Asmpt Ltd

Good morning and good evening, ladies and gentlemen. This is Romil, the head of investor relations for ASMPT, and I will be the moderator for today's call. On behalf of the group, let me welcome all of you to our third quarter investor conference call. And thank you for your interest and your continued support in the company. Please note that all participants will be on 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 highlight 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 employed 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 our Group CEO, Robin, and our Group CFO, Katie, Robin will begin with a brief discussion and highlight on some of the developments of the group, and then Katie will provide details on the financial performance. This will be followed by an update on the revenue guidance and outlook, and then we will open the floor for Q&A. With that, let me hand the time over to Robin now.

Thank you, Rob. Good morning, good evening, everyone. It's good to see all of you on our earnings conference call for Q3 2023. Let me start the presentation by providing some of our observations on recent developments in the semiconductor industry and the overall macroeconomic environment before we provide an update about our third quarter performance. For Q3 2023, the group continued to be impacted by an ongoing challenging macroeconomic environment, in particular, tepid consumer spending. Consequently, weak conditions were prevalent in the semiconductor industry with low electronics demand and conservative capex investment. Due to this industry weakness, demand-supply dynamics did not turn favorable during this quarter. As the group navigated these challenging industry conditions, our unique and broad-based portfolio helped to partially mitigate the adverse impact. This can be seen from our SMT business, which continued to deliver higher revenue than our semi-business for a fifth consecutive quarter, even as SMT goes through a normalization phase. Our SMT business has delivered strong performance for over two years, and it's quite expected that it will undergo an adjustment period as its overall addressable market normalizes. For our semi-business, we are witnessing gradual improvement in factory utilizations by the semi-customer base, but these have not yet reached optimal levels for strong order flows. As a result, while semi-business witnessed some sporadic demand, we believe that this was not reflective of a broad-based recovery in the segment. It is interesting to note that on a year-on-year basis, semi-bookings have been declining at a gradually slower pace in the recent quarters. This indicates that bookings are trending in the right direction, and we believe this is a signal that the market could be stabilizing. Looking at our unique and broad-based portfolio across both our SEMI and SMT segments, and our deep partnership with major customers on their technology roadmaps, we are well positioned to capitalize on growth opportunities. In particular, our comprehensive suite of advanced packaging solutions continue to witness a growing global demand, largely driven by generative AI, and high performance computing or HPC applications. I will share more about the progress of our advanced pathogen or AP solutions in the next two slides. The increasing demand for such applications give us confidence in the long-term potential of our AP solution suite. We are deeply engaged with key customers to enable the strong growth in generative AI and HPC by meeting high precision bonding requirements and stringent total cost of ownership criteria. The group saw continued demand for AP solutions with our thermal compression bonding or TCB solutions continue to contribute the most to both the group's AP bookings and revenue for this quarter. Let me provide more detail about TCB solutions. I have highlighted this part in the previous call, but let me repeat that for logic applications, our TCB solutions are enabling both chip to wafer and chip to substrate processes for major customers. These are critical for the heterogeneous integration and assembly of increasingly sophisticated advanced packages. Thus, logic-related packaging demand continued to drive momentum for our TCB solutions. For the third quarter, orders for the group's TCB solutions or generative AI applications came from a leading foundry and also from OSAC customers. Orders from this leading founding player were the first batch of TCB orders secured from them. And we expect more order flow as they expand their AP capacity. For HPC applications, we saw order flow from a leading logic IDM customer. We expect continued TCB order momentum for logic applications as we continue to work closely with major generative AI and HPC players. Let me also update you about the progress of our TCB solutions for the high bandwidth memory or HBM market. We continue to engage multiple memory players to cater to the more demanding packaging requirements for customers' next generation HBM needs. For these engagements with complex requirements, we are using our next generation TCB tools featuring green ultra-fine pitch capabilities. Next, let me highlight our mass reflow high-precision die-bonding