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Date : 18/03/2021

Revasum Inc

ASX :

RVS

Market Cap : $30.02 Million

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52 Week Range : $0.165 - $1.255

Share Price : $0.38

Revasum is approaching a very critical period as far as thier growth story is concerned. While we do have a bullish outlook for Revasum, we recommend investors to “Watch” and enter positions at the key support levels.

Company Analysis

Revasum, Inc. (ASX: RVS) is a United States-based company that manufactures chemical mechanical planarization (CMP), grinding and substrate manufacturing equipment for use in the production of semiconductor devices. The Company provides equipment solutions to enable single-wafer Silicon carbide (SiC) substrate grinding and polishing. Its grinders are used for backside thinning of a broad range of semiconductor and compound materials, including silicon carbide, silicon, gallium arsenide, gallium nitride, sapphire, germanium, lithium niobate, lithium tantalate, and indium phosphide. Its CMP equipment is ideal for a broad range of applications, including oxide, silicon oxide, silicon nitride, tungsten, SOI, and other thin-film applications. It also provides re-manufactures equipment. It offers automated and semi-automated grinders for high-volume production and low-volume or research-and-development applications.

Company Summary

Revasum designs & manufactures capital equipment used in the semiconductor device manufacturing process for the global semiconductor industry, strategically targeting Silicon Carbide or SiC and wafer sizes of approximately 200 millimetres.

The Company has leveraged its significant expertise and intellectual property portfolio to develop a new flagship product named 6EZ Silicon Carbide Polisher, which, alongside the 7AF-HMG Silicon Carbide Grinder. Revasum provides to its customers an optimized and fully automated single-wafer grind and polish toolset. The solution is configurable for SiC wafers of 200 millimetres and below. The Company supports its customers with a full suite of spares, service, and engineering offerings.

FY20, Revasum brings its flagship products to a high potential growth market

Revasum dedicated FY20 to focus on its capabilities to bring its flagship product 6EZ Silicon Carbide and 6EZ Wafer Polisher to the market and has successfully achieved its first 6EZ shipment to a major global semiconductor wafer manufacturer in the United States during the fourth quarter of FY20 for a 6-month evaluation program. This accomplishment represents a big step for the company as customer evaluation represents the next major milestone in the commercialisation of its 6EZ product. The company is furthermore in partnership with key players in the SiC semiconductor sector. The SiC market is a promising sector which is emerging as one of central elements to support exponential growth markets such as EV, 5G and renewable energy.

Revasum improves its growth, margin and EBITDA, revenue up 37% in 2HFY20

Revenue increases to US$ 8.9 million in the second half of FY20, up 37% year-over-year with Silicon Carbide equipment contributing mainly with US 6.2 million compared to FY19 US$ 3.3 million, up 87% year-over-year. The improvement in revenue was driven by the company’s strategy to move to domestic vendors resulting in fewer export duties and the utilisation of slow-moving inventories. Revasum also effectively reviewed its expenses during the period and had reduced its discretionary spending which contributed to improve its gross margin and record a small loss of US$ 0.1 million for 2HFY20 EBITDA. The company has proven its ability to navigate challenging economic conditions during FY20 which give us confidence in Revasum to become a profitable company in the next two to five year period along the high growth potential SiC Market.

Revasum recently completed its institutional entitlement offer and raised US$ 6.1 million (A$ 7.9 million)

Recently in FY21, during February 2021, Revasom completed a pro-rata accelerated non-renounceable entitlement offer of new shares of common stock for A$ 35 cents per share and CHESS Depositary Interests (New CDIs) to raise approximately US$ 6.1 million (A$ 7.9 million). Firsthand Venture Investors took up its full entitlement of A$ 5.4 million for its Firsthand Technology Opportunities Fund with Perennial which also took up its full entitlement of A$ 1.2 million. The remainder was taken up by both current shareholders and new institutional investors. The Entitlement Offer significantly strengthened the Company’s balance sheet and provided working capital which will support tremendous growth for the company. The fund will be utilised to develop the Company’s flagship 6EZ and build the next generation SiC grinder. The capital raised mark an important signal supporting Revasum to become a leader in the SiC market which is poised to grow exponentially along the disruptive technologies.

Company Updates


Source: Tradingview.com

Early FY21, Revasum received US$ 1.17 million as part of the COVID-19 “CARES Act”

Early FY21, Revasum received loan proceeds of US$ 1,17 million under the U.S. Paycheck Protection Program or “PPP”. The PPP established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) provides the company two and a half times the average monthly payroll expenses which contribute to helping the company to safely navigate through the COVID-19 induced challenging economic conditions ahead of FY21.

