Asmpt Ltd

Good morning and good evening, ladies and gentlemen. This is Romil from Investor Relationside, 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 fourth quarter 2023 investor conference call. I would like to thank you all for your interest and 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 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 the actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the investor relations presentation for this result can be downloaded from our website. On today's call, we have... our Group Chief Executive Officer, Robin, and the Group Chief Financial Officer, KT. Robin will cover the Group's key highlights, outlook, and first quarter guidance, while KT will provide details on the financial performance. And then we will open the floor for Q&A. So with that, let me hand the time over to Robin now.

Thank you, Rong. Good morning and good evening, everyone. It is a pleasure to have you all on an earnings conference call for the fourth quarter and full year of 2023. Before we go to the details of our performance, let me take this opportunity to give some highlights on developments in the semiconductor industry and the overall macro environment. We all know that 2023 was a challenging year in semiconductor industry. I will even add that it was one of the toughest years in our recent history. Overall, the macroeconomic environment was characterized by, one, persistent inflationary pressure, two, a high interest rate regime, three, escalating geopolitical tensions, and lastly, a slower than anticipated recovery of the Chinese economy. These collectively weakened overall consumer sentiment and electronics demand by a considerable degree in 2023. However, amidst the gloom, our unique broad-based portfolio provided a certain level of resilience. The prolonged semiconductor downturn adversely impacted our semi-business, with significant revenue contraction in 2023 as demand for PCs, smartphones, and other consumer electronic devices dipped significantly. However, our SMT business remained resilient, mainly due to continued demand from automotive and industrial end markets. And SMT delivered higher revenue than Semi for a sixth consecutive quarter in the fourth quarter of 2023. Another advantage of a unique broad-based portfolio is the diversified end markets that we serve. From an end market perspective, Automotive and industrial application demand remain robust and continue to contribute the most to the Group's 2023 revenue, even as demand from the consumer electronics and market remain constrained. Let me now share more about what we see as the most exciting part of our unique broad-based portfolio and the one with the highest growth potential, our advanced packaging solutions. We believe that we have the most comprehensive suite of advanced packaging or AP solutions in the industry. Being deeply embedded in the supply chain of major AI and HPC customers, we are experiencing growing demand from generative AI and HPC applications as these require more advanced tools. So, despite a down-sider year, The relative percentage contribution of our AP solutions increased year-on-year to about 22% of the Group's 2023 revenue of approximately $410 million. Looking ahead, we are very excited about the prospects of our AP business. We estimate that the addressable market for AP will progressively increase from about $1.7 billion in 2024 to approximately $3.3 billion in 2028, at a compounded annual growth rate of about 18%. This addressable market and CAGR estimates have increased since our last update a year ago, as we factored in prospects from the fast-growing global generative AI market. We are seeing more of our AP solutions gaining traction and further solidifying our entrenched system with major AI players. This gives us the confidence that our AP market share will grow. In the next couple of slides, let me highlight some significant developments within our AP solutions. You may recall the picture on the left of the slide. This is an example of a high-end generative AI or HPC device using 2.5D packaging. These devices are getting more complex as they incorporate an increasing number of chipless and more advanced high-bandwidth memory, or what we call HBM stacking. The key message here is that we have a range of high-precision bonding solutions within our portfolio, that are capable of handling the different interconnect requirements for such intricate devices, most notably our TCB, but also flip chip, hybrid bonding, and SMT placement tools. Let me comment on each of these. We will begin with TCB, or thermal compression bonding. We strongly believe that the majority of the complex interconnects of the future can be handled by TCB. The reason is simple. TCB solutions are in an optimal position, occupying the nexus between favorable total cost of ownership and the technical ability to handle increasingly demanding bank pitch and placement accuracy requirements. Our TCB solution delivered their highest yearly revenue in 2023 and contributed the most to ASMPT's overall AP revenue for the year. Let me shed light on our engagements in the logic IDM space. We have a solid foundation serving this market and our solutions have a commanding position in both chip to substrate and chip to wafer applications for HPC and AI. Looking at logic requirements required by generative AI demand, We want meaningful TCB orders for chip-to-substrate applications from a leading foundry in the third and fourth quarters of 2023 and continue to engage deeply with this customer for a next-generation ultra-5-page chip-to-wafer TCB solution. In addition, we also want orders from OSACs for both chip-to-substrate and chip-to-wafer applications as these OSACs expand capacity to support growing AI demand. Now let's look at the HBM market. Here, our TCP tools are already in production as a leading HBM player. And we continue to support meaningful engagement with multiple HBM players. Based on this ongoing engagement, we are confident of more order flow over the next few quarters. Let me highlight that as HBM packaging requirements become more demanding, it will increasingly require TCB processors. And this is where our technology leadership and expertise come in. As we are ready for both 12 and 16 high HBM with our next generation ultra-fine pitch TCB solution. To summarize our TCB story, We are a market leader in TCB with the largest in-stock base of tools across the globe. As the first mover in TCB, we accumulated extensive industry learning over the past decade