Investment Overview
Riding on the booming NEV market, propelled by the acquisition of Maxim. Maxim, which is strong in chips used in the automotive and data center markets, compliments ADI's chip products which mainly serve broad industrial and communications needs. The acquisition of Maxim could help ADI to better meet the Chinese market's growing demand for a wide range of chips, especially in the automotive and industrial segments. This can help ADI to capture the strong demand for auto chips from the fast-growing new electric vehicle (NEV) market.
Strong growth momentum with 51% or above dividend payout. The company projects a 7% to 10% revenue growth over the next five years, which should help to improve profitability. ADI’s dividend increased over the past 20 years. The dividend payout ratio increased has maintained c. 51% or about from FY19 to FY23. The group’s strong cash flow is expected to support the sustainability of the high dividend payout. The DPS is expected to grow at strong FY23-26F CAGR of 10%.
We rate ADI a BUY with a TP of US$287.0 per share. Our TP is based on a 4.1x forward PB, 1 S.D. above its historical valuation, owing to its healthy forward growth outlook. ADI’s share price has outperformed NASDAQ YTD, on the back of the upward revisions in growth expectations. Outperformance is likely to continue based on its enhanced strength in automotives and industrial to capture the strong auto chips demand from the booming NEV market in this decade.
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