Chia chia hu evangelos kalogiropoulos pragnesh podar joseph vaccaro dec 2 2008
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MEMC Electronic Materials Inc. (WFR). Chia-Chia Hu Evangelos Kalogiropoulos Pragnesh Podar Joseph Vaccaro Dec 2, 2008. Presentation Outline. Company Overview Macroeconomic review and industry trends Historical Financial Analysis Portfolio Positioning Peer group comparison

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Chia chia hu evangelos kalogiropoulos pragnesh podar joseph vaccaro dec 2 2008

MEMC Electronic Materials Inc. (WFR)

Chia-Chia Hu

Evangelos Kalogiropoulos

Pragnesh Podar

Joseph Vaccaro

Dec 2, 2008


Presentation outline

Presentation Outline

  • Company Overview

  • Macroeconomic review and industry trends

  • Historical Financial Analysis

  • Portfolio Positioning

  • Peer group comparison

  • Relative valuation

  • Financial Projections (DCF Model)

  • Recommendation


Company overview

Company Overview

  • MEMC Electronic Materials, Inc. is engaged in the design, manufacture and sale of silicon wafers

  • Based in St. Peters, MO

  • Produces both semiconductor wafers and solar wafers ranging in size from 100mm (4 inches) to 300mm (12 inches)

  • Strategy: “Continuous improvement of technology, market share, and profits.”

  • NYSE Ticker: WFR


Company history

Company History

  • Founded in 1953

    • Pioneer in wafer development & leader in supplying semiconductor wafers for over 50 years

  • 1995: IPO on NYSE under the ticker WFR

  • 2001: After almost filing for bankruptcy, Private Equity Firm Texas Pacific Group acquires 72% of the company

  • 2006: Announced the signing of $7-9 billion in contracts to deliver solar wafers (an $18 billion market at the time)

  • 2008: One of four wafer companies with 10% or more of the market share.


What is a wafer

What is a wafer?

  • MEMC supplies silicon wafers to the semiconductor and solar power industry globally

  • Wafer’s are the foundation on which the world’s semiconductors and solar cells are built

  • All the processes of a micro device are conducted on a wafer

  • Come in different sizes (1 inch to 12 inches in diameter) and in different thicknesses

  • Wafer sizes have increased device performance and reduced production costs

50mm, 100 mm, 150mm

and 200 mm wafer


What is a wafer1

What is a Wafer?


New ceo

New CEO

  • Oct. 30, 2008 MEMC Announces the Resignation of CEO Nabeel Gareeb

    - Marshall Turner appointed as interim CEO

  • Potential Reasons:

    • Management overestimated targets the past 5 quarters

    • Company faced production problems

    • Stock severely underperformed the market

    • Legal Proceedings


Global manufacturing

Global Manufacturing


Geographic revenue

Geographic Revenue


Currency risk

Currency Risk

  • China 25%

    Upside


Swot analysis

SWOT Analysis


Wafer industry outlook

Wafer Industry Outlook

  • The introduction of electronics and computer technology into our daily lives is growing at an exponential rate.

  • One of the few markets that can improve device performance while sustaining steady revenue growth and reducing production costs.

  • There is a trend towards developing larger wafers (200mm and 300mm)

  • MEMC's overall success depends on the success of products that use silicon wafers, specifically semiconductors and solar cells

  • The need for high degrees of flexibility and innovation in order to constantly adjust to the rapid pace of change in the market.


Wafer industry vs semiconductor industry

Wafer Industry vs. Semiconductor Industry

  • The success of the Wafer Industry is highly correlated to the Semiconductor Industry


Solar industry

Solar Industry

  • Opportunities within the U.S.