and have come a long way expanding our customer base beyond logic IDMs into HVM, Foundry, and OSETs. I'm confident that TCB will continue to have tremendous growth potential and as its adoption accelerates, we are in the best position to capitalize on the generative AI boom. ASMPT is able to offer the most comprehensive and scalable TCB solutions, and we will continue to expand our TCB production capacity. Let me now touch on our flip-chip solutions. DIV has also gained traction from generative AI and HPC application. which require varying degrees of pitch and placement accuracy. There was consistent order momentum for flip chip tools throughout 2023, which is expected to continue into 2024, as we engage leading foundry, HBM, and OSAC customers for both chip to substrate and chip to wafer applications. Recently, there has been a lot of talk in the market about the potential in AIH devices. Let me add here that our Flipchart tools are capable of panel-level pick-and-place fan-out applications with lower form factors, which are very well suited for such AI edge devices. Taken together, both our TCB and Flipchart tools are already catering to AI players at the cloud and data center level. And ASMPT is in a good position to take advantage of the huge potential in AI edge devices when the demand surge happens here. Now, let me comment on hybrid bonding. We have a breakthrough year for hybrid bonding solutions, winning orders for two tools for 3D integration, which will be delivered in the second half of 2024. We are confident of securing more orders for hybrid bonders in the first quarter of 2024 and beyond as we continue to engage key customers in various air market applications for our next-generation hybrid bonding solution. And we are confident on intercepting the high-volume manufacturing ramp in time to come. In the device diagram on this slide, you can see that we also have SMT placement tools that help place integrated passive devices on the substrate. In summary, this slide emphasizes the wide range of interconnect solution ASMPT has available to handle the complex requirements of generative AI and HPC devices. Let me cover our photonics solutions next. On the left, of this slide, we show how packages are evolving with increasing bandwidth requirements and where our solutions are relevant for die placement and lens attached requirements. With the generative AI boom, there's an ever increasing need for higher bandwidth and data centers are expanding and upgrading to support this. This expansion is in turn fueling demand for higher bandwidth optical transceivers and co-packaged optics or CBO applications. For transceivers, we have market leading range of photonic solutions capable of handling bandwidth from 100G to 800G and beyond. In particular, we have a comprehensive range of solution for 400G and higher bandwidth transceivers and we command the dominant market share in the transceivers market. For CPO applications, our silicon photonic solutions have the best in-class placement accuracy and highly flexible system capable of handling multiple bonding processes. With our technology leadership coupled with demand growth, we won't repeat orders from leading AI players in 2023 and expect this order momentum to continue into 2024. I hope this couple of slides on our AP capabilities and footprint provide a clear message of ASMBT's strong and comprehensive technology position in the various types of AP solutions and their overall competitiveness. These are gaining traction in the face of strong demand growth from generative AI. Our automotive and market applications continued to deliver a robust contribution to the group, providing the highest proportion of group revenue for two consecutive years, at about 22% of ASMPT's 2023 revenue, or approximately $410 million. This was primarily fueled by growth in engagement with automotive players, and particularly electric vehicle or EV players that enable more of our solutions becoming the process of record for these companies. We witness demand momentum in the growing EV market, which was supported by the entry of new automakers and the launch of more EV models. An area of keen interest for us is silicon carbide application. As demand for silicon carbide related application rises, ASMPT has a complete range of solutions to serve this market, including laser dicing for wafers, die attach, pressure sintering, molding, and SMT placement. These value-added solutions have helped us to become the preferred co-development partner for our growing base of customers. Looking at an addressable market for automotive and market applications, we expect it to grow from approximately 1.8 billion U.S. dollars in 2024 to 2.6 billion US dollars in 2028, a CAGR of about 10%. As I mentioned earlier, our SMT business provided a certain resilience to our overall performance during the prolonged semiconductor downside primarily powered by automotive and industrial and market application, SMT delivered a relatively buoyant revenue performance in 2023 and strengthened its position as market leader. SMT performance was in large part due to robust demand for its high-end placement and printing tools, which came mostly from Europe and the Americas. SMT contributed higher revenue than Semi in 2023 and its revenue has staked over $1 billion for three consecutive years. In the second half of 2023, as automotive and industrial air markets started normalizing, SMT bookings softened. However, I must emphasize that our SMT business has exposure to various air market applications. And so even though automotive and industrial air markets were normalizing, there was also growing demand for SMT tools from AI-related server applications. In fact, we received orders for SMT tools from AI server customers and a leading founding player in 2023, as these tools have flexibility in handling varied board sizes with high placement accuracy. More recently, there was also demand for smartphone wearable applications, particularly for SMT system in package or SIP tools. For SMT's AP solution, we are also scaling up and engaging customer with our next generation of tools that have higher placement accuracy, multi-dye picking capabilities, and the ability to pick dyes directly from wafer for better performance. These tools are gaining traction across SIP, wafer-level fan-out, and embedded substrate applications, and we expect more orders for these AP tools in 2024. With those highlights, let me now pass the time over to Katie, who will talk about our group and segment performance.

