ASM Pacific:Weak 4Q14, weak 1Q15

ASM Pac reported a weak 4Q14 with sales declining -29% QoQ, OperatingProfit -9% below Consensus and EPS -41% below. We expect a slightdecline in revenues in 2015 and slow EPS growth in 2015 and 2016, at+5% and +9% YoY. The stock is trading at 3.3x 2016CL book value for a20% ROE, the most expensive semi stock in Hong Kong / Taiwan, whichis the main reason why we maintain our Sell rating, fair value HK$66.77.4Q14 miss on multiple levels4Q14 revenues were disappointing at HK$3.45bn, declining -29% QoQ, worsethan book-to-bill suggested on orders pushed-out to 1Q15. ASM mentionedthat clients’ capex requirements were mostly fulfilled by 3Q14, delayingdeliveries to 1Q15. High Opex, especially high R&D expenditures bringsOperating Profits -9% below consensus. The miss at the Profit Before Taxlevel increases to -35% below Consensus, EPS -41% below Consensus and-51% below CLSA.

1Q15 to be weak again, management expecting growth in 2Q15。

Book-to-bill suggests 1Q15 revenues will decline by -20% to -25% QoQ;management guidance for 1Q book-to-bill suggests +15% to +20% revenuegrowth in 2Q15 as high equipment deliveries of 2Q-3Q14 are digested. Thishighlights, in our opinion, a seasonal slowdown in Equipment demand fromCamera Module makers in China and in SMT demand for smartphone. Thismeans that 1H15 revenues will likely be flat YoY (we forecast +1%) and that2H15 revenues must increase by +38% HoH for 2015 revenues to be flat YoY.Not impossible but certainly demanding.A mixed bag of positive LED and Camera Module demand againstweak semi demand

We believe that ASM Pac benefitted in 2014 from strong capex from Camera

Module makers and LED packagers in China as well as large volume growthfor US smartphone brand (SMT). We expect Camera Module and LED demandto be sustainable, but not to increase in 2015. On the flip side, we believethat wire-bonding demand from semis will decline. A mixed bag that offerslittle room for revenue growth, in our opinion.

Upgrade earnings, reiterate SELL

We have increased our net income forecast by +2% for 2015 and +23% for2016. The stock is trading at 3.3x 2016CL book value for a 20% ROE, themost expensive semi stock in Hong Kong / Taiwan. We retain our Sell ratingand base our fair value on 3.0x 2015CL book value or fair value of HK$ 66.77.