Aspeed Technology: ASPEED achieves phenomenal Net Income growth in 2024

ASPEED Technology, established in 2004 and headquartered in Hsinchu, Taiwan, is a prominent fabless Integrated Circuit design company specializing in Cloud and Enterprise solutions. Their product portfolio includes Baseboard Management Controllers, Bridge ICs, PFR SoCs, and Smart AV Solutions. The company has been publicly traded on the Taipei Exchange since April 30, 2013. In the fiscal year 2023, ASPEED Technology's revenue was predominantly driven by Multimedia Integrated Circuits, which accounted for 88% of the total revenue. Computer Peripherals Oriented ICs contributed 11%, with the remaining revenue categorized under Other. From a geographical perspective, Taiwan was the largest market, generating 57% of the company's revenue. China and the USA followed, contributing 30% and 4% respectively, with the remainder classified under Others. Semiconductor market set for revival In 2023, the global semiconductor market faced an 11% decline, dropping to $533bn, due to lower-than-expected demand in smartphones, PCs, and servers, coupled with excess inventory and macroeconomic challenges. However, Gartner forecasts a robust recovery in 2024, with a projected annual growth rate of 17%, driven by AI compute demand, smarter electric vehicles, and broader AI application adoption, reaching $624bn. ASPEED Technology's Multimedia IC segment, which contributed 88% to its revenue, is strategically positioned to capitalize on these trends. By accurately grasping evolving industry standards for product planning, ASPEED develops products that meet market demands in real-time and proactively plans for the next generation of ICs, thereby reinforcing its leading position. Notably, Nuvoton Technology remains the only competitor in this market. Moreover, over 80% of server motherboards worldwide are designed and manufactured by Taiwanese suppliers. This underscores the strategic advantage of ASPEED's location in Taiwan, which facilitates rapid technical support and swift market entry, further solidifying its competitive edge. Long -term performance Over the 2018-2023 period, ASPEED Technology achieved an overall revenue growth at a 5-year CAGR of 8%, reaching TWD3.1bn in 2023. Notably, 2022 was a standout year with a 43% revenue increase, driven by a 44% rise in domestic sales and significant y/y growth in exports across Asia. At the product level, both the Multimedia IC and Computer Peripherals IC segments experienced expansion. However, 2023 presented challenges, with a 40% y/y revenue decline attributed to weak customer demand in China and the adverse effects of global inflation on the Multimedia IC segment. Despite these challenges, ASPEED's EBIT grew at a slower CAGR of 6%, resulting in a margin contraction of 260 bps. Conversely, net margins improved by 30 basis points, reaching 32% in 2023, which led to an increase in EPS from TWD18 in 2019 to TWD27 in 2023. ASPEED consistently generated positive FCFs and maintained a robust cash position of TWD2.0bn at the end of 2023, with negligible debt, indicating strong financial stability for future expansion. In comparison, its peer TSMC demonstrated a robust top-line CAGR of 16% over the same 5-year period, with EBIT growing at a 19% CAGR. TSMC also saw a significant margin expansion of over 500 basis points, reaching 43%. Analysts see upside potential ASPEED enjoys a favorable consensus among 13 analysts, with 10 recommending a 'Buy' rating and three assigning a 'Hold' rating. The average target price is TWD4696, suggesting an upside potential of 30%. Analysts' positive outlook is further supported by an anticipated EBIT CAGR of 35% over the period FY24-FY26, reaching TWD5.4bn, with margins projected at 50% in FY26. Additionally, analysts forecast a net profit CAGR of 32%, reaching TWD4.5bn with margins of 42% in FY26, and EPS is expected to increase to TWD120 in FY26 from TWD68 in FY24. In contrast, analysts project an EBIT CAGR of 24% and a net profit CAGR of 23% for TSMC. Over the past 12 months, ASPEED's stock has demonstrated robust performance, delivering returns of approximately 21%, indicative of a positive fundamental trajectory. In comparison, its local peer, TSMC, achieved higher returns of 39%. However, on a YTD basis, ASPEED outperformed TSMC, with a positive return of 9% against TSMC's negative return of -7%. Despite the significant appreciation in share prices, ASPEED is currently trading below its historical average valuation metrics. The company is trading at a P/E ratio of 43x, based on the FY25 estimated EPS of TWD84, which is lower than its three-year historical average P/E of 65x. However, this valuation is considerably higher than that of its local peer TSMC, which is trading at a P/E ratio of 17x. Similarly, on an EV/EBIT basis, ASPEED is trading at 35x, based on the FY25 estimated EBIT of TWD3.8bn, which is below its three-year historical average of 59x. Nonetheless, this is significantly higher than TSMC's EV/EBIT