Thank you, Robin. Good morning and good evening, everyone. This slide covers the group key financial metrics for full year 2023. As Robin has highlighted, the prolonged semiconductor downside echo negatively impacted our semi-business, with revenue declining 37% year-on-year to $812.9 million U.S., while SMT experienced milder impact, declining 10% year on year to 1.06 billion US dollars. Taken together, group revenue performance was 1.88 billion US dollars, a decline of 24.1% year on year, with SMT contributing about 57% of group revenue. You can see how our broad-based portfolio provides some advantage as our two segments follow different business cycles. For bookings, Semi's year-on-year decline was steeper than SMTs, mainly due to the ongoing semiconductor down cycle. SMT bookings were impacted mainly in the second half of 2023, as automotive and industrial end markets began normalizing. Our backlog declined to $846.1 million at the end of the year, compared with $1.15 billion a year back. Group gross margin was down year-on-year by 186 basis points to 39.3%. Our operating margin declined by 920 basis points year-on-year to 7.5% due to lower sales volume and a reduced gross margin. Similarly, group adjusted net profit declined by 71.5% year-on-year to $744.9 million. Adjusted earnings per share was 1.82 Hong Kong dollars, a decrease of 71.4% year on year. We had a healthy balance sheet at the end of 2023 with strong cash and bank deposits of 4.8 billion Hong Kong dollars. Our net cash was also at an all time high of 2.8 billion Hong Kong dollars. Before I go further, let me quickly touch on our strategic investments in 2024 and beyond. Despite the downturn, we'll continue to prioritize investments in R&D and infrastructure. As Robin highlighted, we firmly believe that AP is a strategic growth area with significant upside potential, and we're prioritizing R&D resources and capacity investments to further strengthen our leading position. In addition, we embarked on large-scale system rollouts that are focused on people development, IT, ERP, and other operational areas, and these efforts will intensify. Once completed, our infrastructure investments will make ASMPT even more productive and competitive. These investments are expected to incur additional operating expenditure of about HK$250 million in 2024, and this incremental expenditure will be on top of our relatively stable OPEX over the last two years. At the same time, We continue to remain mindful of costs and will continue our cost control and efficiency enhancing initiatives. For 2023, group revenue of 1.88 billion US dollars was a decline of 24.1% year-on-year. Both segments had declines, but it was much steeper for semi, in line with the prolonged semiconductor down cycle. Group bookings for 2023 declined by 33.5% year-on-year to $1.57 billion. For end markets, combined bookings from AP, automotive, and industrial remained stable year-on-year at about 60% of group bookings for 2023. Group gross margin for 2023 was 39.3%, declining 186 basis points mainly due to semi, whose gross margin declined 375 basis points year-on-year to 40.9%. This decline was partially offset by SMT's gross margin growth due to a favorable product mix, improving 73 basis points year-on-year to 38.1%. Operating margin declined 920 basis points year-on-year to 7.5% due to lower sales volume and loss margin. In the fourth quarter of 2023, group revenue of $435.4 million was marginally higher than the midpoint of revenue guidance, a decline of just 2% sequentially. Year-on-year decline was 21.4%, in line with prevailing industry weakness. Group bookings of $349.8 million declined 7.6% quarter-on-quarter due to seasonality. Year-on-year decline was 12.2%, mainly due to SMT, as its automotive and industrial end markets began normalizing in the second half of 2023. Group gross margin increased by 812 basis points sequentially to 42.3% due to gross margin for the previous quarter being exceptionally low. And from better product mix for both SEMI and SMT, gross margin improved by 87 basis points year-on-year, mainly driven by SMT. Group operating margin improved by 356 basis points sequentially to 5.5%. operating margin declined by 825 basis points year-on-year, mainly due to lower sales volume and a gross profit. For fourth quarter 2023, Semi registered a small increase in revenue of 1.2% quarter-on-quarter to $203.9 million, as revenue was down 15.3% year-on-year in line with industry weakness. The IC discrete business unit had a stable revenue quarter on quarter, with the highest revenue contribution