ELECTRONIC component maker ASM Pacific Technology is profiting from the strong demand for integrated circuit chips. The company supplies production equipment, which accounts for 55 per cent of its total output, and leadframe materials (45 per cent) to makers of semi-conductor integrated circuit chips. ASM has a diversified base of up to 500 regular customers, with no single customer accounting for more than 10 per cent of sales. Sales are distributed to Taiwan (21 per cent), Hong Kong (19 per cent), Singapore and Malaysia (19 per cent), US (18 per cent), Philippines (seven per cent) and China (six per cent). Given the hi-tech and fast moving nature of the industry, 10 per cent of annual revenue is re-invested in research and development. As technology changes rapidly, ASM's manufacturing equipment is highly customised, with gross margins topping 50 per cent. In a typical month, the company supplies 100 units of between 20-25 different models. Machine orders are on hand until January. The company has between four and six per cent share of the world market in its product groups. The market size is expected to increase in the coming years with the broadening use of microchips. ASM, against Japanese, American and Swiss competitors, has a firm hold on its market share, and on the cost advantages of transferring labour intensive processes to China. The high technology and capital entry barriers prohibit new entrants. The company management expects continued double-digit growth in turnover and profits in '94, resulting from higher output and increased margins. The recently-introduced gold wire bonders and automatic encapsulation moulding systems are expected to be hot sellers. Sales to Malaysia and Singapore rose 77 per cent in 1992, largely a result of the new Singapore plant and R&D centre which opened in July last year. There is room for significant future growth, given that the 320,000 square feet facility is still only half used. The Shenzhen plant will be upgraded and expanded from 130,000 to 200,000 square feet this year at a cost of up to $14 million. The effect of the explosion in Sumitomo Chemical's epoxy resin plant in early July is expected to have little effect on ASM. Not only because other resin suppliers are stepping up production; the Japanese plant recently announced that operations will resume by the end of the year, before makers run out of resin stock. Brokerage Morgan Grenfell forecasts ASM will register a 23 per cent profit growth to $108 million in 1993. ASM is trading at $2.85, or 11.3 times P/E ratios, which is relatively attractive based on its earnings prospects.
