Advantech Earnings: Bookings Rebounding but Shares Are Pricing in Too Much

We cut our fair value estimate on narrow-moat Advantech to TWD 337 per share from TWD 361, as downbeat guidance points to a slower recovery in 2024 than we foresaw and rising operating expenses needed to broaden the firm's product portfolio will weigh on profitability. Our valuation corresponds to 27.3 times 2024 P/E, close to the stock’s five-year average. We reckon Advantech's shares are overvalued, as the market’s expectations for generative artificial intelligence, or AI, are too high, and we believe it is unlikely to benefit the company directly. While AI can be deployed in detection and some production tasks, we believe it is already reflected in our 10.2% earnings per share compound annual growth rate, or EPS CAGR, up to 2028.