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RESEARCH: Revasum Inks Deal With Biggest Fish In SiC

FYI | Dec 03 2019

By Pitt Street Research

Revasum Inc. ((RVS)) recently inked a multi-year contract with Cree, the world’s largest manufacturer of Silicon Carbide (SiC) wide bandgap semiconductors, used a.o. in Electric Vehicles (EV).

Cree recently announced a US$1bn Capex plan for the next few years and we expect RVS to be a major beneficiary with its HMG grinder and the recently launched SiC wafer polishing machine. As demand for SiC substrates accelerates, RVS should be very well positioned to reap the benefits.

Near the end of the cyclical downturn

The company recently lowered its revenue guidance for 2H19 from a range of US$11m to US$13m to a range of US$7.5m to US$10m due to delivery pushouts by customers.

We believe, however, that these pushouts only affect the company in the very near-term given that we think the semiconductor cycle has bottomed in mid-2019. We are anticipating a pickup in demand early in 2020.

Furthermore, the guidance for SiC systems was largely intact, indicating customers are still in the market for SiC technology buys used in process development.

Valuation range of $2.30 to $2.69 per share

Revasum's focus on SiC tools has put the company in a great position to benefit from strong growth in SiC wafers, needed in high-growth applications such as EVs and 5G infrastructures.

As RVS continues to expand its product portfolio, with the 6EZ polishing machine and a chemical mechanical planerisation (CMP) tool to be introduced in 2020, we believe the growth potential is immense.

We value RVS at $2.30 per share base case and $2.69 per share bull case. We believe that Revasum's strong product pipeline with high average selling prices and a cyclical uptick in demand will lead to significant revenue growth and margin expansion during the next semiconductor upcycle.

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