ASMP to acquire DEK

ASMP announced today that it is to acquire DEK (Dover Corporation’ssubsidiary). DEK is one of the global leading SMT (surface mount technology)screen printer manufacturers. ASMP plans to acquire DEK via a cash offeringof HK$1.32-1.55bn. This acquisition could be closed in mid-2014, subject to thecustomary regulatory approvals. We view the synergy of this merger as limited.

We believe the screen printer will not enhance ASMP’s core competency inSMT to compete with Japanese peers. We maintain our Hold rating on fairrisk/reward.

No EPS impact on our 2014-15 forecasts due to a potential share expansionThere could be no EPS impact on our 2014-15 EPS forecasts under thefollowing scenarios: 1) the deal is completed by end-2Q14 and DEK’s 2H14P&L is consolidated into ASMP’s P&L (assuming no earnings growth for DEKin 2014-15 vs. 2013), and 2) ASMP issues new shares for funding HK$1.55bnunder the current share price. ASMP has only HK$1.3bn cash on hand. Webelieve ASMP is likely to proceed with fund raising via equity or bond issuance.

Synergy could be limited

ASMP expects the supply chain integration for SMT printing and placementequipment to lead to efficiency improvements in its SMT process. We believethis could increase ASMP’s product lines and expand its customer base in theSMT segment. However, SMT screen printers are used to print labels andsome materials on the top of PCBs for the purposes of identification, rustprevention, and water resistance. We believe this merger will not improveASMP’s mounting accuracy and product quality of SMT placement equipment.

Thus, we expect insignificant product synergy for this acquisition. Notably,DEK’s sales and profitability are deteriorating, based on released 1Q13-3Q13data. DEK’s annualized sales dropped 16% YoY in 2013 and annualized netmargin declined to 7% in 2013 from 11% in 2012.

Valuation and risks

Our target price of HK$70 is based on 3.6x 2014E PB and roughly in line withthe fair PB of 3.5x generated by a Gordon Growth Model (long-term ROE of18%, vs. 2014-15E average ROE of 18%, long-term industry growth rate of2.5%, 7.1% cost of equity). Upside/downside risks include faster/slower marketshare gains in flip-chip/SMT, the pace of ASP contraction, and demand.

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