EDISON INVESTMENT RESEARCH LIMITED (LON:KEFI) Edison Investment Research Limited: IQE (IQE): At the heart of 5G transformation
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Edison Investment Research Limited
London, UK, 11 December 2020 IQE (IQE): At the heart of 5G transformation The breadth of IQE's technology portfolio and ability to serve compound semiconductor chip customers in the US and Asia puts it in a good position to benefit from rising demand for compound semiconductor applications for 5G and connected devices. Infrastructure roll-out appears relatively unaffected so far by the coronavirus pandemic. Global handset shipments are expected to pick up in 2021, potentially stimulated by new 'must-have' AR apps enabled by 5G connectivity and world-facing time-of-flight (ToF) devices, supporting a trebling of PBT in FY21.
IQE's share price has more than recovered the ground lost during the panic selling in March. At current levels, IQE is trading in line with the mean EV/EBITDA multiples of the sample of companies engaged in manufacturing VCSEL epitaxy. Given IQE's broader product portfolio, we believe it is reasonable for IQE to trade on multiples that are at the upper bound of this sample. However, we believe share price improvement will require greater visibility of how handset demand will be affected by any pandemic related recession in 2021 and whether the switch to 5G and the availability of as yet unknown 'must-have' AR apps will be sufficient motivation for cash-strapped consumers to justify upgrading their handsets.
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