How strong was the third-quarter recovery?

  • ASMPT’s third-quarter revenue was 5.247 billion Hong Kong dollars, up 6.3% quarter on quarter and 43.3% year on year, and 0.6% above market consensus. Operating profit was 799 million Hong Kong dollars, 9% above consensus.
  • Profit did not exceed expectations across the board: net profit for the quarter was 533 million Hong Kong dollars, 8% below consensus; the actual effective tax rate was 30.9%, above the consensus estimate of 22.4%.
  • The group’s new orders reached a record 8.85 billion Hong Kong dollars, up 25% quarter on quarter and 138% year on year. The book-to-bill ratio was 1.7 times, its highest since the first quarter of 2021, indicating that orders received during the quarter substantially exceeded revenue.

Which businesses are driving orders?

  • Semiconductor equipment orders rose 31% quarter on quarter, driven mainly by thermocompression bonding equipment (TCB), photonics technology and flip-chip solutions. SMT orders rose 19% quarter on quarter, with some orders brought forward to the third quarter.
  • BofA believes AI chips are driving capacity expansion and technology upgrades in back-end packaging for memory and logic chips, benefiting ASMPT’s sales of TCB equipment to more customers. In July, the company received a major order from an outsourced assembly and test customer for more than 50 chip-to-substrate TCB machines for advanced AI computing chips.
  • The demand mix also affects timing: management expects demand for 8-layer HBM stacks to potentially exceed that for 12-layer stacks in 2027, which may require an adjustment to the timing of related TCB demand. Silicon bridge integration and panel-level packaging on the logic-chip side could generate additional demand.

How will growth continue in the fourth quarter?

  • The company guided for fourth-quarter revenue of 670 million to 730 million US dollars, with a midpoint of 700 million US dollars, up approximately 5% from the third quarter and approximately 38% year on year.
  • Management expects double-digit quarter-on-quarter growth in SMT revenue, while semiconductor equipment revenue will be broadly flat because of longer delivery cycles. Fourth-quarter orders are expected to remain substantially above the prior-year period but decline quarter on quarter from the third-quarter record.
  • The business mix also matters for margins: management expects the semiconductor equipment gross margin to remain above 45%, while the SMT gross margin will be close to 40%.

Why is BofA bullish on growth but cutting its price target?

  • BofA expects revenue to reach 27.226 billion and 37.619 billion Hong Kong dollars in 2027 and 2028, respectively, approximately 21% and 47% above market consensus. The bank attributes the difference mainly to the company’s optimistic outlook for TCB equipment.
  • However, BofA expects operating margins of 13.8% and 14.1% for the two years, respectively, below consensus estimates of 15.4% and 17.3%. Operating expenses in its model are also above consensus, so its revenue lead does not translate proportionately into a profit lead.
  • Citing intensifying competition from Hanmi Semi, BESI and others, BofA cut its earnings-per-share forecasts for both 2027 and 2028 by approximately 2% and lowered its target price-to-earnings multiple from 40 to 33 times. It cut its price target from 310 to 250 Hong Kong dollars and maintained its Buy rating. The bank identified market-share losses to competitors as the main downside risk.