Our target price of NT$186 is derived using a DCF methodology. Using Bloomberg data, we apply a risk-free rate of 4.0%, a risk premium of 7.0%, and a beta of 1.40x for a 13.8% cost of equity. With a 20% corporate tax and a 4.0% interest rate on its debt, our WACC for ASE Holdings is 10.9%. We assume terminal sales growth of 7%. We model its adjusted EBIT margin to gradually improve from 7.3% in 2024 to 12.2% in 2035E. At our target price, the shares would trade at a 2025/26E P/B of 2.6x/2.4x and a 2025/26E P/E of 23x/15x.

Key downside risks that could prevent ASE shares from reaching our target price include: 1) poor efficiency and less synergy created from merger with SPIL; 2) failure to gain market share in advanced packaging; 3) industry oversupply due to aggressive capacity expansion; 4) severe pricing erosion due to competition; and 5) a longer-than-expected semiconductor inventory correction.