Upgrade to BUY upon the Sora momentum
　　ASMPT’s 4Q23 results were mixed but we expect the Sora breakthrough to be another structural catalyst for Company’s AP business over the long term. The AP growth may not fully offset the prolong semi capex downcycle in the near term but we believe ASMPT is set to re-rate from the booming GenAI supply chain with its TCB, HB and SiPh products. As a key Sora beneficiary among HK stocks, we upgrade ASMPT from HOLD to BUY with a higher TP of HK$109.5 based on 22x 2025E EPS.
　　Key Factors for Rating
　　4Q23 financials: Revenue decreased by 21% YoY and 2% QoQ to HK$3.4bn, beating previous guidance thanks to strong demand in AP. GPM increased by 8ppts QoQ to 42.3% and OPM increased 3.6ppts QoQ to 5.5% as a result of high AP revenue contribution. NI decreased 71% YoY to HK$76m.
　　Weak 1Q24 guidance but bullish tone for 2024: 1Q24 revenue guidance of US$370-430m is below market by 9% mainly due to weak 4Q23 SMT bookings but mgmt. mentioned as demand bottoms out, bookings are expected to grow 30% QoQ, which is a comfort to the market. We expect while the overall semi demand remains in gradual recovery, ASMPT has the potential to outgrow peers thanks to its growing generative AI exposure.
　　AP takes the spotlight: AP revenue contribution increased to 22% in 2023 (25% in 2H23 vs 19% in 1H23) thanks to the booming generative AI market led by the GenAI supply chain. We believe OpenAI’s new text-to-video AI Sora will significantly increase AI infrastructure demand from 2024 onwards and ASMPT’s AP tools including TCB, HB, SiPh will have a strong ramp up for at least 3-5 years.
　　Key Risks for Rating
　　Slowdown in GenAI breakthrough; soft macro economy; weaker-than-expected automotive and industry semis dragging on SMT; global fab capex slowdown.
　　Valuation
　　We slightly lower our 2024E/25E revenue by 2%/2% to factor in SMT weakness but increase EPS by 18%/6%, to factor in the expanding profitability from faster TCB shipment ramp.
　　We raise our rating on ASMPT from HOLD to BUY driven by the exciting OpenAI breakthrough in text-to-video AI. We increase target price to HK$109.5 (was HK$88.8) based on 22x 2025E EPS, slightly above its three year average multiple. We believe the global trading momentum on GenAI after strong NVidia results and Sora debug will continue to drive ASMPT’s re-rate process.