20131115-巴黎银行证券-Headwinds_from_all_directions_12页_2mb

ASM Pacific Technology (ASMPT) Summary

Core Content

ASM Pacific Technology (ASMPT) is a leading supplier of semiconductor packaging equipment and also provides equipment and process solutions for photonics and optoelectronics industries. The company is listed on the Hong Kong Stock Exchange (HKSE) since 1989 and is 40% owned by ASM International (ASMI). The report discusses the company's challenges, performance outlook, and valuation adjustments.

Key Information

• Target Price (TP): HKD52.20 (reduced from HKD65.00)
• Current Share Price: HKD62.20
• Downside from TP: -16.1%
• Change in TP: -19.7%
• Valuation Basis: Based on normalized ROE in high 20s
• Profitability Outlook:
  • Revenue growth expected from 2013 to 2015: 3.9%, 11.6%, and 11.1%
  • Recurring EPS: HKD1.90 (2013), HKD3.64 (2014), HKD5.14 (2015)
  • Net profit: HKD689 (2012), HKD759 (2013), HKD1,452 (2014), HKD2,052 (2015)

Main Challenges and Risks

• Yantian Site Relocation Backlash:

  • A significant protest by 1,000 staff occurred following the announcement of relocation from Yantian to Longgang.
  • This relocation may result in one-off charges and production hiccups, affecting staff retention and training, which could increase medium-term operating costs.
  • The company's integrated model and internal parts sourcing are at risk due to this disruption.

• Market Shift from Wire Bonding (WB) to Flip Chip (FC):

  • ASMPT is shifting away from its WB-centric model, but its FC bonder (TCB) has not generated substantial benefits.
  • High machine ASP and low throughput are barriers to adoption.
  • Exclusive supply terms with its only TCB US IDM client limit customer diversification.
  • The company's TCB contribution is expected to be in mid-single-digits of backend sales in 2014.

• Competitive Pressure:

  • Peers such as BESI, KnS, and Shinkawa are increasing their presence in the FC bonder market.
  • KnS's imminent TCB shipment for evaluation may intensify the rivalry.
  • ASMPT's first-mover advantage in TCB does not translate into market success due to current market conditions.

Key Assumptions and Financial Projections

• Backend Gross Margin: Expected to remain below 40% in 2H14 due to the site relocation impact.
• EBITDA and P/E Trends:
  • 12-month forward P/E valuation band is presented.
  • Recurring P/E for 2014 is 17.1x.
• Dividend Yield: Expected to increase from 1.5% in 2012 to 6.6% in 2015.
• EPS Growth:
  • 10.0% in 2013,
  • 91.2% in 2014,
  • 41.4% in 2015

Investment Thesis

• The shift from WB to FC interconnect is reshaping the packaging/assembly equipment (PAE) market.
• Gartner predicts a rapid decline in wire-bonder market size from 2016 onwards.
• FC bonder sales are expected to grow but not enough to offset WB sales decline.

Key Catalysts and Risks

• Catalysts:
  • Potential TCB success in penetrating tier-1 clients.
• Risks:
  • Waning booking strength and rolling over book-to-bill (BtB) could negatively impact share price.
  • The company's WB-centric model is under threat due to FC market growth.
  • Possible sell-down by parent company ASMI may affect share valuation.
  • ASMPT's dividend payout ratio may decline due to increased working capital needs from SMT tool division add-on.

Financial Highlights

• Gross Margin:
  • 30.4% in 2013,
  • 34.5% in 2014,
  • 37.0% in 2015
• Operating EBITDA Margin:
  • 11.9% in 2013,
  • 17.8% in 2014,
  • 21.8% in 2015
• Net Margin:
  • 6.6% in 2013,
  • 12.0% in 2014,
  • 15.2% in 2015
• ROE:
  • 11.1% in 2013,
  • 20.9% in 2014,
  • 27.7% in 2015
• P/BV (Price to Book Value):
  • 3.9x in 2012,
  • 3.5x in 2014,
  • 3.2x in 2015
• EV/EBITDA:
  • 19.1x in 2012,
  • 11.1x in 2014,
  • 8.2x in 2015

Company Background

• Founded: 1989
• Headquartered: Hong Kong
• Operations: Shenzhen, Singapore, Malaysia
• Parent Company: ASM International (40% ownership)
• Market Cap (USD m): 3,203 (as of March 2013)

Key Executives

• Arthur H Del Prado: Chairman (since 2007)
• Lee Wai Kwong: Chief Executive Officer (since 2007)

Valuation Metrics

• Recurring P/E (x):
  • 36.0x (2012),
  • 32.7x (2013),
  • 17.1x (2014),
  • 12.1x (2015)
• P/BV (x):
  • 3.9x (2012),
  • 3.7x (2013),
  • 3.5x (2014),
  • 3.2x (2015)

Financial Statements

• Cash Flow:
  • Recurring cash flow per share: HKD2.93 (2013), HKD4.77 (2014), HKD6.47 (2015)
  • Free cash flow to equity per share: HKD1.85 (2014), HKD2.11 (2015), HKD3.20 (2015)
• Balance Sheet:
  • Book value per share: HKD16.86 (2013), HKD17.90 (2014), HKD19.28 (2015)
  • Net debt/equity (%):
    • -16.4% (2013),
    • -13.3% (2014),
    • -10.1% (2015)

Summary of Key Financial Metrics

Conclusion

The report highlights the challenges ASMPT faces in transitioning from WB to FC interconnect, with the Yantian site relocation causing unexpected backlash and operational challenges. Despite the company's efforts in developing advanced TCB equipment, its market penetration remains limited due to high costs and low throughput. The report reduces the target price to HKD52.20 based on fundamentals, emphasizing the need for successful TCB launch and addressing the risks associated with the shift in market dynamics and potential parent company sell-downs.