Advantech Orders Slow, but Still Benefit From Interconnected Factories, Retail, and Healthcare Sites

We retain our fair value estimate for Advantech at TWD 362 per share, corresponding to 26 times 2023 P/E, after factoring in modest demand slowdown in early 2023. Advantech has become undervalued in our view, as weakness in China has pushed the book/bill ratio to 0.87, hurting near-term sentiment. Although China has been weak for longer than we anticipated, we still believe Advantech benefits from a long-term trend where factories and other commercial premises become more interconnected. We are starting to see pandemic control policies ease in parts of China, and more of these moves should quell the market’s concerns on Advantech’s exposure in the country.