from TCB. The optoelectronics business unit had a small amount of business growth sequentially. The business unit's advanced tools serving photonics applications grew in revenue quarter on quarter, and it contributed the most to its revenue. The CIS business unit's revenue continued to be adversely impacted by ongoing weakness in the global smartphone market. For fourth quarter, Semi recorded bookings of $158.9 million, down 6.2% quarter-on-quarter, mainly due to seasonality. However, please note that Semi's quarterly booking in 2023 declined at a slower rate year-on-year for the first three quarters and turned positive in the fourth quarter. Semi's bookings increased by 10.5% year-on-year in the fourth quarter, mainly from the growth in AP bookings. Semi's gross margin in fourth quarter was 43.8%, mainly due to a favorable product mix, as AP and automotive contributed the most of segment revenue. It improved significantly quarter on quarter due to low Q3 margin. Gross margin was down marginally by 66 basis points year on year. Semi's profit was 0.9 million Hong Kong dollars in fourth quarter. Our SMT segment continued to deliver higher revenue than STEMI for a sixth consecutive quarter in Q4, 2023. Fourth quarter revenue was $231.5 million, a decline of 4.7% sequentially and a 26% year on year. SMT's industrial and automotive end markets combined still contribute the most to segment revenue. As automotive industrial end markets normalized in the second half, SMT's bookings declined in the fourth quarter by 8.7% quarter-on-quarter and a 25% year-on-year to $190.9 million. SMT's gross margin was strong at 41% in the fourth quarter, an increase of 493 basis points quarter-on-quarter and 188 basis points year-on-year. SMT's gross margin improvement was mainly due to a favorable product mix. SMT's profit was 266.6 million Hong Kong dollars in the fourth quarter, an increase of 3.3% sequentially, but down by 49.4% year on year, mainly due to lower sales volume. This slide highlights the ASMPT's management's best estimates of revenue breakdown by end market applications for 2023 compared with 2022. These end markets highlight the extent of a broad-based portfolio and the our exposure to diverse ad market applications. Automotive remained in pole position and had the highest contribution to group revenue for two consecutive years, providing approximately 22% of 2023 group revenue. Even though automotive witnessed some softness, our comprehensive range of automotive solutions and engagements across a growing base of customers helped this ad market maintain its contribution levels. Next highest contribution was from industrial. This market also witnessed some softness, but its percentage contribution remained stable, providing about 16% group revenue. It was also the highest contributor to SMT's performance, benefiting from structural trends towards intelligent factories, greener infrastructure, enhanced automation, and digitization. the consumer communication and computing or triple C markets continue to experience softness due to weak consumer sentiment. The others category includes revenue from spares, services and other applications that cannot be meaningfully identified. And this revenue has remained stable year on year. This slide shows the yearly revenue contribution by different geographies year on year. Looking at 2023, China, including Hong Kong, continued to see a year-on-year revenue decline as its share of group revenue dropped from 42% to 31%, partially offset by year-on-year revenue growth from Europe and America. Europe's share of group revenue increased from 18% to 28%, and America's increased from 12% to 18%. Our diverse customer base is spread across the globe and includes IDMs, OSETs, Fabulous, foundries, high-density substrate manufacturers, memory players, EMS, and others. This helps us maintain a low level of customer concentration risk. For 2023, our top five customers accounted for approximately 17% of group revenue. We remain fully committed to enhancing shareholder value and returning to shareholders. We have an existing dividend policy to maintain dividend payouts at about 50% of group profit on an annual basis. For 2023, the board has declared a dividend per share of 87 Hong Kong cents in line with this policy. In addition, the board has declared a special dividend of 52 Hong Kong cents per share on top of the 50% dividend payout. With this special dividend, the total dividend for 2023 is 1.39 Hong Kong dollars per share, a payout of 80%. Let me now pass the time back to Robin for first quarter 2024 revenue guidance.