Asmpt Limited Unsp/Adr

Good morning and good evening to all attendees. My name is Romil and from the investor relations side, I will be the moderator for today's call. On behalf of ASMBT Limited, let me welcome all of you to the group's investor conference call for the second quarter and first half of 2024. We would like to sincerely thank you all for your continued support and the interest 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 session only after the management has gone through the entire presentation. During the Q&A session, priority will be given to the covering analysts. As part of our standard 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 for our recent results is available on our website. On today's call, we have our Group Chief Executive Officer, Robin, and the Group Chief Financial Officer, Katie. Robin will cover the group's key highlights, outlook, and the next quarter's guidance, while Katie will provide details on the financial performance. With that, let me now hand the time over to Robin.

Thank you, Rob. Good morning and good evening to everyone. It's a pleasure to have you all for our 2024 Interim Earnings Conference Call. Today, we will cover the group's highlights for the second quarter and the first half of 2024. Before we delve into the details of a business performance, let me take this opportunity to give some highlights on the semiconductor industry. In the first half of 2024, the semiconductor industry presented a varied picture. At one end, there was surging demand in the logic and the memory segments, primarily driven by the rapid growth of generative AI. However, the general semiconductor or the mainstream site experienced slower than anticipated pace of recovery. This was mainly due to the tepid consumer spending and electronics demand further exacerbated by softening in the industrial and the automotive markets. Amidst this dynamic external environment, There continued to be strong demand for the group's advanced packaging or AP solutions. Our first half bookings for AP solution contributed a higher proportion of overall group bookings on both a year-on-year and half-on-half basis. Mainstream bookings for the semi-segment were up half-on-half in the first half of 2024. there has been an increasing inquiry levels and customer engagements that are typical green shoot recovery sickness. However, semi-mainstream order flow has been rather sporadic and lacking the bulk orders or volumes that would more properly indicate a broader phase recovery. For SMT mainstream business, this state buoyant over two years. and only started to soften in the second half of last year. Even as the SMT market continues to remain soft, our SMT business has maintained its leading market share position. These differing trends in our business segments and solutions clearly demonstrate the advantage of the group's unique and broad-based portfolio. Semi and SMT follow different business cycles, So a slowdown in one can be compensated by momentum in another. Moreover, our AP and mainstream solutions have exposure to different facets of the industry, which also helps the group to navigate through different industry cycles in a resilient way. Let me now move to advanced packaging solutions. As highlighted before, we firmly believe that the group has the industry's most comprehensive suite of AP solutions that serve a diverse range of applications. Among these applications, the demand for generative AI and high-performance computing continues to be insatiable, and we are deeply embedded in the supply chain that comprises the biggest names in AI. We believe we are in a commanding position to capitalize on this rapidly proliferating demand trend. Propelled by this trend, our AP solutions grew their percentage share of group revenue. Last year, AP contributed about 22% of our group revenue. For the first half of 2024, AP's contribution increased to around 25%, or approximately $210 million. Within AP, the highest revenue contribution was from a thermal compression bonding, or TCB, followed by system in package, or SIP, under SMT, and our photonics solution. For bookings, it was a similar scenario, with our AP solutions having the strong order momentum for the first half of 2024, and AP bookings showing significant year-on-year and half-of-half growth, with TCB SIP, and photonic solutions dominating the order flow for AP in the first half. I will highlight some recent updates on key AP solutions and provide details on other wins for this. First off, let's talk about the high bandwidth memory, or HBM. Here, I'm pleased to update that we won orders in HBM for both our hybrid bonding and TCV tools. For hybrid bonding, the group had yet another major breakthrough. We won maiden orders for two next-generation hybrid bonding tools in the second quarter for HBM applications. This win demonstrates a strong recognition of our technology and competitiveness for this emerging solution. Next, TCB. Our ongoing engagements with key HBM players are progressing well for top high and above stacking. And our tools are showing promising results. In addition, we won orders for two tools in July 2024 for our next generation fluxless TCB solution. We strongly believe that our fluxless TCB is gaining more traction in HBM. For logic applications, TCB continued its order-winning momentum in the second quarter of 2024 as we won orders for chip-to-wafer applications from our leading IDM and OSAP customers. In addition, joint development with our leading founding