TCB Orders And Chip-to-Wafer Pilots Will Expand Advanced Packaging

Key Takeaways

• Expansion in advanced packaging and chip-to-wafer technology signals anticipated revenue growth and market share increase in memory and logic segments.
  
• Enhanced margins and strategic R&D investments bode well for net earnings growth despite challenging conditions.
  
• Currency fluctuations, increased operating expenses, and a competitive market landscape challenge ASMPT's revenue predictability and ability to maintain stable earnings.

Catalysts

An investment holding company, engages in the design, manufacture, and marketing of machines, tools, and materials used in the semiconductor and electronics assembly industries worldwide.

• ASMPT's continued expansion of its TCB (Thermal Compression Bonding) customer base, with new orders from additional global HBM customers, points to expected future growth in revenue from advanced packaging for memory applications.
  
• The progression of their chip-to-wafer TCB tools to pilot production with a leading foundry, demonstrating their technological edge in fluxless tools, suggests potential for increased revenue from logic market segments.
  
• The group's rebounding gross margin, exceeding 40% due to a better product mix, indicates potential for improved net margins as the Advanced Packaging segment gains traction.
  
• Cost control measures and a reduction in OpEx while investing in R&D for strategic growth could lead to improved net earnings, even amid challenging market conditions.
  
• The potential growth in orders for HBM4, leveraging ASMPT's advanced technical capabilities, positions the company for an increase in market share and revenue as higher demand for advanced packaging solutions emerges in the AI and high-performance computing sectors.

ASMPT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ASMPT's revenue will grow by 12.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 11.7% in 3 years time.
• Analysts expect earnings to reach HK$2.2 billion (and earnings per share of HK$5.27) by about May 2028, up from HK$345.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting HK$3.0 billion in earnings, and the most bearish expecting HK$1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2028 earnings, down from 63.0x today. This future PE is lower than the current PE for the HK Semiconductor industry at 22.3x.
• Analysts expect the number of shares outstanding to grow by 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.31%, as per the Simply Wall St company report.

ASMPT Future Earnings Per Share Growth

Risks

• ASMPT faces potential indirect impacts from tariffs, making growth trajectories difficult to forecast, which could affect future revenue predictability.
  
• Operating expenses have increased year-on-year, driven by strategic investments in R&D and infrastructure, which could pressure net margins if revenue growth does not keep pace.
  
• The mainstream business, including automotive and industrial sectors, remains on the soft side, affecting the company’s ability to capitalize on its full revenue potential.
  
• The competitive landscape in the HBM space is intensifying, which could impede ASMPT's ability to secure additional market share and affect future earnings.
  
• Currency fluctuations and Forex effects have impacted adjusted net profit, posing a risk to maintaining stable earnings.

Valuation

• The analysts have a consensus price target of HK$78.471 for ASMPT based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$100.0, and the most bearish reporting a price target of just HK$59.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be HK$18.7 billion, earnings will come to HK$2.2 billion, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of HK$52.2, the analyst price target of HK$78.47 is 33.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.