How strong were third-quarter growth and orders?

  • ASMPT reported third-quarter revenue of HK$5.247 billion, up 49% year on year and 6% quarter on quarter. Semiconductor equipment revenue grew 68% year on year, while the surface-mount technology business grew 30%.
  • New orders reached a record HK$8.8 billion, and the book-to-bill ratio rose to 1.69, meaning the value of new orders during the quarter exceeded the value of shipments in the same period. Management expects fourth-quarter orders to remain high but decline quarter on quarter.
  • Third-quarter gross margin was 42.1%, above the Bloomberg consensus of 41.9% and Citi's estimate of 41.1%. Net profit was HK$533 million, in line with Citi's forecast but below the market estimate of HK$578 million; Citi attributed the difference to the market's assumption of a lower tax rate.

Why does fourth-quarter guidance support the near-term outlook?

  • Management expects fourth-quarter revenue of US$670 million to US$730 million, with the lower end of the guidance range already above market consensus. On this basis, Citi raised its 2026 revenue forecast to HK$19.642 billion and net profit forecast to HK$1.81 billion, about 2% and 4% above its previous forecasts, respectively.
  • Citi's net profit forecasts for 2027 and 2028 are largely unchanged at HK$2.654 billion and HK$3.433 billion, respectively. This distinguishes the stronger near-term revenue guidance from the long-term earnings forecasts.

Why has the delay in HBM purchases not yet changed the long-term outlook?

  • HBM layer-count upgrades have temporarily stalled, delaying customers' purchases of new thermocompression bonding (TCB) equipment. Citi views this as a delay in purchase timing and believes HBM will eventually migrate to higher layer counts.
  • Upgrades from 12-layer and 16-layer stacks to a potential 20-layer stack would increase the number of TCB steps and raise precision requirements. At the same time, demand for logic-chip applications, including CPUs, chip-to-wafer and panel-level packaging, helps offset the impact of stagnant memory demand.
  • Management reiterated that its forecast of a US$1.6 billion potential TCB market in 2028 still has upside. However, this assessment depends on progress in migration to higher layer counts and demand for logic applications; loss of share at key customers or changes in packaging technology could also weaken equipment demand.

How far have the photonics business and panel-level packaging progressed?

  • Driven by demand for 800G and 1.6T optical modules, photonics orders and revenue both reached record highs. Management expects second-half 2026 revenue to substantially exceed the US$75 million recorded in the first half. AMICRA also secured a breakthrough volume order for co-packaged optics and gained a new cloud-service provider customer.
  • In panel-level packaging, ASMPT's quarter-panel solution is at the customer sample-bonding stage, and the company is developing a silicon-bridge solution for a leading integrated device manufacturer. Citi expects orders could arrive at the end of 2027, with revenue recognized in 2028.

Why did the target price fall when earnings forecasts were largely unchanged?

  • Citi maintained its Buy rating and cut its target price from HK$250 to HK$190 because of a contraction in market valuation multiples: the 2027 forecast price-to-earnings multiple used for the target price fell from 40 times to 30 times.
  • Citi's long-term outlook depends on growth in advanced-packaging orders and improving demand for conventional semiconductor equipment and surface-mount technology. The bank lists slower or delayed AI infrastructure investment, intensifying industry competition and broader export restrictions as downside risks.