Advanced Packaging Leadership Will Harness AI And HPC Demand

Key Takeaways

• Growth in generative AI and high-performance computing fuels ASMPT's Advanced Packaging solutions, enhancing revenue and future earnings potential.
  
• Leadership in Thermo-Compression Bonding and strategic focus on advanced packaging solutions position ASMPT for market share growth and technological innovation.
  
• ASMPT faces significant challenges with declining revenues in key segments, increasing geopolitical risks, and pressures on margins despite investments in advanced solutions.

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.

• The growth in demand for generative AI and high-performance computing-related semiconductors is driving ASMPT's Advanced Packaging (AP) solutions, which increased revenue by 23% year-on-year in 2024. As this demand continues, it is likely to boost future revenues significantly.
  
• ASMPT's leadership position and technological advancements in Thermo-Compression Bonding (TCB) for high-bandwidth memory (HBM) applications position the company to capture more market share. This technological edge could enhance revenue and drive earnings growth.
  
• Estimated market growth for AP at a CAGR of 18%, reaching USD 4 billion by 2029, suggests robust future revenue potential. This expansion, driven by AI and HPC applications, aligns with increased earnings expectations.
  
• The company's strategic focus on CoWoS packaging solutions and their strong market position provide an opportunity to expand revenue streams across advanced technologies, potentially increasing earnings and contributing to higher net margins due to specialized solutions.
  
• ASMPT's significant investments in R&D, aimed at strengthening their leading position in AP, suggest long-term growth in revenue and earnings as these investments translate into competitive technology developments in emerging markets.

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$5.29) by about March 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 19.9x on those 2028 earnings, down from 68.3x today. This future PE is lower than the current PE for the HK Semiconductor industry at 21.0x.
• 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 8.81%, as per the Simply Wall St company report.

ASMPT Future Earnings Per Share Growth

Risks

• The company's SMT segment has experienced a significant decline in revenue and bookings, primarily due to ongoing softness in the automotive and industrial markets, potentially affecting overall revenue and net margins.
  
• Despite a strong position in TCB solutions, ASMPT has a significant exposure to the Chinese market, with its revenue share from China increasing substantially, potentially heightening geopolitical and regulatory risk that could impact future bookings and revenue stability.
  
• A notable decrease in the group's operating profit by 49.4% year-on-year, due to flat operating expenses amidst reduced revenue, poses a risk to earnings if such trends continue without significant topline growth.
  
• The group’s substantial investments in R&D and infrastructure for Advanced Packaging solutions indicate increased capital expenditures; any delays in capturing projected market share in this segment could impact net margins and profitability in the short to medium term.
  
• Continued pressure on gross margins due to product mix and competitive pricing in SMT, along with the recognition delays in complex tool revenues, might restrict improvements in operational efficiency and profit margins.

Valuation

• The analysts have a consensus price target of HK$80.294 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$63.0.
  
• 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 19.9x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of HK$56.65, the analyst price target of HK$80.29 is 29.4% 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.