solutions. Even as the TCP gains momentum, our mass reflow solutions remain relevant for such applications, and we saw demand from AI and HPC-related customers. We also deepened our engagements with leading foundry memory, and OSAP customers. And we expect more order flows for mass reflow tools going forward. Let me also give a quick update about hybrid bonding solution. After winning our maiden order in the second quarter of this year, we secured another hybrid bonding tool order from another customer. This tool will be used for 3D integration with delivery expected in the second half of next year. We also continue to engage players in the various end-market applications for our hybrid bonding solutions. Besides these high-precision bonding solutions, other AP solutions in a comprehensive AP portfolio are obvious beneficiaries from increasing demand for generative AI products. Let me highlight two of these. First, our high-end SMT placement tools continue to have robust demand, mainly from AI-powered server customers. I'm also pleased to note that our advanced placement tools are getting traction for cheap packaging at the substrate level and want orders from a leading company customer. Lastly, an update on our photonics and silicon photonics solutions. These solutions are able to meet the significantly high bandwidth transfer requirements of AI-powered data centers. There will repeat orders for solutions from leading generative AI customers for the transceiver expansion plans. And we expect this order momentum to persist as generative AI needs are fueling the expansion on transceivers for data centers. From this slide, we are trying to highlight some of the key AP solutions benefiting from the growing demand in generative AI and HPC applications. On the left of the slide is an example of a high-end generative AI or HPC device that goes into a data center. As these devices get more complex, such packages will require an increasing number of logic chiplets and new generation high bandwidth memory stacking. This will lead to a significant increase in the number of interconnects required to be bonded by high precision bonding tools. This will also come with more stringent technology and cost criteria. With that background, I'm pleased to highlight that we have high precision bonding solutions that are relevant for the different interconnect requirements for such complex devices. In analyzing high precision bonding requirements along with the total cost of ownership criteria, we strongly believe that the majority of these interconnects can be handled by TCB tools. This gives us confidence in the long-term potential of our TCB solutions as we continue to work with different generative AI and HPC-related players including IDM, Boundary, OSAP, and memory players. You can also see in the slide that mass-referred tools remain relevant with our solutions experiencing continued demand. Our SMT solutions are also able to meet requirements for such devices in data centers. For these complex packages, Our advanced SMT tools help to place integrated passive devices or IPDs on the substrate, both between the passive interposer and the substrate and between the substrate and the circuit board. On the right side of this slide, we mentioned our photonics solutions. Our solutions are required for dye placement and lens attach and can even handle foreign G transceivers and beyond. These transceivers are experiencing demand growth with increasingly high bandwidth transfer requirements to help efficiently process high-speed optical data in data centers. I hope that with these highlights, you get a clearer picture on where exactly many of our AP solutions are relevant and obvious beneficiaries with the growing demand from generative AI and HPC applications. With those highlights, let me now pass the time over to Katie, our group CFO, who will talk about our group and segment performance.

Thank you, Robin. Good morning and good evening, everyone. Let me take you through the financials. This slide covers the group's key financial metrics for the third quarter of 2023. As Robin has highlighted in his opening, the group was impacted by weak industry conditions and a challenging macroeconomic environment. Our unique broad-based portfolio partially shielded us as SMT continued to deliver higher revenue than SEMI, even though SMT has entered a normalization phase. SEMI remained at relatively low revenue base in absence of a broad-based recovery. Looking at the quote-unquote comparisons, group revenue decreased by 10.9%, while bookings came down by just 1.8% for the third quarter of 2023. our Q3 ending backlog decreased by 7.2% sequentially to about $922 million. Our gross margin of 34.2% declined quarter on quarter by 594 basis points. And I will provide a detailed explanation on this decline in the next few slides. Also, let me highlight that while navigating the challenging environment, the group continued to control cost and drive efficiency. This included a targeted headcount reduction in Q3 of a low single-digit percentage of the group's workforce. Since there were restructuring costs incurred, we now use adjusted net profit and adjusted earnings per share metrics. For