21 December 2018 12
Hong Kong
Stock price as of 19/12/2018
Source: Company data, FactSet, December 2018
ASMC’s stock performance vs. HSI
Source: Bloomberg, December 2018
Source: Macquarie Research, December 2018
Analysts
Macquarie Capital Limited
Allen Chang +852 3922 1136
allen.chang@macquarie.com
Jin Guo +86 21 2412 9054
jin.guo@macquarie.com
Fiona Liu +852 3922 1368
fiona.liu@macquarie.com
Verena Jeng +852 3922 3766
verena.jeng@macquarie.com
Heidi Leung +852 3922 3783
heidi.leung@macquarie.com
MacVisit: ASMC
Specialty foundry being taken private
Key points
ASMC is a foundry that manufactures 5'', 6'', 8'' wafers for analog and power
discretes; End applications: automobile, consumer electronics, etc.
ASMC’s 6’’ and 8’’ capacity is tight due to strong demand for its 6’’/8’’
products including MOSFET, IGBT, Power IC, TVS, etc.
Per mgmt, ASMC faces an urgent need to expand capacity and upgrade
technology and privatization by Huada will allow ASMC to do so.
Event
We visited ASMC (先进半导体) and discussed with mgmt its business outlook
and capex plans. A key point stressed by mgmt was that ASMC enjoys a
solid demand outlook but lacks the production capacity to fully capture
the opportunities. Utilization rate reached 112% for its 6’’ fab and 94% for 8’’
fab in 3Q18. Mgmt expressed the urgent need for capital to expand capacity
and upgrade technology to stay competitive. More recently, ASMC announced
that it is being taken private by Huada (a SOE) at HK$1.5/share, or a 67%
premium over its stock price prior to the announcement (see more details in
our report: Huada acquiring ASMC at HK$1.5/share). ASMC expects to gain
access to the much needed capital to address the capacity challenge.
The ASMC deal supports our view of China’s continuous efforts to
strengthen the ecosystem and show strong support for the
semiconductor industry. Read-across to other China foundries: SMIC (link,
Nov 8) and our top pick, Hua Hong (link, Nov 9).
Key discoveries
Craving for capital to expand capacity: ASMC has been running at ~100%
capacity utilization and its 6’’ and 8’’ products including MOSFET, IGBT, TVS,
etc. are in strong demand. ASMC has been looking for funding to expand
capacity to capture the demand. After the acquisition, ASMC expects to gain
access to the much needed capital to expand capacity. ASMC primarily
focuses on 6’’ and 8’’ products, each accounting for ~47% of total sales.
Positive outlook in 4Q18; momentum to continue on strong orders: Mgmt
expects growth momentum to continue in 4Q18 given strong orders intake
from both domestic and overseas customers. In terms of capacity expansion,
8’’ fab capacity expanded by 8% YoY in 3Q18 to 28k wpm. 6’’ fab capacity has
been stable at 24k wpm (8’’ equivalent) in 3Q18. Mgmt will continue to improve
productivity, efficiency and product mix for 6’’ fab to drive revenue growth
despite utilization rate for 6’’ fab is at 112% in 3Q18.
IGBT: ASP increase and close cooperation with BYD; ASMC is in close
cooperation with BYD on IGBT and expects BYD revenue contribution to
double to 10% in 2019E. ASMC’s IGBT products range from 1200V to 6500V
and enjoys ASP increase due to tight supply, according to management.
ASMC also saw a 20~30% price hike for MOSFET this year.
Financials and industry downside risks
The stock trades at 33x 2017 PE and 2x 2017 PB with an average of ROE of
4% during 2015-17. Risks include US-China trade war escalation, China’s
macro slowdown and volatile foreign exchange fluctuations.
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ASMC HSI
ASMC: +58% YTD
HSI: -12% YTD