ASMPACIFIC (00522) announced that it will acquire the entire equity of TEL NEXX at a basic consideration of 706 million yuan, or additional profitability payments may be required.

TEL NEXX is a supplier of electrochemical deposition and physical vapor deposition equipment for the advanced packaging market of semiconductor devices.

ASM PACIFIC stated that the acquired business will be integrated into the company's post-process equipment division and that the acquisition is a good opportunity to expand the product portfolio in the high-growth market for advanced packaging of semiconductor devices.

In addition, the company also announced that its subsidiary ASM Technology Singapore has acquired all shares of AMICRA, but did not disclose the specific price.

AMICRA is a technology company based in Regensburg, Germany. It specializes in the world's leading supplier of ultra-high precision die bonding equipment with sub-micron configuration accuracy.

Considering that it will take at least two years to form significant synergies, we maintain our 2018 and 2019 earnings expectations and target price of 160 Hong Kong dollars, corresponding to 6.98 times 2018 P/E ratio and 7.38 times 2019 P/E ratio.

Comments NEXX is expected to enhance the business of advanced packaging solutions: NEXX occupies a strong position in advanced packaging deposition systems, ranking 2nd and 3rd in the global electrochemical deposition (ECD) system and physical meteorological deposition (PVD) system respectively. Through the acquisition of NEXX, the company has expanded its advanced packaging solutions business, and we believe that the market is expected to maintain a compound annual growth rate of 15% in the next few years.

Amicra is expected to complement the existing product portfolio. Amicra's sub-micron high-precision die bonding equipment is a powerful complement to the company's existing product portfolio and is expected to help the company achieve better than +/-5? The accuracy of m. We expect that Amicra's leading position in Silicon Photonics is expected to help ASMPT enter the market three to five years ahead of schedule. However, given the small scale of the acquisition, it may still take two years for a significant impact on profitability.

Operating cash flow remains stable; the two acquisitions are expected to contribute 5% of revenue. We expect the company will complete the acquisition through internal resources and bank credit, and will maintain a net cash position by the end of 2018. We believe that NEXX and Amicra will account for 10% of ASMPT's back-end equipment revenue and 5% of group revenue. It is expected that ASMPT's gross profit margin will remain around 40%.

TEL mainly deals in semiconductor production equipment and flat panel display production equipment. TEL develops, manufactures and sells many products in a leading position in the global market. TEL NEXX had a profit of US$7.854 million for the year ended March 31, 2016 and a loss of US$180,000 for the year ended March 31, 2017.