Investor Notes - Phillip Securities (HK) Ltd
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9 Jun, 2022 (Thursday)

            
TIANNENG POWER(819)
Analysis:
TIANNENG POWER (819) is primarily engaged in the manufacture and sales of batteries. The Group sees synergetic development of lead batteries and lithiumion batteries. It has 3 business segments, namely high-end eco-friendly batteries, new energy batteries and renewable new materials. Tthe Group has established production bases and logistics systems in places where the demands for batteries are vigorous, such as Zhejiang, Anhui and Henan provinces. The total battery production capacity exceeds 100 GWh. It has also built and operate three internationally advanced industrial parks for circular economy, which can process over 700,000 tons of used lead batteries and lithium-ion batteries every year. Additionally, it also actively develops its internal and external circulation and established offices in Vietnam, India and multiple African countries, as it actively engages itself in global operations. (I do not hold the above stock)
Strategy:
Buy-in Price: $8.20, Target Price: $9.00, Cut Loss Price: $7.70


BILIBILI(9626)
Analysis:
Bilibili (9626.HK) is a Chinese company principally engaged in internet-related businesses. The company consists of four business units: Mobile Games, Advertising, Livestreaming and Value-Added Services (VAS), and E-Commerce and Others. On the information side, the State Press and Publication Administration released the approval information for domestic online games in June on the evening of June 7th and 60 games were approved. The release of the second batch of version numbers is expected to be further verified that the version numbers have entered the stage of normalized issuance and the regulatory environment of the game industry will be further stabilized. Therefore, the future version number restrictions and policy suppression factors are no longer the core contradictions of the game industry. Therefore, we are optimistic about the company`s future development potential.
Strategy:
Buy-in Price: $236.60, Target Price: $255.50, Cut Loss Price: $227.50



ASM Pacific Technology Limited (522.HK) - Might lead to weak sales in 2H 2022

Better-than-expected 4Q2021 EPS

ASMPT delivered revenue of HK$6.20bn (US$796mn) in 4Q2021, increased 43.9% YoY, but dropped 1% QoQ. This exceeded the top end of revenue guidance US$720-770mn issued in the previous quarter’s results announcement and higher than consensus estimates. Bookings of HKD5.25bn (US$674 million), was an increase of 25.0% YoY, but a sequential decline of 8.2%. This dip was largely due to a high base effect and general seasonality trends. Of note, this quarter’s bookings remain elevated compared with prior years’ Q4 levels. The GPM was 41.3%, represented an improvement of 588 bps YoY and 76 bps QoQ, with YoY improvement due largely to relatively stronger gross margin performance across both SEMI and SMT segments. Net Profit attributable to shareholders was HK$913 million, down 8.7% YoY and 9.0% QoQ. ASMPT’s EPS reached HK$2.22, down 8.7% YoY and 8.8% QoQ, but still above consensus estimates.

The revenue of the Semiconductor Solutions Segment in 4Q2021 was HK$4.10bn (US$ 526mn), representing 66.1% of total revenue, up 72.4% YoY and 15.5% QoQ. Bookings of HK$2.79bn (US$358 million), an increase of 7.8% YoY and a decline of 21.4% QoQ. Although this decline is in line with general seasonality trends, it also recorded a decline for the third consecutive quarter. During the same period, revenue from the SMT Solutions Segment reached HK$2.10bn ($270 million), accounting for 33.9% of this quarter’s total revenue, an increase of 8.8% YoY and a decrease of 21.7% QoQ. Bookings of HK$2.46bn (US$316mn), up 52.7% YoY and 13.4% QoQ. The demand momentum from industrial and automotive customers continued into Q4.

In FY2021, the record full year revenue reached a record high of HK$21.95bn (US$2.82bn), an increase of 49.3% YoY, mainly influenced by positive developments in end-markets, including the automotive, consumer and industrial markets expanded significantly with revenue more than doubling YoY, contributing around 16%, 23% and 10% of total revenue; the Communications market experienced strong double digit YoY growth, contributing around 22% of total revenue. This growth was achieved on the back of strong System-in-Package (“SiP”) requirements for smartphone and wearables applications; and computing market, which contributed approximately 12% to total revenue.

