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May 26, 2017

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ASE to be little affected by shut-down: Barclays

TAIPEI -- Advanced Semiconductor Engineering Inc. (ASE) will face a smaller-than-expected impact on sales, despite the shut down of one of its plants, according to an analysis by British banking group Barclays PLC.

The Environmental Protection Bureau of Kaohsiung City announced on Dec. 20 that ASE, the world's largest IC packaging and testing services provider, would be required to shut down its K7 water pumping facilities in Kaohsiung until it upgrades the handling of its wastewater.

ASE Chairman Jason Chang visited Kaohsiung Mayor Chen Chu on Dec. 22, who agreed to speed the resumption of production after bringing the plant's wastewater treatment up to acceptable standards.

"We expect the fallout from the wastewater issue to be manageable due to only a partial shut down of ASE's K7 plant, instead of a full shut down," said Andrew Lu, an Asia-Pacific semiconductor analyst at Barclays.

"We estimate a 2.5 percent negative impact on (ASE's) first quarter 2014 sales, instead of our earlier forecast (of) a 12 percent impact, and a likely earlier-than-expected resumption of production," he wrote in a note to clients. Lu also rated the stock as "overweight," with its price target of NT$35 (US$1.17).

Following confirmation of the K7 partial shut down, Lu lowered his estimates for ASE's 2014 sales by 2 percent to NT$239.43 billion, and for the company's earnings per share by 6 percent to NT$2.29.

Though the number of months the K7 plant will be shut down is still unknown, Lu expects the period to be less than six months.

If ASE cannot resume K7 pumping of wastewater before June 2014, this might delay ASE's ability to win outsourced semiconductor assembly and test orders for Apple Inc.'s application processors by the third quarter of 2014, Lu noted. The K7 plant, one of ASE's 15 plants in Kaohsiung city's Nanzih Export Processing Zone, has a monthly output value of nearly US$60 million, accounting for nearly 10 percent of the company's total sales.

ASE submitted plans on Dec. 23 for the improvement and resumption of operations of the K7 plant to Kaohsiung's Environmental Protection Bureau for review.

The company also said it will step up construction of a NT$750 million, 20,000-ton grey water recycling system that it expects to become operational in the second quarter of 2014.

ASE shares were up 0.18 percent, to close at NT$27.55 Friday in Taipei trading.

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