UBS Group AG: The surge of EMAC technology (AMKR.US) has reflected the expected increase in computing power. Downgrade rating to balance cost risks.

UBS Group AG released a research report, downgrading the rating of Amkor Technology (AMKR.US) from "buy" to "neutral", but raising the target price from $38 to $55. The bank pointed out that the recent rise in the stock price reflects strong growth expectations in computing power, but cost and risks must be weighed. UBS Group AG stated that the recovery momentum is imminent, but cost and downside risks must be weighed. Since the low point in April 2025, the stock price of Amkor Technology has risen by 250%, but UBS Group AG downgraded its rating to neutral because the stock price reflects faster growth expectations in computing power, the recovery of smartphone SiP, the recovery of cyclical mainstream markets, and the potential for long-term projects in Arizona. UBS Group AG believes that risk/reward should remain neutral, as the company is building a $7 billion project in Arizona, which will face negative free cash flow in the coming years; rising memory prices may affect PC/smartphone sales; and whether the US GPUs can continue to supply the Chinese market (accounting for 6% of sales by 2026) or whether they can move Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS-L packing technology or material supply to ASE Technology Holding Co., Ltd. Sponsored ADR. UBS Group AG expects strong growth in computing demand from 2026 to 2027. The bank raised its year-on-year sales growth expectation for 2025 from 5% to 6%, but maintained year-on-year growth expectations for 2026-2027 at 14%/12%, higher than the market expectation of 9%/9%. This is mainly due to rapid growth in computing demand, stable SiP/smartphone markets, and the recovery in the automotive/industrial sectors. UBS Group AG predicts that advanced packaging (CoWoS-S/L/R and oS) will add $1 billion in sales within two years (5% to 16% of sales by 2027) if the following scenarios occur: NVIDIA Corporation's H200 is approved, CPO switching, Vera CPU (using SPIL dual-source packaging), NVIDIA Corporation's N1/N1X/GB10, ASIC, and CoWoS-L TPU will be put into use by 2027, and oS business will also grow. Total computing power (including CPU, switches, and networks) will grow from 20% in 2025 to 28% in 2027. Secondly, mature business growth is more moderate. The high growth of the computing business is balanced by Amkor Technology's core low-profit SiP (system-in-package) consumer electronics, smartphone, and automotive/industrial sectors. SiP business overlaps with Apple Inc.'s business, accounting for 49%/31% of sales by the end of 2024, and the automotive/industrial business accounts for 19%. UBS Group AG expects a moderate recovery in 2026-2027: 1) automotive/industrial business is expected to grow by 10%/5% as inventories have returned to normal levels post-COVID and Amkor Technology has an advantage in ADAS/infotainment; 2) communication business is expected to grow by 11%/6% as SiP business will fully recover in 2026, supporting Wi-Fi interfaces, new foldable/variable aperture cameras, and lower resistance compared to mainstream Android systems; 3) consumer electronics business is expected to grow by 4%/2% as products like wearable earphones have a high base. The investment cycle of CKH HOLDINGS limits its upside due to overvaluation. Amkor Technology's $7 billion, two-phase construction project for a wafer fab in Arizona will not be operational until 2028, with profitability starting in 2029. The first phase project (potential revenue of 10%) costs $3.5 billion and is eligible for a 35% tax credit and $407 million in government subsidies. UBS Group AG expects the project to have negative free cash flow of $1 billion from the fourth quarter of 2025 to 2028, resulting in a cash yield of less than 1%. The basis for UBS Group AG's rating downgrade and target price increase is: expected price-to-book ratio of 2.5 times in 2027 (implying a 20 times price-to-earnings ratio), compared to 2.5 times in 2026 (implying a 15 times price-to-earnings ratio), high-end product lines (including AI products) will account for 15-20% of sales by 2027, net asset return will increase from 7% in 2025 to 13% in 2026-2029, peer company ASE Technology Holding Co., Ltd. Sponsored ADR currently has a price-to-earnings ratio of 20 times (in 2026), and the compounded annual earnings growth rate for 2025-2029 is 33%.