Q3 Assembly and Testing Beat Guidance
ASE Technology Holding Q3 assembly and testing revenue grew 20.4% QoQ, better than the original estimate of 11% to 13%. Quarterly gross margin reached 30.6%, above the guided range of 28% to 29% and also above the upper end of the company's structural gross margin of 25% to 30%. Quarterly after-tax EPS was NT$6.05, about 12% higher than analysts' original estimate of NT$5.41, mainly driven by advanced semiconductor packaging and testing demand. Q3 operating performance significantly exceeded original guidance, and the Q4 operating outlook also beat expectations.
Q4 Outlook Revised Up
Looking to Q4, benefiting from strong automotive, industrial and AI-peripheral demand, analysts raised the revenue forecast by 9.8% to NT$262.1 billion, up 7.4% QoQ and up 47.3% YoY, and raised EPS by 23% to NT$7.44. Among them, assembly and testing revenue is estimated to grow 11% to 13% QoQ, with gross margin estimated at 31.6% to 32.6%, continuing the growth momentum from Q3. Analysts are positive on the Q4 assembly and testing business and overall operations.
Capex Raised to US$11.5 Billion
To meet advanced packaging and testing demand, ASE further raised 2026 capital expenditure from US$10.5 billion to US$11.5 billion, an increase of US$1 billion, with plant and equipment investment each increasing by US$500 million. The upward revision shows the company continues to expand plant and equipment investment in line with customer demand and capacity planning to support subsequent growth in advanced packaging and LEAP-related businesses.
LEAP Business Estimated to Double in 2027
For the LEAP business, the 2026 revenue target was raised to US$4 billion, up 150% YoY, accounting for about 23% of assembly and testing revenue. Proprietary Full Process (FOCoS) is expected to start contributing revenue in Q4, at about US$300 million. Looking to 2027, with TSMC CoWoS expansion, a higher outsourced share of CP testing, and gradual ramp-up of FOCoS, the company maintains its view that LEAP revenue will double, with its share of assembly and testing revenue rising to 35.4%, of which FOCoS could reach 5.9%. Benefiting from advanced packaging demand and rapid LEAP business growth, analysts estimate 2026 and 2027 EPS at NT$21.38 and NT$34.04 respectively, up 11% and 23% from prior estimates, with a two-year profit CAGR likely exceeding 40%. Based on 2027 estimated EPS and a 25x P/E multiple, the target price is raised to NT$900, with a Buy rating maintained.