customer for our next-generation Fluxus TCB solutions remains on track. We are therefore confident that our next-generation Fluxus TCB solution will become the preferred choice for ultra-fine-pitched logic applications. Our TCB order-winning momentum was also seen for cheap-to-substract applications. Here, there was continuous and meaningful order flow from our leading Foundry customer and its OSAP partner in Q2. Based on the robust expansion plan from our Foundry and OSAP customers, we remain confident of winning more TCB orders in the rest of the year for chip to substrate applications. Let's now look at our AP solutions for photonics and SMT. For photonics, I will cover in a later slide. Now for SMT. Its SIP solution had strong order wins in the first half despite overall weakness in the SMT market. SAP Devan came mostly for RF modules for high-end smartphones and wearables from leading global players and also from AI and server-related applications. For this slide, let me give more color on TCB's potential. We are convinced that TCB has a unique positioning across the market. And I will highlight three interesting market developments here. First, TCB is a key enabling technology to power generative AI's computing architecture, as logic chips evolve into multi-chip configurations of CPU, GPU, and NPU to drive AI applications from the cloud to the edge. These complex architectures have multiple and larger chip interconnects that require flexible chiplet handling and large-type bonding capabilities. Second, a fast-growing HBM demand, primarily driven by generative AI requirements, is accelerating memory stacking from A-high to 12-high and above, and these have far more stringent bonding requirements. Coupled with the recent relaxation of HBM package thickness requirements, these HBM trends place TCP technology in a sweet spot to intercept increased demand in the near future. This is also in line with our view that mass reflow beyond 8 high will face technical challenges while hybrid bonding for HBM is still at an early stage. This means a longer runway for TCB to serve HBM. Third, TCB is also well positioned to capitalize on the proliferation of AP in edge servers and edge devices. This trend is still in the early stages, but will rapidly grow as AI applications move from cloud to edge servers and devices. This market development signal an accelerated adoption of TCB and an obvious expansion of the TCB addressable market. You may recall that in our Q2 2023 earnings call, we highlighted a graph in the middle with a dotted trend line. Since then, We estimate the TCP potential getting even stronger, and thus we are presenting this updated graph now. And we will provide an updated AP addressable market in the coming quarters. Against such a strong market potential, the group TCP solutions are enabling the most demanding industry application to its best-in-class capabilities. These capabilities and their evolution include Improvement in placement accuracy from 3 to 5 microns to less than 1 micron. Bump pitch reduced from 30 to 50 microns down to ultra-fine pitch of 10 microns for fluxless PCB. And last time, handling of up to 70 by 70 mm. And for HBM applications, handling of thin die with thickness from over 50 microns to less than 30 microns. and chip gap of below 10 microns. These capabilities are reflective of our technology advancement, and our R&D teams are tirelessly working on further improving these capabilities. Another exciting area in our AP portfolio is the photonics solution, which shows promising growth potential that will continue over the next few years. driven by an increased demand for optical transceivers at data centers to make strong growth in generative AI and expansion of 5G networks. Thus, there is an increased traction for 800G and higher optical transceivers, which translates into a compounded annual growth rate of about 31% for our addressable market from 2024 to 2028. This high growth potential and momentum is mainly driven by major AI players who require faster transmission speed, higher bandwidth, and lower latency. Again, this demand backdrop, a market-leading photonic solution saw meaningful order flow in the first half as our advanced solutions are capable of handling the complex requirement for higher bandwidth optical transceivers of 800G and above. And let me add that the estimates of this addressable market mentioned only includes applications where higher accuracy is needed for bonding of laser and photodiode diodes, which is an area of our expertise. The automotive market has contributed strongly to the growth in the past few years, and particularly for SMT. While this market has softened of late, it continued to contribute to the highest proportion of group revenue from end market application perspective. Automotive application contributed about 24% of the group revenue in the first half of 2024, or approximately US$200 million. Both our business segments had similar revenue contributions for automotive, for semi, The solutions catering to certain niche areas of the automotive supply chain contributed the most to revenue, including solutions for power and silicon cupboard modules and for smart LED heat lamps used in high-end vehicles. SMT also contributed strongly by converting its backlog while definitely navigating ongoing softness in the automotive market. With those highlights, let me now pass the time over to Katie, who will talk about our group financial and segment performance in Q2 and first half of 2024. Katie.

