap. - 3 Yr. Avg. 8.3%
Return On Equity 13%
Return On Equity - 3 Yr. Avg. 8.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 46.4%
Gross Margin - 3 Yr. Avg. 46.8%
EBITDA Margin 15%
EBITDA Margin - 3 Yr. Avg. 12.4%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 9.1%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 9.6%
Net Profit Margin 13.8%
Net Profit Margin - 3 Yr. Avg. 10.3%
Effective Tax Rate -7.7%
Eff/ Tax Rate - 3 Yr. Avg. -9.1%
Payout Ratio 0%

KLIC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KLIC stock intrinsic value calculation we used $809.041 million for the last fiscal year's total revenue generated by Kulicke&Soffa Industries. The default revenue input number comes from 0001 income statement of Kulicke&Soffa Industries. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KLIC stock valuation model: a) initial revenue growth rate of 10.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for KLIC is calculated based on our internal credit rating of Kulicke&Soffa Industries, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Kulicke&Soffa Industries.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KLIC stock the variable cost ratio is equal to 66.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $160 million in the base year in the intrinsic value calculation for KLIC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.5% for Kulicke&Soffa Industries.

Corporate tax rate of 27% is the nominal tax rate for Kulicke&Soffa Industries. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KLIC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KLIC are equal to 15%.

Life of production assets of 11.3 years is the average useful life of capital assets used in Kulicke&Soffa Industries operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KLIC is equal to 18.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $920.03 million for Kulicke&Soffa Industries - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 67.572 million for Kulicke&Soffa Industries is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Kulicke&Soffa Industries at the current share price and the inputted number of shares is $1.7 billion.

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COMPANY NEWS

▶ Kulicke & Soffa to Participate at SEMICON Taiwan 2018   [Aug-31-18 09:05AM  Business Wire]
▶ New Strong Buy Stocks for August 6th   [Aug-06-18 10:07AM  Zacks]
▶ Unloved Fitbit Watches Shares Slide Despite Beat   [Aug-03-18 11:00AM  TheStreet.com]
▶ Kulicke and Soffa: Fiscal 3Q Earnings Snapshot   [05:14PM  Associated Press]
▶ 3 Top Growth Stocks to Buy in July   [Jul-11-18 08:30AM  Motley Fool]
▶ 2 Cash-Rich Small-Caps to Check Out   [11:00AM  TheStreet.com]

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