Company Reports

Advantech's second-quarter revenue rose 46% year on year, while operating profit increased 64%.

Advantech has established itself as a global industrial computing leader by supplying reliable industrial-grade products for more than four decades. The company owns more than 40% share of the global industrial personal computer market and is a leading supplier of embedded boards. Its well-diversified revenue base—balanced across major global markets and spanning a wide range of downstream sectors—helps mitigate concentration risk, insulating it from regional or sector-specific downturns.

Advantech's first-quarter revenue rose 17% year on year, with operating profit jumping 28%.

Advantech has established itself as a global industrial computing leader by supplying reliable industrial-grade products for more than four decades. The company owns more than 40% share of the global industrial personal computer market and is a leading supplier of embedded boards. Its well-diversified revenue base—balanced across major global markets and spanning a wide range of downstream sectors—helps mitigate concentration risk, insulating it from regional or sector-specific downturns.

Advantech has established itself as a global industrial computing leader by supplying reliable industrial-grade products for more than four decades. The company owns more than 40% share of the global industrial personal computer market and is a leading supplier of embedded boards. Its well-diversified revenue base—balanced across major global markets and spanning a wide range of downstream sectors—helps mitigate concentration risk, insulating it from regional or sector-specific downturns.

Advantech's fourth-quarter revenue rose 10% year on year, while operating profit increased 12%.

Advantech's third-quarter revenue rose 19% year on year, but operating profit only increased by 10%.

Advantech's second-quarter operating profit surged 44% year on year, driven by 22% sales growth and 2.7 percentage points of improvement in operating margin to 17.5%. However, pretax profit declined by 5% because of substantial foreign-exchange losses.

We are transferring coverage of Advantech, a leading industrial personal computer and embedded board supplier.

Advantech has established itself as a global industrial computing leader by supplying reliable industrial-grade products for more than four decades. The company owns more than 40% share of the global industrial personal computer market and is a leading supplier of embedded boards. Its well-diversified revenue base—balanced across major global markets and spanning a wide range of downstream sectors—helps mitigate concentration risk, insulating it from regional or sector-specific downturns.

We are placing coverage of narrow-moat Advantech under review pending the transfer of coverage to a new analyst. We expect to revisit our coverage of this company over the next three months.

We think Advantech’s dominant position in the IPC industry and reputation for providing reliable products and after-sales services give it a head start in offering next-generation industrial solutions, interconnected equipment and Internet of Things services. We believe Advantech’s two-pronged strategy of developing Internet of Things platforms and investing in Internet of Things service firms, reinforces its commitment to integrating hardware and services, differentiating itself from peers. Advantech’s revenue CAGR until 2029 is projected at 12%, driven by growing demand for robotics, industrial automation, smart city, and healthcare.

Advantech's fourth-quarter 2024 revenue was TWD 16.3 billion, up 9% sequentially. Gross margin remained flat at 41.2%. The numbers surpassed management guidance. The book/bill ratio rebounded above its long-term average of 1.1 to 1.12.

We reiterate our TWD 290 per share fair value estimate for narrow-moat Advantech after unsurprising fourth-quarter guidance. Though bookings recovery continued, we view this is already priced in. Advantech seems overvalued, as keeping the same 10% or so EPS compound annual growth rate is more difficult than before amid more intense competition. There is potential in artificial intelligence to lead to stronger integration between Advantech’s hardware and software, but we don't see that as a game changer to earnings.

We maintain our fair value estimate of TWD 290 for narrow-moat Advantech as we see a recovery in bookings and more intense competition being priced in. We see Advantech benefiting from demand for automated industrial, energy, retail, and medical systems, but the stock appears to be overvalued as artificial intelligence is unlikely to accelerate earnings growth structurally. We also believe customers in the above four sectors are more cautious in adopting AI since the potential damage that can be caused by system failures is more acute.

We lowered our fair value estimate on narrow-moat Advantech to TWD 290 per share from TWD 337, given another quarter of downbeat guidance, more-intense competition, and uncertainty in its plan to acquire point-of-sale machinemaker Aures. Our valuation corresponds to 27.4 times 2024 P/E, close to the stock’s five-year average. We are less bullish than the market on Advantech’s ability to capture incremental China customers in industrial automation, and generative artificial intelligence is unlikely to benefit the company’s bottom line. Our earnings per share compound annual growth rate up to 2028 is now 8% instead of 10.2%.

We think Advantech’s dominant position in the IPC industry and reputation for providing reliable products and after-sales services give it a head start in offering next-generation industrial solutions, interconnected equipment and Internet of Things services. We believe Advantech’s two-pronged strategy of developing Internet of Things platforms and investing in Internet of Things service firms, reinforces its commitment to integrating hardware and services, differentiating itself from peers. Advantech’s revenue CAGR until 2028 is projected at 11%, with 70% of growth to come from Asia’s growing demand for robotics and industrial automation, 20% from potential new business in the U.S. and the remaining 10% from IoT offerings.

We retain our fair value estimates on Taiwanese technology companies in our coverage following a powerful earthquake and multiple strong aftershocks near the eastern city of Hualien on April 3, namely: Advantech at TWD 337; Delta Electronics at TWD 331; GlobalWafers at TWD 710; Largan at TWD 3,000; MediaTek at TWD 1,400; Sino-American Silicon at TWD 281; Taiwan Semiconductor Manufacturing Co at TWD 950 (USD 151 per ADR); United Microelectronics Corp at TWD 70; and Win Semiconductors at TWD 245 per share.

We cut our fair value estimate on narrow-moat Advantech to TWD 337 per share from TWD 361, as downbeat guidance points to a slower recovery in 2024 than we foresaw and rising operating expenses needed to broaden the firm's product portfolio will weigh on profitability. Our valuation corresponds to 27.3 times 2024 P/E, close to the stock’s five-year average. We reckon Advantech's shares are overvalued, as the market’s expectations for generative artificial intelligence, or AI, are too high, and we believe it is unlikely to benefit the company directly. While AI can be deployed in detection and some production tasks, we believe it is already reflected in our 10.2% earnings per share compound annual growth rate, or EPS CAGR, up to 2028.

We think Advantech’s dominant position in the IPC industry and reputation for providing reliable products and after-sales services give it a head start in offering next-generation industrial solutions, interconnected equipment and Internet of Things services. We believe Advantech’s two-pronged strategy of developing Internet of Things platforms and investing in Internet of Things service firms, reinforces its commitment to integrating hardware and services, differentiating itself from peers. Advantech’s revenue CAGR until 2028 is projected at 11%, with 70% of growth to come from Asia’s growing demand for robotics and industrial automation, 20% from potential new business in the U.S. and the remaining 10% from IoT offerings.