ratio of 14x. Despite a challenging environment, the company's strong fundamentals position it well for near- and medium-term growth. Valuations are robust, and analyst consensus remains favorable. However, supply chain disruptions and cyber-attacks pose risks to output and operations. Implementing robust architecture and backup systems can mitigate these risks and ensure continued stability. ASPEED Technology, established in 2004 and headquartered in Hsinchu, Taiwan, is a prominent fabless Integrated Circuit design company specializing in Cloud and Enterprise solutions. Their product portfolio includes Baseboard Management Controllers, Bridge ICs, PFR SoCs, and Smart AV Solutions. The company has been publicly traded on the Taipei Exchange since April 30, 2013. In the fiscal year 2023, ASPEED Technology's revenue was predominantly driven by Multimedia Integrated Circuits, which accounted for 88% of the total revenue. Computer Peripherals Oriented ICs contributed 11%, with the remaining revenue categorized under Other. From a geographical perspective, Taiwan was the largest market, generating 57% of the company's revenue. China and the USA followed, contributing 30% and 4% respectively, with the remainder classified under Others. Semiconductor market set for revival In 2023, the global semiconductor market faced an 11% decline, dropping to $533bn, due to lower-than-expected demand in smartphones, PCs, and servers, coupled with excess inventory and macroeconomic challenges. However, Gartner forecasts a robust recovery in 2024, with a projected annual growth rate of 17%, driven by AI compute demand, smarter electric vehicles, and broader AI application adoption, reaching $624bn. ASPEED Technology's Multimedia IC segment, which contributed 88% to its revenue, is strategically positioned to capitalize on these trends. By accurately grasping evolving industry standards for product planning, ASPEED develops products that meet market demands in real-time and proactively plans for the next generation of ICs, thereby reinforcing its leading position. Notably, Nuvoton Technology remains the only competitor in this market. Moreover, over 80% of server motherboards worldwide are designed and manufactured by Taiwanese suppliers. This underscores the strategic advantage of ASPEED's location in Taiwan, which facilitates rapid technical support and swift market entry, further solidifying its competitive edge. Long -term performance Over the 2018-2023 period, ASPEED Technology achieved an overall revenue growth at a 5-year CAGR of 8%, reaching TWD3.1bn in 2023. Notably, 2022 was a standout year with a 43% revenue increase, driven by a 44% rise in domestic sales and significant y/y growth in exports across Asia. At the product level, both the Multimedia IC and Computer Peripherals IC segments experienced expansion. However, 2023 presented challenges, with a 40% y/y revenue decline attributed to weak customer demand in China and the adverse effects of global inflation on the Multimedia IC segment. Despite these challenges, ASPEED's EBIT grew at a slower CAGR of 6%, resulting in a margin contraction of 260 bps. Conversely, net margins improved by 30 basis points, reaching 32% in 2023, which led to an increase in EPS from TWD18 in 2019 to TWD27 in 2023. ASPEED consistently generated positive FCFs and maintained a robust cash position of TWD2.0bn at the end of 2023, with negligible debt, indicating strong financial stability for future expansion. In comparison, its peer TSMC demonstrated a robust top-line CAGR of 16% over the same 5-year period, with EBIT growing at a 19% CAGR. TSMC also saw a significant margin expansion of over 500 basis points, reaching 43%. Analysts see upside potential ASPEED enjoys a favorable consensus among 13 analysts, with 10 recommending a 'Buy' rating and three assigning a 'Hold' rating. The average target price is TWD4696, suggesting an upside potential of 30%. Analysts' positive outlook is further supported by an anticipated EBIT CAGR of 35% over the period FY24-FY26, reaching TWD5.4bn, with margins projected at 50% in FY26. Additionally, analysts forecast a net profit CAGR of 32%, reaching TWD4.5bn with margins of 42% in FY26, and EPS is expected to increase to TWD120 in FY26 from TWD68 in FY24. In contrast, analysts project an EBIT CAGR of 24% and a net profit CAGR of 23% for TSMC. Over the past 12 months, ASPEED's stock has demonstrated robust performance, delivering returns of approximately 21%, indicative of a positive fundamental trajectory. In comparison, its local peer, TSMC, achieved higher returns of 39%. However, on a YTD basis, ASPEED outperformed TSMC, with a positive return of 9% against TSMC's negative return of -7%. Despite the significant appreciation in share prices, ASPEED is currently trading below its historical average valuation metrics. The company is trading at a P/E ratio of 43x, based on the FY25 estimated EPS of TWD84, which is lower than its three-year historical average P/E of 65x. However, this valuation is