more information about these non-HKFRS measures, you may refer to the reconciliation section on page 10 of the group's third quarter 2023 results announcement. Groups adjusted net profit for Q3 was 45 million Hong Kong dollars, down 85.3% quote on quarter, and it was adversely impacted by lower sales volume and gross margin. Adjusted earnings per share for third quarter was 11 Hong Kong cents, a decrease of 85.3% quote on quarter. The group maintained a strong balance sheet with healthy liquidation position. At the end of Q3, Gross margin and bank deposits were at HK$4.17 billion, up from HK$3.77 billion in Q2, while bank borrowing remained stable at HK$2 billion. Let me now go through more detailed financials and segment performance in the next few slides. For third quarter of 2023, group revenue of $444 million was almost at the midpoint of our previously issued guidance. This was a decline of 10.9% quarter-on-quarter and a 23.8% year-on-year. Group revenue declined due to prevalent industry weakness with both SEMI and SMT generating lower revenues. For end market applications, revenue contributions from both automotive and industrial continue to contribute to the highest proportion to group revenue. Group bookings were at 378.5 million US dollars for third quarter, a decline of 1.8% quarter on quarter and of 18.3% year on year. Let me now provide some further insight into our third quarter bookings. The group had an isolated order cancellation in the third quarter for its panel deposition tools under the semi-segment. This cancellation came from a leading high-density substrate manufacturer in response to its slower-than-expected digestion of existing capacity. If we exclude this cancellation, the group's third-quarter bookings would have been about 6% higher quarter-on-quarter. For our year-on-year bookings, the decline was mainly due to relatively weaker industry conditions. Please take note that this isolated cancellation was only for one particular customer, and we do not foresee any material cancellation risk for our panel deposition tools for other customers as we continue to deliver tools to them. Group gross margin of 34.2% declined by 594 basis points quarter on quarter and by 670 basis points year on year. Gross margin declined mainly due to unfavorable product mix, volume effect, and provision for agent inventories. A majority of the gross margin decline came from semi, and I will go to it in the next slide. The group's operating margin and net profit for third quarter decreased quarter-on-quarter any year-on-year, mainly due to lower sales volume and gross margin. For Q3 2023, the semi-segment revenue was down moderately quarter-on-quarter by 4.9% to about $201 million. The IC discrete business unit had stable revenue quarter-on-quarter with the highest revenue contribution from TCV, followed by molding and assintering solutions combined for automotive applications. The optoelectronics business unit recorded higher revenue quarter on quarter. Revenue growth was mainly driven by higher revenue from wire binders for conventional displays. The CIS business unit revenue was adversely impacted by continued weakness in the global smartphone market. Third quarter bookings for SAMI increased to approximately $169 million, with contributions mainly from AP and automotive applications. This was an increase of 4.4% quarter-on-quarter. SAMI bookings would have increased by approximately 22% quarter-on-quarter if we exclude the order cancellation for the panel deposition tools I highlighted in the previous slide. Semi-gross margin was 31.9%, mainly due to unfavorable product mix and provision for agent inventories. The impact on product mix was mainly due to three factors. First, it included the phasing out of an older generation lower margin product as part of a planned product upgrades. Second, it included relatively higher Y-bounded sales under the Opto business unit. And lastly, there was a lower volume of high-end smartphone-related products. Our provision for agent inventories, this was done mostly due to the accounting policy on agent. But these inventories are largely related to active products, and it can be utilized in the future. The SMT segment contributed about $243 million for about 55% of group revenue for the third quarter of 2023. This was a decline of 15.4% quarter on quarter, mainly due to low revenue from high-end placement and printing tools, but partially offset by revenue growth from SMT advanced packaging tools. Automotive and industrial applications combined contributed to about half of SMT's revenue. Our SMT business has enjoyed a high level of bookings for over two years, and it's a stressful market is now in a normalization phase. SMT bookings declined to about 209 million US dollars for the third quarter, a decline of 6.4% quarter on quarter. Similar to revenue, SMT bookings were also driven mostly by industrial and automotive end markets. Moreover, there was an uptick in demand from AI-related server applications. SMT gross margin decreased to 36% in the third quarter, down by 218 basis points quarter on quarter, mainly due to volume effect. Let me now pass the time back to Robin for fourth quarter revenue guidance.