Thank you, Robin. Good morning and good evening, everyone. Let me take you through the group financials. This slide covers the group's key financial performance for the first half of 2024. Revenue for first half was down half on half and year on year due to declines in both our segments. For group bookings, there was solid growth of 11% sequentially, albeit a slight decline year-on-year. Semi-registered growth in its bookings for both half-and-half and year-on-year, while SMT bookings were down in line with its market softness. The group ended the first half with a backlog of about $820 million, and the book-to-bill ratio was marginally below 1 at 0.98%. Group gross margin improved to both half-and-half and year-on-year, mainly driven by semi. Group's operating margin was at 5.8%. It was down by 512 basis points year-on-year, mainly due to lower sales. But it increased by 212 basis points half-and-half from a low base. Adjusted net profit of HK$314.6 million followed a similar trend. It was down 49.5% year on year, but increased 158.1% half on half. The group continued to have a healthy balance sheet at the end of first half, with cash and bank deposits at 5.44 billion Hong Kong dollars, while bank followings were at 2.53 billion Hong Kong dollars. For first half, the group revenue of 828.7 million US dollars declined 17.1% year on year, and 5.8% half-on-half due to declines in both SEMI and SMT. From end-market perspective, automotive continued to have the highest contribution to group revenue. Communication was next, mainly due to high-end smartphones and photonics applications. Industrial decline in line with market softness and was mostly in SMT. Group bookings of $808.6 million declined 3.6% year-on-year. but it was up 11.0% half on half. Semi bookings recovered and the segments book to bill ratio was above one for the first half. AP contributed strongly to the group bookings. Group gross margin improved to 40.9%, mainly due to Semi's favorable product mix. The margin improved by 67 basis points year on year and by 276 basis points half on half. In the second quarter, the group delivered revenue above the midpoint of guidance previously issued. Revenue of $427.3 million was an increase of 6.5% quarter-on-quarter, mainly due to growth in semi and partially offset by decline in SMT. I would like to highlight that our AP solutions register strong quarter-on-quarter growth. Group bookings of 399.3 million US dollars were down slightly by 2.4% quarter on quarter. It was mainly due to decline in SMT while semi-registered bookings growth. Group bookings were up 3.5% year on year with strong growth from semi. Group gross margin of 40.0% was down by 184 basis points quarter on quarter, mainly due to decline in SMT while CEMI's margin remained stable. Operating margin of 4.0% was down 360 basis points quarter-on-quarter in line with lower gross margin and higher operating expenses that was mainly due to timing of provision for incentive shares. CEMI delivered a revenue of $212.5 million in the second quarter, an increase of 20.9% quarter-on-quarter. the IC discrete business unit had quarter-on-quarter revenue increase, mainly driven by TCB. Optoelectronics business units revenue increased quarter-on-quarter, mainly due to photonics and high-end automotive headlamps. CIS business units also had revenue growth quarter-on-quarter, but from a low base. And it was mainly driven by high-end smartphone applications. Semi-bookings increased 11.6% quarter-on-quarter to $221.9 million, and it was driven by strong growth in AP. The book-to-bill ratio continued to remain above one for two consecutive quarters. I'd like to highlight that since Q4 2023, semi-quarterly bookings have been increasing year on year, with Q2 2024's growth at 37%. Semi continued to have a healthy gross margin due to higher volume and favorable product mix. It was at 44.5% down just 14 basis points quarter on quarter. SMT delivered a revenue of $214.8 million in second quarter of 2024. It was a decline of 4.7% quarter on quarter, mainly due to softness in automotive and industrial end markets, mostly from Europe and Americas. However, revenue from AP grew quarter on quarter for SMT. SMT bookings declined 15.6% quarter-on-quarter to $177.4 million in line with its market softness, and it was mostly due to automotive applications. However, SMT continued to maintain its leading position in market share. SMT gross margin was at 35.6%, a decline of 409 basis points quarter-on-quarter. Its gross margin moderated in the second quarter from a higher margin in the previous quarters due to product mix and volume. This slide highlights our best estimates of revenue breakdown by end market applications for the first half of 2024. These end markets portray the extent of our broad-based portfolio and our wide exposure to diverse end market applications. As highlighted earlier, automotive remained the top revenue contributor for the group, Automotive has remained in this position since 2022 owing to our comprehensive range of automotive solutions, strong backlog, engagements with a growing base of customers, and our presence in certain niche areas of the automotive supply chain. However, this end market is witnessing softness that may continue. The communication market was the second highest revenue contributor to the group at about 17% as its revenue grew on both year-on-year and half-on-half basis. Revenue growth was mainly due to high-end smartphone and photonics applications. The industrial market declined as the market softened and contributed about 14% to group revenue. This decline came mostly from SMT. The consumer and market had similar contribution at about 14% of group revenue. Please take note that others include revenue from spares, services, and other applications that cannot be meaningfully identified. And this revenue has remained stable. Our diverse customer base includes IDMs, OSETs, Fabless, foundries, high density substrate manufacturers, high bandwidth memory players, EMS companies, and others. This customer base is also spread across the globe. and it gives us the advantage of maintaining a low-level customer concentration risk. For the first half of 2024, our top five customers accounted for approximately 16% of group revenue. In this slide, we can observe the first half revenue contributions by different geographies and compare them on the year-on-year and half-on-half basis. Note that China had stable revenue year-on-year, and its contribution to group revenue increased from 30% to 36%. while Europe and America declined in revenue year-on-year. Europe's share of group revenue was down year-on-year from 30% to 23%, and America's from 19% to 17% due to softness in automotive and industrial end markets. We have an existing dividend policy to maintain dividend payouts at about 50% of groups' profit on an annual basis, and we remain fully committed to enhancing shareholder value and returning to shareholders. For our 2024 interim results, the board has declared an interim dividend per share of 35 Hong Kong cents. This is a decline of 42.6% year-on-year and is in line with decline of 49.6% year-on-year in net profit. Let me now pass time back to Robin for revenue guidance for the third quarter.