Asmpt Ltd

Good morning and good evening, ladies and gentlemen. My name is Romil, the Group's Head of Investor Relations, and I will be the moderator for today's call. On behalf of ASMPT Limited, let me welcome all of you to the Group's second quarter and first half 2023 investor conference call. I would like to thank you all for your continued support and interest in the company. Please note that all participants will be only on the listen-only mode when the management is presenting. We will start the Q&A only after the management has gone through the entire presentation. During the Q&A session, priority will be given to the covering analysts. Let me quickly go through the disclaimer. Please do note that during this conference call, there may be forward-looking statements with respect to the company's business and financial conditions. Such forward-looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance, and events to differ materially from those expressed or implied during this conference call. For your reference, the investor relations presentation related to our recent results can be downloaded from our website. On today's call, we have Mr. Robin Hung, the Group Chief Executive Officer, and Ms. Katie Su, the Group Chief Financial Officer. Robin will begin with a brief discussion and Group's key highlights, and then Katie will provide details on the financials and segmental performance. This will be followed by an update on the guidance and outlook, and then we will open the floor for Q&A. Without further ado, let me hand the time over to Robin now.

Thank you, Rohan. Good morning and good evening, everyone. It is a pleasure to have you all on an earnings conference call for the second quarter and the first half of 2023. First, let me give some highlights on recent developments in the semiconductor industry and the overall macro environment before we provide an update about our second quarter and first half performance. For the first half of 2023, the group was impacted but the continued weak conditions prevailing in the semiconductor industry. This was due to conservative consumer spending and capex investment and ongoing industry supply chain inventory digestion. Looking at the performance of our two segments, they offer a sense of how we are positioned as a business and for the future. For our Semi business, recovery is taking longer than is anticipated, as factory utilization of the Semi customer base has been gradually improving, but has not yet reached optimum levels. In contrast, our SMT business continued to perform resiliently, and its second quarter revenue exceeded that of Semi for a fourth consecutive quarter. Taken as a whole, This demonstrates how our unique and broad-based portfolio is helping to partially mitigate adverse impact from the current semiconductor down cycle. The combination of this unique and broad-based portfolio and our deep partnership with major customers on the technology roadmap position us well to capitalize on growth opportunities. In particular, our advanced pathogen solution stands to benefit significantly from the strong growth that has been seen in generative AI and high performance computing, which I will share more about next. Basically, for advanced packaging of AP, we are confident that our solutions are well positioned to meet the growing needs of generative AI and HPC applications. We are engaged in deep collaborations with key customers to enable the strong growth in generative AI to meet high-precision bonding requirements and stringent total cost of ownership criteria. In terms of performance, our AP solutions generated about $195 million in revenue, representing 19% of group revenue for the first half of 2023. with thermal compression bonding or TCB making up the highest proportion of our AP revenue. Let me elaborate a little bit more on the TCB solutions which are in a commanding position to address crucial logic and memory packaging bottlenecks in generative AI. For Logic, our TCB solutions are enabling chip-to-wafer and chip-to-substrate processes for major customers that are critical for heterogeneous integration and assembly of increasingly sophisticated AI computing packages. We see promising TCB order flow for Logic from our Foundry and OSEC customers. In particular, demand from our Foundry customer base is growing due to the urgent need for expansion of the AP capacity. A popular question we have been getting from analysts and investors is our presence in high bandwidth memory or HPM. Simply put, our TCB solutions are able to fulfill the demanding packaging requirements of next generation HPM. We strongly believe that as generative AI proliferates, customers will increasingly migrate to this advanced HBM packages to meet ever increasing storage and processing needs. And we are well positioned to capitalize on the trend. We have warned repeat orders for HBM and we continue a deep engagement with multiple memory players. Based on these opportunities, we are confident on more TCB order flow for both logic and memory in the second half of 2023. Besides TCB, our mass reflow high-precision die-bonding solutions are also benefiting from generative AI with continuous flow from top-tier global customers. For hybrid bonding, after securing a maiden order as we