1Q2022 Business Highlights

In 1Q2022, ASMPT's revenue was HK$5.27bn (US$675mn), an increase of 21.5% YoY and a decrease of 15.1% QoQ, but still exceeded the median forecast of US$640-690mn issued in the 4Q results announcement. Profit after taxation was HK$830mn, an increase of 57.1% YoY and a decrease of 15.0% QoQ (excluding one-off items amounting to HK$65.5mn in 4Q2021). Basic EPS amounted to HK$2.02, increase of 59.1% YoY and a decrease of 9.0% QoQ. Bookings of HK$7.04bn (US$902.6mn) represented a 10.0% decline YoY due to a record high base effect of Q1 2021, but 34.2% increase QoQ. This sequential growth was mainly driven by AP and automotive bookings momentum. As such, ended the quarter with a strong backlog of HK$11.89bn (US$1.52bn) and a book-to-bill ratio of 1.34 (4Q2021: 0.85). GPM was 40.6%, a 107 bps increase YoY and decline of 69 bps QoQ, notwithstanding cost pressures from key material cost increases (particularly silicon components) and higher logistical costs from a constrained global supply chain environment.

Semiconductor Solutions Segment delivered revenue of HK$2.94bn (US$377.0mn) accounting for 55.9% of quarterly Group revenue. This represented growth of 8.8% YoY and decline of 28.2% QoQ. The IC/Discrete mainstream tools experienced strong YoY revenue growth, hitting a Q1 revenue record. However, the CIS’s revenue declined YoY and was flat QoQ largely due to soft market conditions for smartphones. Segment gross margin was 44.7%, a 68 bps YoY and 103 bps QoQ increase largely due to a favourable product mix, which included a relatively higher proportion of tools serving automotive applications.

SMT Solutions Segment revenue was a robust HK$2.32bn (US$297.8mn), accounting for 44.1% of Group revenue. This represented strong growth of 42.4% YoY and 10.5% QoQ. This sequential growth bucked typical revenue trends. Both mainstream high-end printing and placement tools grew YoY and QoQ, while the Segment’s AP tools - particularly SiP placement tools - delivered YoY growth. Segment gross margin was 35.5%, representing 331 bps growth YoY but 125 bps decline QoQ. The YoY improvement was mainly due to relatively higher volume effect and favourable product mix, segment profit had a 165.1% YoY and 34.4% QoQ increase.

Company valuation

The company expects 2Q2022 revenue to be between US$670-740mn, representing growth of 5.8% YoY and 4.5% QoQ at mid-point. While bookings for the Advanced Packaging (AP) tools hit a record this quarter, including USD100mn of TCB bookings for its major customer (likely from Intel); Bookings for the advanced packaging and automotive solutions growth for both QoQ and YoY, remains a long-term capability requirements driver. However, sporadic COVID-19 measures and continued supply chain constraints could not convert its strong order backlog at a faster pace and influence near-term deliveries. In addition, ASMPT expects bookings to decline QoQ and YoY in 2Q22, as some OSAT vendors reduce capex for legacy, packaging after an aggressive expansion cycle in 2020-2021, consequently, which might lead to weak sales in 2H2022. Recently, ASMPT was removed from the Hang Seng Technology Index, but its component weight in the index is only 1.79%. Therefore, the selling pressure of passive funds is quite limited, and the impact will only appear in a short period of time. We expect 2022 estimated EPS to be HK$6.6, and our target price is HK$85.25 (13x 2022 P/E, in line with its 5 years average minus one standard deviation), with an " Accumulate " rating.

Risk factors

1) The semiconductor industry has entered a downward cycle; 2) The penetration rate of new products is lower than expected; and 3) The demand for downstream upgrades is lower than expected.

* The analyst has a financial interest in the listed corporation covered in this report.

Financial

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Recommendation on 9-6-2022
RecommendationAccumulate
Price on Recommendation Date$ 71.500
Suggested purchase priceN/A
Target Price$ 85.250
Writer Info
Eric Li
(Research Analyst)
Tel: (+852 2277 6516)
Email:
erichyli@phillip.com.hk

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