[Stock Analysis] RS Technologies (3445)

In this article, I will explain RS Tech (Securities Code: 3445) in detail.

RS Tech is a silicon wafer reclamation company listed on the Tokyo Stock Exchange Prime Market, with a current market capitalization exceeding 180 billion yen.

1. Company Overview

Established in 2010, RS Tech is a semiconductor-related company that boasts the world's top market share in the silicon wafer reclamation market.

Its core business involves receiving used wafers from semiconductor manufacturers (major clients include TSMC, etc.) and cleaning and reclaiming them.

In recent years, the company has also been focusing on the manufacturing and sales of new 'prime silicon wafers' through joint ventures with Chinese government-affiliated companies and the acquisition of local manufacturers.

Furthermore, it is pursuing diversified global expansion, including the sale of consumable parts for semiconductor manufacturing equipment and acting as an overseas sales agent for Hitachi and Sharp products.

2. Shareholder Composition

According to the latest securities report, RS Tech is a company with a strong owner-management presence, as over 40% of its shares are held by the Representative Director and President, Mr. Fang Yongyi, and his investment company, 'R. S. TECH HONG KONG LIMITED'.

3. Shareholder Return Policy

Based on the fundamental policy of 'continuing stable dividends while considering future business development and the strengthening of the financial structure,' RS Tech conducts a year-end dividend once per fiscal year.

For this fiscal year, the company forecasts an annual dividend of 55 yen (year-end lump sum), and the current dividend yield is approximately 0.8%. Note that the record date is once a year in December.

4. Final Brief Company Analysis

Performance maintains a long-term growth trend

While RS Tech's performance has experienced temporary stagnation due to the silicon cycle inherent to the semiconductor industry, it has maintained a growth trend over the long term.

The core wafer reclamation business is steadily expanding its scale due to the growth in semiconductor demand and the accompanying increase in production capacity.

Normally, about 20% of the wafers input into a semiconductor manufacturing line consist of 'test wafers' (used for monitoring the finish of each process or as dummy wafers to stabilize equipment).

These test wafers often use recycled wafers, which are cheaper than brand-new prime wafers.

Through its high technical capabilities, the company provides significant cost benefits to customers by increasing the 'reusability count' of recycled wafers compared to its competitors.

This serves as the driving force behind the company securing approximately one-third of the global market share (the top share) in the recycled wafer market.

Stock price has more than doubled in a year

RS Tech's stock price has more than doubled over the past year.

Against the backdrop of the global expansion in demand for semiconductors for generative AI, the company, which holds the world's top share in recycled wafers—essential for the semiconductor manufacturing process—is considered to be in an environment where investor capital is easily concentrated as a 'stock that directly benefits from the expansion of the semiconductor market.'

Financial position is rock-solid with virtually no debt

Regarding RS Tech's financial position, equity ratioat 39.1% may appear low, but this is due to the capital structure (the size of non-controlling interests) associated with its joint venture and listing strategy centered in China. As indicated by the net D/E ratioat -91.5% showing a significant negative, the reality is a very sound and robust financial position supported by abundant cash on hand.

Sound cash flow management

RS Tech's cash flow (CF) shows operating CF steadily expanding in line with the growth of its core business, establishing an ideal cycle where the cash generated is used for capital investment for growth and the repayment of interest-bearing debt.

Dividends are back on an increasing trend

Although RS Tech was forced to cut dividends for the fiscal year ending December 2022, which coincided with a temporary period of sluggish performance, it has since strengthened shareholder returns again in line with the recovery and growth of its business performance.

The company has shifted to a clear dividend-increase trend, planning a dividend increase for the fourth consecutive term this fiscal year.

Achieving both continuous growth in the semiconductor industry and resilience to economic fluctuations

While RS Tech can enjoy the long-term growth of the semiconductor industry accompanying the spread of generative AI, it also possesses high resilience to economic fluctuations.

Its core recycled wafer business has the strength of being less susceptible to the negative effects of the silicon cycle compared to other semiconductor-related companies, as usage tends to increase during recessions when customers (semiconductor manufacturers) become more cost-conscious.

Moving forward, the company has set a goal to increase its current global market share of 33% to over 40% by leveraging production capacity expansion and M&A.

In recent years, due to the generative AI boom, it is not uncommon for semiconductor stocks to have a P/E ratio exceeding 50x. Amidst this, the company's forecasted P/E ratio remains below the 20x level.

Although the stock price itself is in a high range, there is no sense of overheating in its valuation because it is accompanied by steady earnings growth.

If the company can continue its earnings growth at this pace, it can be said to be an extremely attractive stock where one can fully expect to capture both capital gains and income gains.

*This article is not intended to solicit investment in securities, nor does it provide any guarantees or promises. Please make investment decisions based on your own judgment.