Value Investing Best Deep Value Play: Magnachip Semiconductor MX - $280MM Net Cash, Owner of a $250MM Semi Fab and Sells Chips for OLED/5G Phones

Best Deep Value Play: Magnachip Semiconductor MX - $280MM Net Cash, Owner of a $250MM Semi Fab and Sells Chips for OLED/5G Phones
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Best Deep Value Play: Magnachip Semiconductor MX - $280MM Net Cash, Owner of a $250MM Semi Fab and Sells Chips for OLED/5G Phones

Posted: 04 Mar 2021 07:11 PM PST

AND the company recently is rumored to be for sale

About

MX is a semiconductor company that makes Display Driver Integrated Circuits (DDIC). "DDIC chips are a core device for switching and displaying control functions needed by displays".
Magnachip is the #1 independent global DDIC manufacturer (33% market share) in the world and provides solutions for phones, TV's, automobile screens (regular + EV), VR, and more. They supply to companies like Samsung or LG who controls 95% of the OLED display market. - source

Currently MX stock is at $21 a share with $6 net cash on balance sheet (that's right, 1/3 of market cap is in cash). MX also owns a 8" or 200 mm (diameter) wafer manufacturing plant that produces 30k wafers per month, soon to be in the 45-50k wpm range.

This is one of the hottest assets as there is a global shortage of 200mm manufacturing space. Global semiconductor shortage spurs run on vintage chipmaking tools

" The demand has been supercharged by a combination of the COVID-19-driven boom in computer gear and unexpected strength in auto sales that resulted in shortages. "
"A real capacity increase would take nine to 12 months, minimum."
Used equipment prices have gone up by as much as 20% over the past six months, while the number of refurbished 200mm tools fell to 1,000, down from between 7,000 to 8,000 a decade ago.
"You just can't go out on the open market and buy a used 200-millimeter tool - they're just not readily available"
Demand for old tools is so robust that buyers are looking at every kind of factory.

Enter MX with its Fab 3 8". Comparable transactions are listed here and values MX's foundry at >$250mm.

The business of producing OLED devices and power integrated circuits also generates $60-65mm of EVITDA in 2021 given the sharp growth profile.

For Sale: " A source from the investment banking industry said many foreign firms – mostly U.S. and Chinese capital - have already expressed their interest and set up meetings with local securities and accounting firms to ready due diligence "

At an EV/EBITDA multiple of 15x would imply an equity value of $1.3 billion, up from its current market cap of ~800mm. There is also downside protection from its $280mm in cash and >$250mm in foundry assets that don't appear on its PP&E given heavily depreciated. (and before any business earnings).

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