automotive

ASMPT: Which business segments were buoyant in 2022 after 2021 supercycle year?

This is part 1 of a 2-part report. Part 2 is: ASMPT: Q&A on 40% gross margin, semicon recovery

After the semiconductor industry's super-cycle year 2021, the following year was hit by events including the Russia-Ukraine conflict, ongoing trade tensions, inflation and cautious consumer sentiment in the face of an economic slowdown.

Stock price	HK$72.95
52-week range	HK$41.60 – 87.75
Market cap	HK$30.1 b
PE*	11.5
Dividend yield*	4.4%
1-year return	-14.4 %
Shares outstanding	412.7 m
* Based on FY22 EPS $6.36 and HK$3.20 dividend.

Still, ASMPT’s performance for 2022 actually surpassed pre-pandemic levels, recording its second-highest annual revenue and bookings.

CEO Robin Ng said at an earnings call this week: "Part of our success was our ability to effectively tap the competitive advantages of our unique and broad-based portfolio of semiconductor and electronics manufacturing solutions.

"These span mainstream, applicative, and advanced packaging tools, and serve various end-market applications across a global pool of customers. We truly believe our solutions portfolio continues to be a differentiator for us."

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Reflecting different business cycles, the SEMI segment's revenue fell 25.2% y-o-y while SMT segment grew 9.8%.Regarding ASMPT's unique and broad-based portfolio, the Group’s SMT segment delivered record revenue in 2022, fuelled by strong demand from the Automotive and Industrial end-markets.

The SMT segment also recorded its highest ever share of contribution to Group bookings in 2022.

"These developments clearly reflect the resilience of our business model even in a semiconductor downcycle."

As for the end-markets, with macroeconomic uncertainties and dampened consumer sentiments, the Consumer, Communication and Computer end-markets were weak in 2022.

However, the Automotive and Advanced Packaging end-markets did well, delivering an aggregate of about 40% of Group revenue for 2022:

• The Automotive end-market benefitted from the global transition to electric vehicles and thus counted China's fast-growing EV manufacturers among its customers.

This end-market enjoyed 20% year-on-year growth in revenue, achieving its highest-ever level of about US$515 million. Automotive also had the highest weightage of Group revenue at about 21%.

• Advanced Packaging solutions contributed roughly US$500 million in revenue for 2022, or about 20% of total Group revenue.

Mr Ng said: "The Group is confident of having the industry’s most comprehensive suite of Advanced Packaging solutions across the SEMI and SMT segments."

Heading into 2023, Automotive and Advanced Packaging set ASMPT's orderbook up well, boosting the total backlog to US$1.15 billion. Most of it will be delivered this year.

The Group expects revenue for first quarter of 2023 to be between US$455 million to US$525 million. At mid-point of guidance, this will be a decline of 11.4% quarter-on-quarter.

As for dividends, the policy is to maintain payouts of about 50% of Group’s profits on an annual basis.

For 2022, the Board proposed a final dividend of HK$1.90 per share. Including an interim dividend of HK$1.30 per share, the total payout for 2022 is HK$3.20 per share.

For more on the results, see the Powerpoint deck here.

INNOTEK: 2023 to be a robust turnaround year?

InnoTek Limited ($0.475)

• Its revenue increased 7.6% year-on-year to S$186.8 million for the year ended 31 December 2022 (FY’22) despite a challenging operating environment, and maintained a first and final dividend of 2.0 Singapore cents per share, giving a yield of 4.2%.

• 2H profit was flattish yoy at $4 million, but turned around from 1H’s loss of $2 million, reflecting improved operating conditions and more favourable forex and raw material costs.

Innotek recorded improved performance in the Group’s Automotive and Office Automation (“OA”) business segments, boosting the top line for the six months ended 31 December 2022 (2H’22) to S$102.3 million, 14.6% higher than S$89.3 million in 2H’21.

The OA segment recovered strongly as supply chain disruptions eased, resulting in higher sales from key customers in China and Thailand. Revenue for the segment’s parts assembly business also increased, reflecting the success of the Group’s efforts to move up the value chain.

Electric vehicle boost

"Pent-up demand in China is expected to boost recovery in the Group’s Auto segment; meanwhile, the Group intends to ride the growing adoption of Electric Vehicles (“EVs”) to offer its precision stamping expertise and become a strategic partner for key EV customers."

Meanwhile, the Auto business benefited from stimulus policies implemented in China and higher orders from customers making up for lost production time during COVID-related lockdowns.

Growth was partially mitigated by weaker demand overseas as well as in the Chinese commercial vehicle market.

The top line improvement for 2H’22 and FY’22 was partially offset by lower turnover in the TV and Display segment, mainly due to dampened consumer sentiment amid the Russia-Ukraine conflict, high inflation in Europe and USA, as well as an oversupply in the European TV industry.

The Group also recorded improved performance in the gaming machine and medical device businesses, partially offset by slower-than-expected progress in other businesses such as 5G servers.

Looking ahead, business momentum is largely expected to improve, as the country lifted its “Dynamic Zero” COVID policy in January 2023.

However, the Group is closely monitoring several headwinds such as fluctuating export demand, soft domestic demand, further disruptions to the global supply chain due to the prolonged Russia-Ukraine war, and elevated levels of inflation.

7th consecutive quarter of profit

“InnoTek has closed its seventh consecutive year of profitability, underscoring our resilience in the face of numerous challenges.”

-- Lou Yiliang,
CEO, InnoTek

Pent-up demand in China is expected to boost recovery in the Group’s Auto segment; meanwhile, the Group intends to ride the growing adoption of Electric Vehicles (“EVs”) to offer its precision stamping expertise and become a strategic partner for key EV customers.

For the OA segment, the Group expects a near- to medium-term slowdown, amid waning recovery and a shift in market demand from China into Southeast Asia.

In response, the Group is expanding into parts assembly, compared to single-piece manufacturing. For the TV and Display segment, short-term demand is expected to be impacted by softer Europe and American markets.

The Group remains confident its key customers will maintain market share in the high-end TV market and is focusing on improving technical capability, upgrading the Group’s products and implementing cost-control measures to meet long-term demand.

The Group continues using its internal resources to strengthen production capabilities in its manufacturing facilities in Rayong, Thailand, which has steadily increased production of OA and Auto products, as well as Bac Ninh, Vietnam, which has commenced the production of bespoke-design heatsinks for a TV customer and will start the production of TV bezels in the first quarter of 2023.

Meanwhile, the Group will continue its plan to diversify into emerging industries and establish partnerships in the medical devices, 5G servers, and gaming machine sectors.

These partnerships are expected to bear fruit in the coming months and will contribute to financial performance from FY’23.

2023 turnaround year

Innotek’s full year profit of $2.3 million came in marginally lower than our forecast of $2.8 million, but we believe the 2023 will continue to be a robust turnaround year for them.

We are expecting 2023 profit to come in at $12 million, giving a forward PE of 9x.

Net cash of $78 million represents 71% of its market cap of $110 million. Dividend of 2 cents implies a yield of 4.2% while P/B ratio is 0.6x.

We maintain our “Accumulate” recommendation on Innotek.