AZEM more good on the way6 May 2012 12:15
It is worth being aware of AZ Electronic Materials (AZEM), a specialty chemicals and materials supplier to the electronics industry, which is much less followed than microchip companies such as ARM Holdings (ARM) or Imagination Technologies (IMG) but still offers exposure to growth in consumer and business electronics.
A "must have" buying mentality for various items has sustained demand, as shown by soaring first-quarter results from Apple (AAPL). With mass markets such as China opening up, this looks one way to beat sluggish industries elsewhere.
AZ's chemicals and materials are used in integrated circuits and devices, flat-panel displays and LEDs - hence long-term gearing to the diversity of electronic products emerging. Possible reasons for low investor interest are a short-term record on the stockmarket (since floating in autumn 2010), reporting in US dollars and offices in Luxembourg, Hong Kong and London. It is quite as if AZ is a foreign company, there being no Company REFS entry and scant bulletin board discussions, yet this is an industry leader.
About 70% of sales and nearly 80% of AZ's profit derives from the semiconductors side, mainly chemicals used in their manufacture. The optronics division involves mainly "photoresists", which are light-sensitive materials used to make flat screens. About 80% of sales go to Asia as the world's main manufacturing region, although volumes ultimately depend on demand for consumer electronics globally.
Rapid innovation has made electronic devices ever more complex with additional layers within microchips needing treatment with AZ's chemicals - as shown by sales increasing faster than chip volumes.
The 2011 income statement at end-February showed a 16% rise in revenue to $791.8 million (£487.4 million) with operating profit up 18% to $150.7 million. Meanwhile finance costs have been transformed, down from $216.5 million (the previous year) to $26.7 million, enabling $125.6 million pre-tax profit on continuing operations - with earnings per share of 25.3 cents. An additional $8.8 million gain from cash flow hedges and $21.5 million exchange differences on currency translations boosted net profit to $125.8 million.
The latest, 27 April interim management statement cites a 4-5% reduction in like-for-like revenue during the first quarter of 2012, repeating the end-2011 trading conditions, although in April the businesses are said to be "performing well". With customers increasing wafer capacity and utilisation, this is expected to be a positive influence in the second quarter and beyond, for integrated circuits, and in flat-panel displays an upturn in user market and new products are anticipated.
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