Revasum is tackling a potential +29% CAGR high potential growth market

Revasum has a tremendous capacity for growth as the company has demonstrated during FY20 with its ability to execute its plan by bringing its flagship 6EZ product to the market. Revasum is also addressing an emerging growth market that is projected to expand at least by 29% CAGR in the next 5-year. Moreover, Revasum is developing technologies that are cornerstones for the progress of disruptive technologies which is a portfolio of products related to the manufacturing of Silicon Carbide (SiC) semiconductor. SiC has better efficiency and conduction properties than Silicon, hence offering better performance that benefits the Electric Vehicle (EV) industry. SiC allows charging batteries faster and longer autonomy for EV. Manufacturing SiC-based products requires technical know-how to develop it, furthermore, cost-related and substrate availability represents a significant challenge which Revasum has a certain competitive advantage. The company has exhibited process know-how in SiC wafers for the development of driving chip quality and module reliability which the demand is constantly growing. The global sales of EV and EV’s related products are estimated to reach nearly 2.5 million during FY20 and are expected to rise by ~70% by the end of FY21. For the next 5-year, global EV sales are projected to top out at 12.2 million which is an impressive ~52% CAGR. The increase in demand for electric vehicles and fast charging stations will consequently drive growth in SiC wafers’ demand. EV and EV’s related products are dependent on SiC, as it is estimated that Silicon Carbide outperforms by 20% Silicon performance by expanding EV range and providing higher energy efficiency chargers which reduce charging time. The global SiC device market is estimated to massively grow by +29% CAGR in the next 5-year and reach US$ 1.93 billion in 2024 which 49% of the total market is related to the EV sector. Revasum established a strategic partnership with Cree which had so far invested US$ 1 billion in a dedicated SiC Fabrication plant to develop components that will ultimately be used by Tesla for the Electric vehicles.

Source: Revasum Inc., Company’s Data

Patented technology with a strong team

Revasum grind and polish systems are engineered using patented technology to handle the unique requirements of SiC Single-wafer processing. The company’s engineering team has more than a decade of experience in the processing of SiC wafers and has proven during FY20 improved throughput yield and operating costs compared to its direct competitors.

FY21 Outlook: Revasum to accelerate its flagship product commercialisation

Revasum’s approach toward FY21 is to expand its 6EZ product commercialisation following the success of FY20 first shipment and product evaluation with one of the U.S. major semiconductor manufacturers. Revasum is the only company with grind and polish systems engineered specifically for SiC Single-wafer processing, hence the company is looking to accelerate its advantage over its competition to become a market leader in the SiC space. We believe Revasum has the right product to support and grow along with the disruptive technologies which are EV, 5G and renewable energy. The SiC device market is expected to grow ahead of FY21, stimulated by the exponential growth in the electric vehicle market needs for efficient fast-charging technology which is critical for EV adoption. Furthermore, Revasum has the right expertise and patents, (1) grind and polish OEM for more than forty years, (2) and SiC processing wafers for more than ten years with partnership and long-standing relationships with key market participants.

Industry Analysis

Despite enduring the impacts of COVID-19 in 2020, most semiconductor companies maintain a growth outlook looking forward to FY21 and beyond. According to KPMG (2020), 79% of semiconductor market leaders forecast the industry-wide profitability to increase compared to FY20 boosted by two primary factors, (1) strategic spending and (2) expansion of demand driven by on-going rapid technological innovation.

COVID-driven digital acceleration across both business and consumer markets is prompting customers to order certain semiconductor components ahead of time, as opposed to real-time inventory purchasing. Although an inventory correction may be coming down the road even if chip companies make no further cost reductions this year. Semiconductor manufacturers are confident and expect to generate increased profits based on pricing advantage. According to KPMG’s survey (2020), respondents are bullish on growth and profitability with 73% of them plan to increase capital spending throughout FY21, compared to only 59% in FY20.

Revasum is surfing on that trend and focuses on 3 main themes that are driving the rapid growth of the SiC power device and the growth in the wafer market: (1) Electric vehicles, (2) 5G Equipment, and (3) Solar panels.

Electric Vehicles (EV)

Revasum develops the technology to manufacture SiC which will be in high demand to enhance EV performance looking ahead of FY21 and beyond. SiC-based power semiconductor drives lower energy losses and reduces heat dissipation to operate at higher temperatures compared to semiconductor-based on Silicon. SiC delivers an estimated 20% increase in battery range compared to Silicon. SiC will become mainstream in the EV industry which Revasum is well-positioned to take advantage of this immense market growth potential.

Fast-Charging technology

The key for EV to become mainstream is the ability to charge rapidly is to deploy SiC powered Fast-charging stations. It is estimated that 3.3 million units of the fast charger will be deployed worldwide by 2024. We can expect SiC to represent a sizable portion of the global market share as this material creates lower-cost and energy-efficient fast-chargers. SiC is also capable of high-power conversion, faster-switching speeds and improved thermal performance which reduces the size of the battery needed in EV.