mentioned in the last earnings hall, we continue our engagement with key customers for qualification in various end-market applications, including memory. Generative AI's increasing demand is not just relevant for a high-precision bonding solution, but also benefits other tools in the group's portfolio. Let me quickly highlight this. In silicon photonics, we have market-leading solutions with high placement accuracy that are relevant for devices such as optical transceivers and photonic engines. We received repeat orders for Silicon Photonics 2 to support a key customer's transceiver expansion plans to meet high-bandwidth transfer requirements, and we expect more such orders in the second half of 2023. As generative AI and HPC evolve, they will require increasingly complex chip architectures, which benefits our laser simulation solutions and panel electrochemical deposition tools. In particular, our laser simulation solutions have seen preliminary engagement with global IDMs to help build the next generations of tools. On the SMT side, of our business, we are seeing traction in the server business that is being driven by AI applications. Here, our SMT placement tools provide flexibility for customers in terms of handling larger board, larger server board weights and sizes. This slide helps zero in on how our TCP technology as a whole, and ASMPTs in particular, stand to benefit from the growth of generative AI and HPC applications. In terms of drivers, generative AI packages will require an increasing number of logic chiplets and new generation high bandwidth memory. This leads to a significant increase in the number of interconnects required to be bonded, especially for memory. This will also come with more stringent technology and cost criteria. If you recall, during the last quarter's earnings call, I highlighted an example of high-end HPC device that showed number of interconnects handled by TCB versus hybrid bonding. We estimate that around 90% of interconnects in complex generative AI and HPC packages will require TCB. And our TCB solutions are capable of handling a variety of interconnect types. Based on high precision requirements balanced with the total cost of ownership, we strongly believe that TCB is a key enabler for generative AI and HPC. And there will be an accelerated adoption of TCB. The graph in the middle depicts how we see the TCB equipment market developing, with an inflection point coming in the next year or so. We are in a commanding position benefit from this accelerated TCB adoption, based on our unique capabilities, as you can see on the right-hand side of the slide. Our TCB solutions have the best in-class die placement accuracy of below 1 micron. They are also capable of handling thin-dye, ultra-fine-pitched bonding requirements of below 50 microns, and multi-dye format of sizes up to 100 by 100 mm. With this anticipated market potential and our TCP capabilities, we are excited about the growth prospects in this particular area. Our automotive Air market applications continued the robust contribution to the group. The automotive air market contributed the highest proportion of group air revenue at approximately $230 million, or 23% of revenue for the first half of 2023. This contribution spanned across the group's mainstream solutions, particularly SMT placement tools, molding tools, and die bonders. Our automotive solutions have contributed strongly to our overall performance in the last two years, and this sector has begun to normalize. Notwithstanding, demand from EV players and for silicon cupboard related applications remains robust. Moreover, our automotive solutions continue to back design wins that will eventually translate into high volume manufacturing demand. We believe we have a strong foundation for future growth in the automotive market due to our role as a key partner in the technology roadmaps of major customers. With those highlights, let me now hand over the time to Katie our group CFO, who will talk about the group and segment performance.

Thank you, Robin. Good morning and good evening, everyone. This slide covers the group's key financial metrics for the first half of 2023. As highlighted earlier, we continue to be impacted by weak industry conditions. As our semi-business experienced a brunt of the impact from the ongoing semiconductor down cycle, Our SMT business stayed relatively resilient and was able to partially offset impact for the group. Looking at half on half comparisons, group revenue decreased by 12.1% while bookings came down slightly by 2.7% for the first half of 2023. Our backlog decreased by 13.4% in the last six months due to about 993 million US dollars. This backlog helps to support group's performance during this ongoing industry down cycle. Gross margin was 40.3%, a decline of 86 basis points half on half. Group net profit for the first half was 623 million Hong Kong dollars, down 29.5% half on half, and was adversely impacted by lower sales volume. Earnings per share for the first half came in at 1.52 Hong Kong dollars, a decrease of 29.3% half-on-half. Let me take you through more detailed financials and the segment performance in the next few slides. For first half of 2023, group revenue was close to a billion US dollars. This was a decline of 