ASMPT's 2Q25 earnings missed expectations mainly due to FX impact on GPM and strategic R&D investments. However, blended B/B ratio improved to 1.11, driven by order gains across SEMI and SMT, supporting robust 3Q25 revenue guidance (+11% YoY, +9% QoQ at midpoint). Advanced packaging (AP) contributed 39% of revenue in 1H25, with momentum likely to continue given structural AI demand for TCB and other AP tools and ongoing qualification progress at leading foundry, OSAT and HBM clients. We revise down 2025/26/27E earnings by 15%/4%/3% to reflect higher OPEX estimate but maintain BUY with HK$80 TP upon more visible recovery path at SMT and mainstream SEMI business thanks to rebound in AI and China demand.
　　Key Factors for Rating
　　2Q25 earnings missed due to high OPEX amid early recovery signs: Revenue increased 2% YoY to HK$3.4bn, close to mid-point guidance. GPM and OPM decreased by 1.2ppts and 0.1ppt QoQ to 39.7% and 5.0% respectively, mainly due to strategic R&D, IT infrastructure investment and FX impact, partially offset by one-time tax credits from R&D centres in Europe and Asia, and resulting in lower adj. NI by 3% YoY at HK$131m. Blended B/B improved to 1.11 with SEMI at 0.83 and SMT at 1.51 respectively, implicating strong order booking building.
　　Positive 3Q25 guidance thanks to strong bookings from AI and China demand rebound: 3Q25 revenue guidance of US$445-505m is above market by 1%, with mid-point increased by 10.8% YoY and 8.9% QoQ, supported by 1) SEMI orders from wire and die bonders growth but offset by TCB decline due to uneven AP order flow and 2) SMT orders from a leading smartphone end- customer for supply chain diversification and AI server. Looking ahead, mgmt. expect strong AP growth, mainstream demand recovery supported by momentum in China and opportunities emerging from AI data centres but partially offset by soft near-term auto and industrial end-markets. Mgmt. also believe the impact from tariff is manageable while uncertainty remains.
　　AP momentum driven by AI tailwinds: 1H25 AP revenue accounted for 39% of total revenue, a record high. ASMPT has now gained the largest TCB installed base by surpassing 500 tools worldwide. In 1H25, TCB orders were up 50%, supported by 1) bulk install for HBM3E 12H, low volume manufacturing for HBM4 12H and multiple HBM4 AOR sampling for HBM clients, 2) large shipment for C2S as sole supplier for a leading foundry. ASMPT will ship 2nd Gen HB tool to HBM customers and continue its collaboration with leading IDM, research institution and foundry. ASMPT also gained major win for photonics and CPO (Co-Packaged Optics) in 1H25. We expect ASMPT's TCB and other AP tool order wins to go on a fast growth stage and secure well market position in 2H25.
　　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 increase SMT revenue estimate by 3% to factor in SMT demand pickup driven by China and AI but lower SEMI revenues by -2% upon delayed C2S TCB order over 2025-27. Thanks to higher AP mix, we expect group GPM to stay well above 40% but lower NI forecasts by 15%/4%/3% to reflect heavy OPEX dragging operating leverage. We use 20x 2026E EPS to value ASMPT. Maintain BUY with a revised TP at HK$80 (previously HK$81).