Title M31 Technology (6643 TT) -- Underwriting
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Title:M31 Technology (6643 TT) -- Underwriting
Download File:6643 TT M31 note 180917--sinopac.pdf 
Summary:M31 Technology (6643 TT)

Rising IP design star, focused on AI, IoT, and Automobile Markets

Company profile: M31, a rising IP design star that has benefited from the IP design industry's growth trend, is targeting AI, IoT, and the automotive electronics markets. The IP design industry has benefited from the gradual exit of IDM from the market in recent years. Dedicated foundries have been grabbing market share, and system companies continue to seek customized solutions from IP design companies. This industrial development trend is very favorable to M31, and the company is actively targeting markets in China and North America, deploying AI, IoT, and automotive electronics applications. M31 has great potential for business growth as it will benefit from rapid growth in these two markets in the future.

Three clear growth drivers for 2019: We project 2H18 sales at NT$770mn (+21% YoY), and net profit at NT$280mn (+52% YoY), or EPS at NT$9.07 (based on TPEx mainboard listing capital of NT$313mn) amid seasonality. We see three clear growth drivers for 2019: M31s strategic platform and its high-speed transmission and ULP application, along with differentiated process requirements.

The industry has high entry barrier, strong earnings growth potential, and great room for imagination when it comes to valuation: M31 is in an industry with a high entry barrier, and is among the very few pure IP design companies in Taiwan. Its competitors include international EDA/IP design companies such as Synopsys and Cadence. We expect M31 to grow its sales and earnings rapidly going forward, as its IP sales weighting greatly outperforms Global Unichip (3443 TT)s, of which ASIC accounts for 75-80% its total sales), its profitability outstrips Andes Technology (6533 TT)s, and its earnings growth potential is superior to eMemory Technology (3529 TT)s. Hence, we think for M31 a P/E at the upper end of industry peers normal range of 25-35x is achievable.

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