ASMPT Earnings: One-Offs Hit Margins and Industry Downturn Continues

ASMPT’s 00522 third quarter was hit by a number of largely one-off factors that negatively affected profitability. The industry also remains toward the bottom of a downcycle and there are few signs yet of a near-term recovery. Third-quarter revenue fell 24% year on year to HKD 3,474 million, with gross profit margin of 34.2% compared with 40.9% in the third quarter of 2022. Net profit of HKD 12.8 million was down 98% year on year. Restructuring costs of HKD 40.4 million, mainly relating to redundancies, were incurred in the quarter. The semiconductor solutions segment also saw gross margin fall to 31.9% (from over 40%) in every quarter for the past two years, due to unfavorable product mix and provision for aging inventories. Management is guiding to a return to gross profit margins of around 40% for the semiconductor solutions segment in the fourth quarter, despite forecasting broadly flat revenue from the segment, so we are comfortable that the gross margin issues are largely one-off.

Despite the industry volatility, we have seen solid underlying revenue and EPS growth over the past 12 years from ASMPT and we would expect this trend to continue in the foreseeable future, albeit along with the industry’s extreme volatility. ASMPT remains leveraged to the global semiconductor and electronics market and we expect both to grow in the long term. The company spent some time discussing recent demand driven by high performance computing and generative artificial intelligence, or AI, with the company’s advanced packaging solutions expected to play an increasing role in both. We also see no signs of ASMPT’s products losing their technological competitiveness so we would expect the company to fully participate in a market rebound when it comes. We retain our fair value estimate at HKD 90 with about a 22% downgrade in our 2023 net profit forecast offset by tweaks to outer year forecasts.