ASML: A year like no other

Following the FY21 results release, we’ve raised our EPS estimates by 3-8%, largely on the back of a 2-5% increase in sales and a 20-30bp gross margin improvement. While the company’s guidance for FY22 was in line with the Street’s estimates, the overall release suggests that stronger DUV and metrology sales will make up for the delayed booking of EUV sales (about € 1bn of shipment value shifts to 2023) caused by ASML’s new testing and acceptance policy. We expect strength to be maintained in 2023, now modelling another 15% and 20% growth in sales and EPS respectively. The outlook for semicaps remains undeniably strong. This is demonstrated by ASML’s record order book of € 26.2bn in 2021 (up 130% YoY) and current demand exceeding its max capacity by 40-50%. Along with our raised estimates, we raise our TP to € 810 (from € 770) and reiterate BUY.
EUV sales guidance impacted by delayed booking of sales. ASML’s decision to skip some of the system testing in its factory to reduce cycle times and accommodate faster shipments means that the recognition of some system sales is being deferred. 1Q22 will be the most impacted quarter with about € 2bn in shipment value now being booked at a later date. This includes about € 1bn in the subsequent quarters of 2022 and the other € 1bn in 2023. That’s about six EUV systems that will be fast-shipped but for which revenues will not be recorded this year. ASML’s EUV 2022 sales guidance of 25% YoY growth (we expected +35%) reflects the sale of about 50 units, below our prior forecast of 54. In 2023 however, we expect both shipment value and recorded value to exceed 60 EUV units.
Financial update on EUV. We expect EUV sales to grow by 19% pa over 2020-2025 and forecast 65 EUV shipments in 2025, of which 5 high-NA systems. ASML plans to ship 5 to 6 High-NA tools in 2024 to meet the R&D needs of its customers. From then on it will increase shipments, thereby supporting high-volume manufacturing and doubling capacity in the first 2-3 years. We estimate that overall ASPs, largely driven by growing EUV adoption, will increase by 44% to € 57m by 2025 vs. 2020. EUV-related ASPs (mix of 0.33NA/0.55NA) are set to advance from € 144m in 2020 to € 192m in 2025 due to the release of advanced NXE tools, providing higher throughput and better overlay, and the introduction of High-NA tools (whose “ASPs will be well above € 300m”).
Outlook. With expected sales of € 28.9bn in 2025, we believe ASML will near the upper end of the sales guidance range (€ 24bn-€ 30bn) provided at the CMD in Sep’21. Going into 2022, the outlook for semicaps keeps looking bright. 2021 finished with historically high equipment backlogs, which will lead to a lot of catch-up shipments this year. Other tailwinds are rising capital intensity, sustained market demand (growth from data centers, HPC, Auto, etc.) and increased gov’t support. According to SEMI, the front-end WFE market is set to grow another 23% in 2022 to $ 108bn.