Author Topic: KLIC - Kulicke and Soffa Industries  (Read 11567 times)

mikazo

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KLIC - Kulicke and Soffa Industries
« on: January 19, 2013, 03:40:36 PM »
I was researching this company today and thought I'd post some point form notes on my findings and see if anyone else has had their eye on the same company.

This company makes wire bonding tools used to package integrated circuits and sells them to semiconductor manufacturers. The majority of their revenue comes from outside the US, mainly in Asia. They currently have a P/E of 5.94

  • Manages R&D costs and keeps them around 17% of gross profit annually
  • Improving SG&A over the past three years (as percentage of gross profit)
  • $440M in cash, eliminated all long-term debt in 2012
  • Return on assets around 20% in past three years, return on equity around 24% in past three years
  • Uptrend in owner earnings ($171M for 2012)
  • Doesn't pay a dividend, hasn't been buying back shares, so all owner earnings are being re-invested in the business
  • "ROIC-centric organization driven towards ongoing operational efficieny" - KLIC investor presentation
  • Large and increasing market share in the wire bonder equipment market
  • Revenues are cyclical but still positive in down-turns
  • CEO and directors have all been selling shares throughout 2008 to present, not sure why yet
  • CEO hasn't been granted a base salary increase since starting in 2010, good performance was rewarded with performance-based compensation
  • Company improved operating profits by 20% in 2012 with a new corporate-wide cost savings initiative
  • Cash-based performance incentives are based on ROIC
  • ROIC from 20% up to 107% in each quarter of 2012
  • CEO base salary equivalent of $615,000 USD
  • Executive officers do not generally receive perquisites
  • CEO cannot be Chairman of the Board at the same time - so that he can focus more on company operating matters

Any thoughts or additional research?


Palantir

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Re: KLIC - Kulicke and Soffa Industries
« Reply #1 on: January 19, 2013, 05:34:35 PM »
My opinion after a quick glance is "too good to be true". Almost half of their MCap is in cash. and they're generating ridiculous FCFE. What's the catch? Are revenues expected to implode?
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ECCO

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Re: KLIC - Kulicke and Soffa Industries
« Reply #2 on: January 19, 2013, 06:06:05 PM »
I was researching this company today and thought I'd post some point form notes on my findings and see if anyone else has had their eye on the same company.

This company makes wire bonding tools used to package integrated circuits and sells them to semiconductor manufacturers. The majority of their revenue comes from outside the US, mainly in Asia. They currently have a P/E of 5.94

  • Manages R&D costs and keeps them around 17% of gross profit annually
  • Improving SG&A over the past three years (as percentage of gross profit)
  • $440M in cash, eliminated all long-term debt in 2012
  • Return on assets around 20% in past three years, return on equity around 24% in past three years
  • Uptrend in owner earnings ($171M for 2012)
  • Doesn't pay a dividend, hasn't been buying back shares, so all owner earnings are being re-invested in the business
  • "ROIC-centric organization driven towards ongoing operational efficieny" - KLIC investor presentation
  • Large and increasing market share in the wire bonder equipment market
  • Revenues are cyclical but still positive in down-turns
  • CEO and directors have all been selling shares throughout 2008 to present, not sure why yet
  • CEO hasn't been granted a base salary increase since starting in 2010, good performance was rewarded with performance-based compensation
  • Company improved operating profits by 20% in 2012 with a new corporate-wide cost savings initiative
  • Cash-based performance incentives are based on ROIC
  • ROIC from 20% up to 107% in each quarter of 2012
  • CEO base salary equivalent of $615,000 USD
  • Executive officers do not generally receive perquisites
  • CEO cannot be Chairman of the Board at the same time - so that he can focus more on company operating matters

Any thoughts or additional research?

Another chinese fraud? Yes it seems too good to be true.

Even Caterpillar had to write off 580 millions $ for a chinese company they purchase last summer. How can we trust any of these company making business in China? Management selling stock of that "too good to be true company" mean a lot to me.

Packer16

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Re: KLIC - Kulicke and Soffa Industries
« Reply #3 on: January 19, 2013, 06:08:52 PM »
The company is in a cyclical business (semi cap equipment) and is taking advantage of a transition to copper interconnects versus gold.  The competitors are behind in this generation of equipment but at some point they will catch up.  This transition will take a few more years with about 33% penetration rates at this point.  I think the question is what is next?  KLIC has no advantage in the next gen flip chip technology but how much of an advantage do you need when you are selling at 2.5x EBITDA and 3.1x FCF?  I think the price more than offsets the technology future issues.  Similar to WDC and Seagate.  This is a well known US based firm so I think the risk of fraud is low.

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« Last Edit: January 19, 2013, 06:14:48 PM by Packer16 »

mikazo

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Re: KLIC - Kulicke and Soffa Industries
« Reply #4 on: January 19, 2013, 06:21:16 PM »
This is a well known US based firm so I think the risk of fraud is low.

This was my thinking as well. I thought about looking into their competitors, but would rather buy a company that is listed on the NASDAQ and is subjected to SEC rules. Their headquarters are in Singapore though. It makes sense that most of their revenue comes from the Asia region, since a lot of semiconductor manufacturing happens there.

I sent an email to KLIC investor relations asking about the insider selling, not sure what kind of response I'll get though.

What other sort of red flags should be looked for if you're trying to prove or disprove a fraud company?
« Last Edit: January 19, 2013, 06:24:27 PM by mikazo »

LC

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Re: KLIC - Kulicke and Soffa Industries
« Reply #5 on: January 19, 2013, 06:45:45 PM »
This is a well known US based firm so I think the risk of fraud is low.

This was my thinking as well. I thought about looking into their competitors, but would rather buy a company that is listed on the NASDAQ and is subjected to SEC rules. Their headquarters are in Singapore though. It makes sense that most of their revenue comes from the Asia region, since a lot of semiconductor manufacturing happens there.

I sent an email to KLIC investor relations asking about the insider selling, not sure what kind of response I'll get though.

What other sort of red flags should be looked for if you're trying to prove or disprove a fraud company?
Accounting changes/oddities, any lawsuits they may be involved in, past history of management & major shareholders.
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mcliu

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Re: KLIC - Kulicke and Soffa Industries
« Reply #6 on: January 19, 2013, 07:59:21 PM »
Audited by PWC which is a good sign.. (Although after Sino-Forest, who knows..)

siddharth18

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« Last Edit: January 20, 2013, 01:38:10 AM by siddharth18 »

onyx1

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Re: KLIC - Kulicke and Soffa Industries
« Reply #8 on: January 20, 2013, 05:19:37 AM »
I spent a little time on this last week.  Some negatives for me were Singapore domicile, dependent somewhat on the price of gold, lack of meaningful insider ownership and no history (or announcement) of return of cash to shareholders.  In fact despite holding a boat load of cash, sharecount in up 8% since 2009.
 
Bull case VIC writeup is here:
http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/82907
 

mikazo

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Re: KLIC - Kulicke and Soffa Industries
« Reply #9 on: January 20, 2013, 10:56:45 AM »
Thanks for the additional insights.

Found a video of Bruno Guilmart on CNBC: http://video.cnbc.com/gallery/?video=3000090268