Riber: Enabling Electronic Devices Of The Future
Edison | May 29, 2019 02:07AM ET
Riber (BE:RIBE), (PA:RIBE), (SG:RIBE) is the global leader in molecular beam epitaxy (MBE) equipment. This is used by researchers to develop next-generation compound semiconductor materials used in fibre-optic networks, electronic device displays and sensors for autonomous vehicles as well as for commercial material production. Although the company’s revenue profile is lumpy, we believe that demand should be supported by exposure to key structural trends such as demand for faster data, next-generation displays and the proliferation and evolution of sensors to support greater automation and intelligence. The company’s order book points to a recovery in FY19 following a difficult FY18. The shares trade at a substantial discount to Riber’s larger peers who share similar growth drivers.
Key technology for compound semiconductors
MBE is used to deposit the very thin layers of material forming compound semiconductor materials. The technique enables more precise control of deposition and a wider range of elements than the metal oxide chemical vapour deposition (MOCVD) technique. It is therefore widely used in research to develop new materials. Superior control over deposition results in higher yields within a production environment though throughput is less. Riber has the dominant share in both the R&D (65% in 2018) and production (over 90%) segments.
Strong order book underpins growth
While FY18 profitability was affected by several one-off factors, management is confident of a full recovery in FY19. This is based on the strength of the end March order book, with 14 MBE machines already scheduled for delivery during FY19 and FY20 compared with deliveries of seven units in FY18 and five in FY17. Some of these are destined for volume production of fibre-optic chips in Asia and in Europe, which is rising, necessitating more capacity. Others will be used for R&D, where demand for MBE equipment is steady. Riber is engaged in programmes to develop materials for VCSELs, UV LEDs, micro-LEDs and LiDAR. If successful, these could stimulate demand for higher volumes of production equipment from 2022.
Valuation: Trading at a substantial discount to peers
The share price has halved since June 2018, and Riber is now trading at a discount to both peers with respect to all prospective multiples. While some discount for relative capitalisation and low free float is justified, the size of the discount (year one EV/Sales multiple of 0.7x for Riber vs 2.3x for our sample mean) is, in our opinion, unwarranted. This gives scope for share price appreciation as Riber coverts the strong order book into a sustainable profit recovery.
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Business description
Riber designs and produces molecular beam epitaxy systems and evaporator sources and cells for the semiconductor industry. This equipment is essential for the manufacturing of compound semiconductor materials that are used in numerous high-growth applications.
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