Company Overview: Vishay Intertechnology, Inc. (NYSE: VSH) is a Fortune 1,000 Company focused on manufacturing discrete semiconductors and passive electronic components for innovative designs in the automotive, industrial, computing, consumer, telecommunications, military, aerospace, and medical industries worldwide.

VSH Details

Key Takeaways for Q1FY21 (ended April 03, 2021)

• Significant Growth in Total Revenue: In Q1FY21, the company’s revenue was USD 764.63 million, representing a 24.77% increase YoY and 14.61% QoQ. The company stated that it witnessed the continuation and acceleration of a significant upturn in its business operations that commenced in October 2020.
• All-Time High Quarterly Orders and Backlog: End-of-period backlog for Q1FY21 was USD 1.73 billion vs. USD 1.01 billion in Q1FY20, a 72.22% increase on pcp. The book-to-bill ratio for Q1FY21 was 1.67x vs. 1.17x for Q1FY20. The receipt of increased orders facilitated these during the quarter.
• Improved Sales from Distribution to End Customers: During the quarter, VSH’s end customer distributions also increased 21% QoQ, and its product inventories were reduced by USD 34 million. It stated that its supply chains also declined.

New Product Launches: Post Q1FY21, the company launched various new models for its products. Most recently, on August 02, 2021, it launched the first-ever composite commercial inductor in the 19*19*7 cubic mm 7575 case size (named Vishay Dale IHLP-7575GZ-51). This new inductor offers high-temperature operations (over 155°C) for computer, telecom, and industrial applications.

Previously, on June 28, 2021, VSH launched a new series of HI-TMP surface-mount wet tantalum capacitors. These have +200°C operating temperatures in the compact C case code, include improved thermal shock capability to 300 cycles and life of 2,000 hours.

Segment Wise Revenue Distribution: The company generates revenue from six primary segments, i.e., MOSFETs (metal-oxide-semiconductor field-effect transistor), Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.

• MOSFETs: Revenue for Q1FY21 amounted to USD 153.22 million, up 31.08% YoY, owing to higher sales generated from distributor customers in Q1FY21 and the impact of COVID-19 related temporary closure of the company’s primary manufacturing facility in China during Q1FY20.
• Diodes: This segment generated USD 157.18 million in revenues in Q1FY21, vs. USD 115.34 million in Q1FY20, resulting from the increase in sales volume and decrease in average selling prices.
• Optoelectronic Components: Revenue was up 43.54% YoY to USD 77.77 million during Q1FY21. Total units sold during the period were 4.1 billion sticks equivalent. The increase in sales volume and cost reduction measures was partially offset by cost inflation and increased metal prices.
• Resistors: This segment generated USD 186.60 million in revenues in Q1FY21, up 17.21% from Q1FY20, resulting from higher sales to distributor customers and customers in the automotive end market, primarily in Asia.

Segment-Wise Performance; Analysis by Kalkine Group

Other Key Findings in Q1FY21

• During the period, 42.17% of the total revenue was generated from Asia, and Europe and Americas regions accounted for 35.09% and 22.74% of the total revenue, respectively.
• Based on customer type, sales to distributors represented 55.47% of the total revenue, while revenue from OEMs represented 38.53%, and the remaining revenue was generated from EMS companies.
• For Q1FY21, operating income was USD 97.26 million, up 105.16% YoY. The operating margin for the period was 12.7%.
• Net earnings for Q1FY21 were USD 71.64 million, compared to USD 27.38 million in Q1FY20. This represents diluted earnings per share of USD 0.49.

Balance Sheet & Liquidity Position

• Robust Cash Balance: The company exited Q1FY21 with a cash balance (including short-term investments) of USD 781.20 million, slightly more than USD 778.35 million at the end of FY20.
• Cashflow from Operations: Operating cash inflow in Q1FY21 was USD 57.32 million vs. USD 34.48 million in Q1FY20. Free cash generation during the quarter amounted to USD 29.0 million.
• Increasing Debt: VSH’s total debt amounted to USD 453.21 million at Q1FY21 end, increasing from USD 394.89 million as of December 31, 2020.

Key Metrics: In Q1FY21, the EBITDA margin was 18.2%, higher than the Q1FY20 figure of 15.1%. Operating and net margins stood at 12.7% and 9.4%, higher than the industry median of 7.7% and 4.6%, respectively. Debt/Equity of the company was 0.29x as of April 03, 2021, vs. 0.38x as of April 04, 2020.

Growth and Profitability Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 50.99% of the total shareholding, while the top 4 constitute the maximum holding. BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. hold the maximum stake in the company at 10.82% and 9.43%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

• Cyclical Industry: The company operates in a highly cyclical electronic component industry, which is susceptible to unpredictable declines and downturns from time to time.
• Limited Suppliers: Most of the raw materials that VSH uses are produced by limited suppliers across the globe. Hence, the company’s results of operations may be affected if it faces any issues in obtaining these raw materials in required quantities, if their quality is not up to standard, or if the suppliers increase their prices.
• Stiff Competition: The company faces intensive competition globally because of low transportation costs and very few import barriers. There also have been significant acquisitions of VSH's primary competitors by large companies in recent years, and most of these acquiring companies have more financial resources and higher technological capabilities than VSH.
• Concentrated Customer Group: VSH’s customer group has become more concentrated over the years, the impact of which is higher buying power and greater influence over pricing and terms. This poses a threat of decreasing average selling prices.

Outlook

• Compared to the last decade, the company anticipates that it will experience higher growth rates over the next few years, based on improvements in electrification (including factory automation, electric vehicles, 5G infrastructure, etc.).
• To facilitate and benefit from the increasing global electrification, VSH plans to increase its capital expenditures in the mid-term for expansion activities. As a result, around USD 225 million is expected to be incurred in that respect in FY21.
• In the short-term, revenue for Q2FY21 is expected to be in the range of USD 790 to USD 830 million, and the gross margin is estimated to be 27.3% (+/- 60 bps at Q1FY21 exchange rates).

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, VSH has corrected ~9.17%. The stock is currently close to the mid-point of its 52-weeks trading range of USD 14.84 to USD 26.50. We have valued the stock using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of high teens (in percentage terms). We believe that the company can trade at a discount compared to its peer’s average, considering the risks involved with supplier concentration, negotiating power of customer group, stiff competition from peers, and industry cyclicality. We have taken peers such as Arrow Electronics, Inc. (NYSE: ARW) and Celestica Inc. (NYSE: CLS). Considering the significant top and bottom-line growth, continuous product launches, encouraging outlook, and current valuation, we give a “Buy” recommendation on the stock at the closing price of USD 21.88, down ~1.13% as of August 02, 2021.

VSH Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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