Growth in wafer market driving semiconductor capital equipment market

The wafer market outlook is expected to grow by 15.5% in-total equipment market throughout FY21. Key wafer manufacturers such as Cree, are announcing capacity expansions. Cree had invested US$ 1 billion to develop the world’s largest SiC Device manufacturing facility in the state of New York which is planned to begin production by FY22. Furthermore, TSMC announced in early FY21 a projected 60% year-on-year increase in capital expenditure of US$ 25 billion budget to develop wafer fab equipment and towards advanced process technologies.

Source: Revasum Inc., Company’s Data

Investment Thesis

FY20 Financial Summary

For the fiscal year ended 31 December 2020, Revasum revenues decreased by 25% to US$15.4 million. Net loss decreased by 39% to US$ 9.2 million. Revenues reflect Asia segment decreased by 64% to US$ 3.6 million while Europe segment decreased by 65% to US$ 1.3 million. Lower net loss reflects Selling & marketing – Balancing value decreased by 68% to US$ 1.1 million (expense), Stock-based compensation decreased from US$1.2 million (expense) to US$ 207,000 (income).

Revenue Growth in 2H20 with a Focus on SiC Equipment Revenue

Revasum reported during FY20 a total revenue of US$ 15.4 million contrasted to US$ 20.5 million in FY19. The revenue was affected by the challenging environment induced by the COVID-19 crisis. However, by the second half of FY20, revenues increased by 37% to US$ 8.9 million supported by SiC equipment revenue of US$ 6.2 million compared to FY19 of US$ 3.3 million, up 87% year-over-year. The company recorded an improvement as well in its spares and other recurring revenue which went up 23% during the second half of FY20.

Margin Improvement as a result of efficient operational capabilities and cost control

Revasum has shown its strength in its operational capabilities and cost control and reported an improved 31.8% gross profit margin for FY20 compared to 11.2% in FY19. The gross margin improvement was the result of a decision to move to domestic vendors which resulted in fewer export duties and with effective utilisation of slow-moving inventories. However, FY20 EBITDA remains in negative territories, with an EBITDA loss of US$ 7.4 million contrasted to FY19 of US$ 13.7 million. The company had reviewed its discretionary spending during the second half of FY21 and had achieved a reduction of US$ 3.4 million in operational expenses which contributes to a US$ 5.7 million year-over-year improvement on operating loss.

Financial Positions

As of early FY21, Revasum held US$ 1.4 million in cash with US$ 1 million drawn down. The company saw an increase in trade and other receivable to US$ 2.8 million due to the end of year delay of equipment shipments. Intangible assets decreased to US$ 3.8 million due to the impairment of capitalised development during the first half of FY21.

Technical Analysis

Trend

Revasum reached an all-time high at A$ 1.86 per share on December 6, 2018, three days after its IPO. The upside move did not last long before the price action turned into a multi-year bearish trend all the way down to it’s all-time low at A$ 16.5 cents per share in October 15, 2020, losing 81.2% of its value. However, since Q4-2020, Revasum rebound impressively by 135% to its mid-term peak at A$ 53 cents per share before consolidating around A$ 35 cents per share which is its current equilibrium. The A$ 35 cents is a strong support level which is a convergence zone between the 50% retracement from the all-time low and November high and the issued new shares at A$ 35 cents for the institutional entitlement offer from early FY21. Revasum price is now consolidating between the 53 cents and 35 cents level. Since early FY21, Revasum seems to have found its bottom and may now stand on solid ground for a rebound back above the mid-term resistance at A$ 56.5 cents.

Key price levels

Revasum key levels to monitor are the A$ 30.5 cents level which is the 61.8% Fibonacci retracement level from the all-time low – November swing high and the 78.6% Fibonacci level at 24.5 cents. These two levels are key areas that market participants will look to build up their long positions for the next swing high.

Volume and momentum

Volume increases since the last 200-day with the 20-day volume average up by 29.2%. The price action remains neutral in the near-term, evolving in a range between A$ 35 cents and 53 cents per share.

Trade consideration

  • Market participants might be interested to enter at key support level: A$ 30.5 cents and A$ 24.5 cents.

Recommendation

Revasum will be approaching FY21 to expand its 6EZ product commercialisation following the success of their first shipment and product evaluation with one of the major semiconductor manufacturers in the USA. Revasum is the only company with grind and polish systems engineered specifically for SiC Single-wafer processing, hence the company is looking to accelerate its advantage over its competition to become a market leader in the SiC space. The industry supports the high growth forecasted and we have seen a rebound in the stock price. While we do have a bullish outlook for Revasum, we recommend investors to “Watch” and enter positions at the key support levels.

 

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