    • Public Awareness of Environmental Concerns

    • Political Support

  • Global Opportunities:

    • Rise in commodity prices

  • Growth prospects in Asia

    • International Pressure for China to adopt clean energy

      (China accounts for 21% of REMC’s revenue)


Political support

Political Support

  • President-Elect Barrack Obama has a green agenda

    • Obama has proposed investing $150 billion into the renewable energy sector over the next 10 years

    • His proposal also requires that one-tenth of the country's energy be derived from renewable sources (currently 7%)

  • The summer spike in oil and commodity prices forced Americans & Congress to consider the use of alternative resources

  • Tax credits, strict adherence to state renewable portfolio standards and new leadership in Washington all may play a role in turning the economy green

  • Increasing Renewable Portfolio Standards and the carbon trading system/carbon tax in the U.S. should favor solar energy


Income statements

Income Statements


Cash flow

Cash Flow


Balance sheet assets

Balance Sheet - Assets


Balance sheet liabilities

Balance Sheet – Liabilities


Balance sheet equity

Balance Sheet – Equity


Dupont analysis

DuPont Analysis


Current portfolio

Current Portfolio


Current position

Current Position

  • RCMP purchased 200 shares of WFR on

  • March 13th, 2008 for $78.15/share.

  • Currently WFR is trading at $12.33 as of

  • December 1, 2008 for an unrealized loss of

  • $13,164 or 84.22%


Peer valuation

Peer Valuation


Price ratio valuation

Price Ratio Valuation


Peer valuation1

Peer Valuation


Historic pe valuation

Historic PE Valuation


P e valuation

P/E Valuation

  • 5 year average of 18.4X

  • Return to 5 year average for C2009 estimate

  • Assuming Range of 16-20, Gives a potential price range of $42-$52

  • Conservatively, at the lower end of the range, price target is $42

  • Current assets include over $900 million in cash and liquid investments.


Long term contracts solar cell manufactures

Long-termcontracts(Solar Cell Manufactures)

  • $3-3.5B Tainergy Tech Co. LTD (Taiwan)

  • $7-8B Conergy (Germany)

    3-4B Gintech (Taiwan)

  • $7.5-9B

    Suntech Power Holdings (China)

  • Total estimated worth of contracts $15-18B over the next 10 years (10K, 2007)

  • Fixed price (dollar-per watt basis) and take or pay contracts


Growth assumptions

Growth assumptions

  • Semiconductor sales are set to slump next two years due to the upcoming recession

  • Slow down in solar industry (2008-2010)

  • Low oil price

  • Lack of funds for investments in solar energy

  • Possible relaxation of the environmental obligations until the recovery of the economy

  • Too costly now for the firms to apply the proper equipment


Application of the assumptions

Application of the assumptions

"This model was initially created by David Light"


Dcf inputs

DCF Inputs


Dcf model

DCF model


Dcf valuation results

DCF valuation results

  • Market value per share at 2-Dec-08 is $12.99.

  • 10% range $16.916-$18.697


Sensitivity analysis

Sensitivity Analysis

  • Range $15.828-$20.561


Correlation with rcmp portfolio

Correlation with RCMP Portfolio


Legal proceedings

Legal proceedings

  • On March 31,2008, two lawsuits against MEMC from a customer concerning violation of agreements by the side of MEMC.

  • On Sep. 16,2008, and on Oct. 10,2008 two class action lawsuits against MEMC and its former CEO from investors. They allege that during the Class period, the firm engaged in a scheme to inflate MEMC’s stock price by failing to certain material facts regarding MEMC’s operation and performance violation of Section (10b).


Recommendation

Recommendation

  • Buy 400 shares of MEMC Electronic Materials Inc (WFR) at the current market price

  • Our conservative analysis indicates that the stock is significantly undervalued

  • Long-term solar contracts worth 15B-18B.

  • Plenty of cash and no debt are good features under the current market.

  • One of the four largest silicon wafer producers worldwide.


Chia chia hu evangelos kalogiropoulos pragnesh podar joseph vaccaro dec 2 2008

Q & A

Any Questions?


Renewable energy oil

Renewable Energy & Oil

-- Alternative Energy Index

-- Oil


1 year chart

1-year chart


10 year chart

10 year chart


World semiconductor trading statistics

World Semiconductor Trading Statistics


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