EUR 65.60 For Business Accounts Only

Non-op losses not impacting core operation

​We transfer coverage with a BUY rating and TP of NT$44: 3Q16 EPS was lower than the market’s recently raised expectations, due to: 1) some expected that ASE could recognize SPIL’s dividends as a non-op gain, which was a misunderstanding; 2) ASE had to book PPA valuation on SPIL as a non-op exp, which had a 6% impact on EPS; and 3) one-off ECB and F/X losses totaled NT$460 mn (or 8% impact on EPS). However, many of these are non-cash items, and most importantly, had nothing to do with its core business. And after all, its EMS GM continued to surprise on the upside. Besides, on a full-year basis, we expect its IC-ATM business to grow 6-7% YoY this year, which may not be as impressive as TSMC, but is still outgrowing the overall semi sector. Meanwhile, with an improving yield on SiP and a likely decent iPhone 8 cycle, it is fair to assume that its EMS business can resume growth momentum in 2017F (EMS is down 16% this year). Lastly, the deal with SPIL is progressing, and will eventually be EPS accretive. As such, we reiterate BUY, but we lower our TP to NT$44.