Incident: The company released 24Q2 results, with revenue of 0.427 billion US dollars corresponding to 3.34 billion HKD, YoY -14.3%, QoQ +6.5%, higher than the median value of 3.8 to 0.44 billion US dollars in the previous guidance range. Among them, the semiconductor solutions business revenue was 0.213 billion US dollars, YoY +21%, QoQ +0.4%, driven by demand for integrated circuits/discrete devices, optoelectronics, and CIS; SMT business revenue was 0.215 billion US dollars, YoY -25%, and QoQ -4.7%, which was weak demand in the automotive and industrial sectors. Q2 gross margin fell 1.84 pct to 40% month-on-month, which is a decline in the gross margin of the SMT business; among them, the gross margin of the SMT business fell 4.1 pct to 35.6% month-on-month, and the gross margin of the semiconductor business fell 0.1 pct to 44.5% month-on-month. 24Q2 adjusted net profit of HK$0.137 billion, YoY -56%, QoQ -23%, corresponding to a net profit margin of 4.1%, corresponding to EPS of 0.33 HKD.

The pace of semiconductor recovery in 2024 was slightly slower than expected, dragged down by traditional packaging and SMT, and AI-related advanced packaging became the company's long-term growth point: 24Q2 added orders of 0.399 billion US dollars, QoQ -2.4%, which is a decline in SMT business orders, and the semiconductor business recorded growth; among them, the SMT business added orders QoQ -16% to 0.18 billion US dollars, which is due to weak market demand; the semiconductor business added QoQ +12% to 0.22 billion US dollars, mainly due to Driven by advanced packaging solutions, the 24H1 semiconductor business has achieved a BB ratio above 1. The company's semiconductor business performance was mixed. On the one hand, advanced packaging grew due to strong demand for AI and HPC, with 24H1 revenue of 0.21 billion dollars, accounting for 25% of revenue, mainly contributed by TCB equipment, SiP, and optoelectronics; on the other hand, the recovery of the semiconductor cycle was slower than expected, and demand from the automotive and industry was weak, causing traditional packaging revenue and order performance to fall short of expectations. The company guides the 24Q3 revenue range of 3.7 to 0.43 billion US dollars, corresponding to a median QoQ of -6.4%. This is due to weak SMT and slower than expected recovery in traditional packaging. As the company expects a month-on-month decline in the number of new orders added in Q3, we believe that the inflection point of performance may be postponed until after 24Q4.

Delivery of AI chips and HBM-driven TCB devices accelerated in 25/26: the AI arms race drives high demand for GPUs and high-bandwidth memory (HBM), and the company's TCB devices are used to package logic, storage, and edge server/device application processors. Considering the subsequent expansion of customer production, we expect 24Q4 TCB devices to cooperate with logic and HBM to make progress and win more orders. We are optimistic that TCB will drive rapid revenue growth in the advanced packaging business in 25/26. 1) In terms of logic chips, orders continued to grow. 24Q2 continues to receive new chip-to-wafer (C2W) orders from leading IDM and OSAT customers; it is also developing next-generation TCB equipment with leading foundry customers. It is anticipated that 24H2 will have orders; the chip-to-base (C2S) side has received a sustainable order flow, and I am confident that 24H2 related orders will grow further. 2) On the HBM side, TCB equipment is expected to meet strong demand to expand production, and HB equipment won the first order. In terms of TCB equipment, 24Q2 cooperated with HBM manufacturers, and the development of HBM stacks on the 12th floor and above progressed smoothly; in July, it won an order for 2 next-generation TCB devices from HBM manufacturers. In terms of HB equipment, the 24Q2 HBM manufacturer signed the first order to purchase 2 next-generation HB equipment for technology research and development.

Profit forecast, valuation and rating: Semiconductor recovery fell short of expectations. Traditional packaging, SMT and other businesses were under pressure, and the profitability of the SMT business declined. The company's net profit forecast for 24-26 was lowered to HK$0.565/1.341/2.004 billion (-59%/-48%/-40% compared to the previous forecast), corresponding to a year-on-year growth rate of -21.0%/+137.4%/+49.4%. However, considering that R&D of TCB equipment is progressing smoothly in terms of HBM and logic, customers actively expanded production to help TCB and HB equipment increase their performance in 2025/2026, and are optimistic that the company's advanced packaging business will maintain rapid growth over a long period of time; maintaining the “gain” rating.

Risk warning: The semiconductor industry has entered a downward cycle; demand for AI computing power falls short of expectations; penetration of advanced packaging and miniLED falls short of expectations; customer expansion falls short of expectations.