25.3% year-on-year and 12.1% half-on-half, mostly due to a decrease in semi-revenue, while SMT revenue remained stable. Group bookings were at $838 million, declining 43.9% year-on-year due to a high base effect. Bookings decreased slightly by 2.7% half-and-half due to a drop in SMT bookings, while semi-bookings grew from a low base. Contributions from advanced packaging, automotive, and industrial end markets combined accounted for approximately 57% of group bookings in the first half. Group gross margin of 40.3% declined slightly by 89 basis points year on year and by 86 basis points half on half. This was partly due to a segment mix as SMT contributed about 59% to group revenue in the first half. Group operating margin of 10.9% declined by 804 basis points year on year and by 318 basis points half on half. It was adversely impacted by lower sales volume. For the second quarter of 2023, group revenue of 497 million US dollars was higher than the midpoint of guidance. This was a decline of 25.0% year on year due to high base effect and roughly flat quarter on quarter. Group bookings were at about 384 million US dollars, a decline of 35.1% year on year due to a high base effect. and a decline of 14.9% quarter-on-quarter due to the ongoing industry down cycle. Group gross margin of 40.1% was a decrease of 158 basis points year-on-year and 33 basis points quarter-on-quarter. Margin decline is mainly due to semi partially offset by S&T. Group operating margin was 9.9%, a decrease of 892 basis points year-on-year and 197 basis points quarter-on-quarter. year-on-year decline was due to lower sales volume. For the second quarter of 2023, the semi-segment revenue grew 7.4% quarter-on-quarter to about $211 million from a low base. The IC discrete business unit had stable revenue quarter-on-quarter with the highest revenue contribution from TCB. The business unit also had some increase in contribution from its mainstream tools. The optoelectronics business unit recorded higher revenue quarter on quarter. Revenue growth was mainly driven by Y-bounders for conventional displays and high-end silicon photonics applications also grew. The CIS business unit revenue continued to remain relatively low due to ongoing weakness in global smartphone market. With the ongoing semiconductor down cycle, second quarter booking for semi declined to approximately $162 million. This was a decline of 40.5% year-on-year and 15.5% quarter-on-quarter. Semi-gross margin was 42.7%, a decline of 201 basis points year-on-year due to volume effect. Gross margin declined 243 basis points quarter on quarter, partially due to a higher mix of white bonders. The SMT segment continued to deliver relatively stable revenue for the second quarter of 2023, contributing about 286 million US dollars, or about 58% of group revenue. This was an increase of 5.3% year on year, but a decline of 5.5% quarter on quarter. SMT's revenues mainly from industrial and automotive applications. These two combined made up almost half of SMT's revenue with demand mostly from Europe. Our SMT business has enjoyed a high level of bookings for more than two years and has entered a normalization phase. SMT bookings declined to about $223 million for the second quarter, a drop of 30.6% year-on-year and 14.5% quarter-on-quarter. Similar to revenue, SMT bookings were also driven mostly by industrial and automotive end markets. SMT gross margin increased to 38.2% in the second quarter. Gross margin increased 85 basis points year on year and 81 basis points quarter on quarter, mainly due to a favorable product mix. This slide highlights the management's best estimates of revenue breakdown by end market applications for first half of 2023, highlighting the extent of our broad-based portfolio. The automotive market continued to have the highest contribution to group revenue at about 23%. mostly from mainstream solutions across both SMT and Semi. The industrial market continues robust contribution to group revenue at about 18%, mostly coming from SMT. Consumer, communication, and computers are the CCC market's remaining weak due to market sentiment. We serve a diverse global customer base, which includes IDMs, OSETs, fabulous, boundaries, high density substrate manufacturers, EMS players, and more. Having this wide range of customers has helped us maintain a low level of customer concentration risk. For first half of 2023, our top five customers accounted for approximately 20% of revenue. This slide shows the half yearly revenue contribution by different geographies over three consecutive periods. Looking at the graph, contribution from China declined year on year for first half of 2023, dropping from 44% to 30%. Revenue from Europe grew from 15% to 30% year on year, and America's grew from 9% to 19% year on year. The group remains committed to enhancing shareholder value and returning to shareholders. The existing given policy is to maintain payouts of about 50% of group's profits on an annual basis. For first half of 2023, the Board of ASMPT has declared an interim dividend of 61 Hong Kong cents per share, down 53.1% year-on-year, and that is in line with 64.1% year-on-year decline in net profit. This now concludes the financial section. Let me pass the time back to Robin for Q3 revenue guidance.