This paper firstly presents a processor design with Derivative ASIP approach. The architecture of processor is designed by making use of a well-known embedded processor's instruction-set as a base architecture. To improve its performance, the architecture is enhanced with more hardware resources such as registers, interfaces and instruction extensions which might achieve target specifications. Secondly, a new approach for retargeting compiler by means of assembly converter tool is proposed. Our retargeting approach is practical because it is performed by the assembly converter tool with a simple configuration file and independent from a base compiler. With our proposed approach, both architecture flexibility and a good quality of assembly code can be obtained at once. Compared to other compilers, experiments show that our approach capable of generating code as high efficiency as its base compiler and the developed ASIP results in better performance than its base processor.