<News Alert> 3Q23 results in line but sales in 2024 expected to be flat
- ASML revenue increased 15.5% y-o-y in 3Q23, reaching EUR 6.7bn while EPS rose by 12.1% y-o-y to EUR 4.81, largely in line with market consensus.
- Management projected a subdued outlook, anticipating flat sales in FY24 due to uncertain end-market demand
- Maintain a positive view on ASML, supported by the secular trends and various growth drivers in place. No change in BUY call with TP of US$740.0.
Solid 3Q23 growth but subdued outlook for FY24
Despite the weakness in the overall semiconductor industry, ASML continued its sustainable growth in 3Q23. Its 3Q23 revenue increased by 15.5% y-o-y to EUR 6.7bn, largely in line with management’s guidance. The gross margin remained steady at 51.9% vs. 51.3% in 2Q23. The GAAP EPS of EUR4.81 marked an increase of 12.1% y-o-y, largely in line with the market expectations.
Order intake of EUR2.6bn in 3Q23 was lower than the previous quarters, as customers remained cautious. China accounts for 46% of total sales in 3Q23, vs 24% in 2Q23. The group saw higher volume in China but lower volume of other customers. These shipments to China are mainly for mid-critical and mature nodes. The bulk of the shipments was for orders placed in 2022 and before. With the further tightening of export control for advanced chips in China, we could see lower contribution from China going forward but that should be filled by higher contribution from other regions. In the near term, ASML does not see any material impact in 2023.
Management is forecasting 4Q23 revenue to increase by 4.7%-10.9% y-o-y, landing between US$6.7bn and US$7.1bn. For the full year, revenue is expected to grow 30% as compared to 2022, with gross margin of around 51%. The management warned of flat sales in 2024 as their end clients are more cautious about capital investment due to the uncertain economic environment. 2024 is expected to be a pivotal year in anticipation for significant growth in 2025.
Long-term growth fueled by the secular growth trends and various drivers in place
Despite short-term uncertainties in end-market demand, we maintain our positive view on ASML’s long-term growth, underpinned by the secular trends and various drivers in place such as AI, energy transition and electrification. We maintain BUY with TP of US$740.0 based on its monopoly position with the leading edge in lithography.