ASM Earnings: Well Positioned for the Next Upward Cycle; 2024 Is a Transition Year

Narrow-moat ASM International's results were in line with expectations; fourth-quarter revenue was EUR 633 million compared with an expected range of EUR 600 million-EUR 640 million, and up 2% sequentially. EBIT was EUR 131.5 million in the quarter, a 20.8% margin, down year on year as ASM has increased research and development and operating expenses, to prepare for the next upward cycle. In line with comments from other semiconductor firms, management expects a relatively flat first-half 2024, with an improvement in the second half, although the extent of it is still unknown. ASM sales have grown strongly since 2021, so we expect 2024 to be a transition year, followed by a strong 2025 as fabs incorporate more atomic layer deposition equipment due to the transition to gate-all-around transistors. We expect EUR 3.4 billion in revenue for 2025, compared with management’s guidance of EUR 3.0 million-EUR 3.6 billion, and a 27% operating margin. ASM is well positioned to benefit from the following upward cycle as the firm has recently doubled its capacity by expanding its Singapore facility. We are raising our fair value estimate slightly to EUR 480 from EUR 470 after adjusting for the time value of money. Shares remain overvalued, trading at around EUR 560.