ASE acquires two packaging and testing plants from Infineon:

ASE Industrial Expanding overseas footprints ASE to acquire two assembly sites from Infineon On 22 February, ASE and Infineon (covered by Francois-Xavier Bouvignies) announced definitive agreements under which Infineon will sell two back-end assembly sites - one  in Cavite, Philippines,  and  one in Cheonan, South Korea - to ASE's wholly owned  subsidiaries for about €66m (US$68m), with the transaction  expected to close towards end-Q224. 

ASE will assume factory operations and previously established services by Infineon post the transaction, and further expand customer base in the medium to long term.These facilities would make up 1% of ASE's IC-ATM revenue and capacity with GM on par with IC-ATM average (we model 20.1% in Q124E).
 Efforts to grow automotive revenue and win IDM outsourcing
 

The acquired sites mainly perform wire bonding and lead frame packaging for power modules and automotive/industrial verticals, which are well aligned with ASE's objectives to expand footprints in automotive applications. We note that ASE registered about US$1bn revenue from automotive in 2023 (10% of IC-ATM). 

These facilities could yield similarly to ASE's structural IC-ATM margin (25-30%) over time given higher technology contents and reliability requirements in automotive chip assembly. In addition, we view the transaction as likely to strengthen the strategic partnership between ASE and Infineon, and bolster ASE's future opportunities through IDM outsourcing which made up 30% of IC-ATM revenue in Q423. More economical approach to add overseas capacity ASE management has stressed customer demand and return on investment as the top factors when evaluating overseas capacity builds against the current backdrop of a supply chain shuffle driven by geopolitics. 

We estimate ASE has ~80% IC-ATM capacity 
in Taiwan, ~10% in China and ~10% in other regions currently. Despite meagre capacity 
share of the acquired sites, we believe the transaction represents a more capital-efficient 
approach for ASE to diversify its capacity geographical allocation.

geographical boundaries Valuation: Neutral rating and price target of NT$129.00 We have  a Neutral rating as the stock expectations could have moved in excess of the actual recovery. Our price target is NT$129, based on 1.6x NTM P/BV and LT ROE of 16.8%, implying 14x 2024E PE with earnings and margins holding up cycle over cycle.