ASMPT’s 4Q24 revenue came at the upper range of guidance driven by strong AP growth; however, weak margins in both SEMI and SMT led to net income of HK$4m and adj. net income of HK$76m, both missing estimates. We remain positive on structural TCB and other AP tool demand for AI and ASMPT’s qualification and order gain progress.
　　Mainstream and non-AI related applications have been a dragging factor but as AP should well exceed 30% of revenues and 50% of net income from 2025 onwards, we believe the stock is currently undervalued. We cut 2025/26 earnings by 28%/16%. Maintain BUY with TP lowered from HK$107 to HK$98.
　　Key Factors for Rating
　　4Q24 margin and bottom line missed mainly due to weak mainstream: Revenue was flat YoY at HK$3.4bn, near the upper range of guidance, while GPM and OPM decreased by 3.8ppts and 5.2ppts QoQ to 37.2% and 0.1% respectively, dragging adj. NI down by 94% YoY and 83% QoQ to HK$4m. The weak margins were mainly due to 1) drag in auto and industrial demand, 2) unfavourable product mix in consumer electronics, 3) one-time restructuring cost of HK$95m booked. SEMI B/B was strong at 1.09 driven by AP order gains but constrained by weak SMT B/B at 0.77 in 4Q24.
　　1Q25 guidance remains weak but good sign is around the corner: 1Q25 revenue guidance of US$370-430m is below market by 10%, mainly due to soft demand from non-AI sectors such as auto and industrial, but partially offset by 1) demand recovery from consumer electronics and 2) delayed TCB revenue recognition from 4Q24 orders. According to new book/bill guidance, group B/B ratio will return to over 1.0 in 1Q25 after the past three consecutive quarters, signaling a bottoming out of business.
　　AP momentum by AI remains robust: 4Q24 AP revenue of US$255m beat our estimate by 8%. In 4Q24, ASMPT won orders for 1) HBM3e 12H HVM from a leading HBM maker and 2) two next generation HB tools targeting to deliver by mid-2025. ASMPT aims to capture 35-40% of the global TCB market share by 2027 and plans to invest HK$350m for AP R&D and targets to double TCB production capacity by end-2025. Given the robust global AI demand including new demand from China, we expect ASMPT's TCB and other AP tool order wins to go on a fast growth stage, beating market expectations.
　　Key Risks for Rating
　　Slowdown in GenAI demand; soft macro and geopolitical uncertainty; weaker- than-expected automotive and industrial demand; global fab capex slowdown.
　　Valuation
　　We keep SMEI revenue estimate largely unchanged but lower SMT revenues to reflect soft non-AI growth. We also cut margins of both SEMI and SMT to reflect a more competitive dynamic in the mainstream packaging business. As a result, we cut 2025/26 earnings by 28%/16%, respectively. We use 23x 2026E EPS to value ASMPT. Maintain BUY with a revised TP at HK$98 (previously HK$107).