An unrivaled technology leader in the field of thermocompression bonding (the first choice for cost/performance in advanced packaging bonding solutions); electrochemical deposition equipment is a hidden gem in ASMPT's advanced packaging expansion story.
Profitability is linked to the rapidly growing advanced packaging business with higher profit margins, driving valuation reshaping.
The first coverage gave a “buy” rating, and the target price of HK$150.00 was the highest in the market (25x 2025E P/E).
The English version of this Hong Kong Stock Connect report was released by Huaxing Securities (Hong Kong) at 6 a.m. on April 3, 2024. The Chinese version was reviewed by Wang Yiming (Securities Analyst Registration Number: S1680521050001) of Huaxing Securities. If you would like to further discuss the views expressed in this report, please contact your sales representative at Huaxing Securities.
Embarking on the path of monetizing advanced packaging: As a leading semiconductor equipment supplier focusing on back-end production, ASMPT is at the forefront of enabling increasingly complex packaging technology. Most of its Advanced Packaging (AP) customers are from the world's leading advanced packaging customers in the foundry and IDM sector, and a small number of customers are from OSAT vendors. This is due to ASMPT's strong focus on R&D investment and the strategic allocation of resources to areas where long-term growth is expected. The company has invested in advanced packaging for more than ten years, and has also established close cooperation with leading customers, enabling it to begin monetizing its R&D results and gain market share in the thermocompression bonding (TCB) market (the best choice for advanced packaging bonding solutions). Advanced packaging contributed 22% (US$410 million) of the Group's total sales revenue in 2023. We expect ASMPT's semiconductor solutions (SEMI) revenue to grow at a CAGR of 30% in 2023-26, compared to 18% of the company's potential market size for advanced packaging in 2024-28.
Hot press bonding - the best option for advanced package bonding solutions: ASMPT began supplying hot press bonding equipment more than ten years ago has gradually been proven to be the preferred solution for C2S/C2W bonding in AI/HPC applications in the next 3-5 years, because: 1) its 10-50um spacing bonding scheme is optimal (while traditional inverted packaging faces reliability issues in this range); 2) Compared with hybrid bonding (HB), its cost of ownership is more advantageous. The huge cost/technical difficulties of hybrid bonding limited the technology's use in the ultra-fine pitch (<10um) niche market. JEDEC's relaxation of the HBM thickness standard also provides a longer and wider runway for using hot press bonding.
The story of advanced packaging equipment is not limited to bonding equipment; electrochemical deposition equipment is a hidden gem: Following the acquisition of NEXX from Tokyo Electronics in 2018, ASMPT is the only packaging equipment manufacturer to serve the mid-production (MOL) electrochemical deposition equipment (ECD) market. While other major vendors (LRCX, AMAT, Ebara) focus on front-end production (FEOL), ASMPT's focus on midstream production is more suitable for advanced packaging. ECD devices are critical devices that determine characteristic quality (bumps, copper columns, TSV, RDL) and influence bonding quality, and their importance will increase as the characteristic size of the device shrinks. Since the acquisition, ASMPT's ECD business has received little attention from investors, so we think this business will be a “free option” because it has the potential to provide potential profit growth of approximately HKD 1 per share per year, taking into account: 1) improvements in the ECD Stratus series equipment; 2) the integration of ASMPT and NEXX businesses can drive better cost synergy; and 3) the increase in demand for advanced packaging.
First coverage, with a “buy” rating, with a target price of HK$150.00: Our target price is based on 25 times the 2025 P/E, which is higher than the midpoint of the average since 2020 (where advanced packaging's sales revenue contribution ratio exceeds 20% for the first time). In the past, the company's traditional semiconductor packaging equipment determined overall profitability and limited investors' interest. We think it's time for a change: we expect the company's profitability to be more closely linked to the rapidly growing advanced packaging business with higher added value, thereby driving the reshaping of valuations. Furthermore, ASMPT is one of the few Hong Kong stock chip-related companies that can be participated by overseas investors, increasing the scarcity premium.
Risk warning: Advanced packaging penetration is slowing; industry competition is intensifying; demand is weakening.