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Kerrisdale Capital Takes Bullish Stance on ACMR

ACM Research

ACM Research Inc. (ACMR) experienced a significant surgein its stock price, up nearly 19% to $20.76 on Thursday, following a compelling report by Kerrisdale Capital. The investment firm highlighted ACMR as a key player in China’s push to bolster its domestic semiconductor industry, positioning the company for substantial growth both within China and potentially on the global stage.

ACMR, although headquartered in the U.S., conducts its primary operations in Shanghai, making it a focal point in China’s strategy to circumvent U.S. export restrictions on semiconductor technology. As these restrictions tighten under successive administrations, China has escalated efforts to develop its own wafer fabrication equipment (WFE) sector, with ACMR emerging as a leading supplier of wafer cleaning tools. This strategic positioning has led to a 10x revenue growth over the last six years for ACMR, a trend expected to continue as China’s semiconductor manufacturing ambitions expand.

Kerrisdale Capital’s report underscores ACMR’s role not just as a beneficiary of these geopolitical dynamics but as a potential disruptor in the global WFE market. The company’s current market cap of $1.2 billion, trading at just 1x the expected 2025 revenue, presents what Kerrisdale views as an ‘asymmetric upside,’ suggesting a potential 10x increase from current levels. This valuation disparity is particularly stark when compared to its subsidiary, ACM Research (Shanghai) Inc., which trades at a much higher multiple on the Shanghai exchange, implying a valuation for ACMR of $4.9 billion, over 300% higher than its NASDAQ listing.

The report notes that valuation thesis for ACMR is underpinned by a 10-year discounted cash flow analysis. Assuming continued robust growth into the 2030s, GAAP EBIT margins around 21%, a weighted average cost of capital (WACC) of 11.7%, and an exit multiple of 17.5x EV/LTM EBITDA (which Kerrisdale Capital says it is conservative compared to the current small-cap WFE sector average of 24x), the estimation is for a fair value of $72 per share for ACMR. This suggests an upside potential of over 300% from its current price.

The narrative around ACMR is one of strategic importance in a high-stakes industry where national interests intersect with technological advancement. As China continues to develop its semiconductor capabilities, ACMR is poised to expand its product offerings beyond cleaning equipment into other segments of WFE, potentially challenging established global players.

The discrepancy between ACMR’s valuation in the U.S. and China speaks to broader market inefficiencies or perhaps a lack of recognition of ACMR’s pivotal role in the Chinese semiconductor ecosystem. This has set the stage for what could be a remarkable re-rating of ACMR’s stock as investors and analysts alike start to reconcile these valuation gaps.

Kerrisdale’s bullish outlook on ACMR is based on the expectation that the company will not only continue to thrive within China but will also become a formidable competitor internationally. This dual growth trajectory could see ACMR’s revenues and market capitalization soar, aligning more closely with its Chinese valuation and reflecting its true potential in the global market.

In conclusion, ACMR’s trajectory is indicative of a broader shift in global tech dynamics, where local innovation in China is increasingly seen as a counterbalance to foreign technology restrictions. For investors, ACMR presents an opportunity to partake in this narrative, where the fusion of technology, geopolitics, and market undervaluation could lead to significant returns. However, this potential comes with the inherent risks associated with investing in a sector so closely tied to international political relations and technology policy.

WallStreetPit does not provide investment advice. All rights reserved.

About Ari Haruni 498 Articles
Ari Haruni

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