Investment Rating - The report initiates coverage on Tokyo Electron (8035 JP) with a "Buy" rating and sets a target price of 32,000 JPY, corresponding to approximately 25 times FY26E PE [5][17][21]. Core Views - Tokyo Electron is Japan's largest and the world's fourth-largest semiconductor equipment manufacturer, with leading positions in various sectors such as coating and developing, etching, deposition, cleaning, and probe stations. The company is expected to benefit from the ongoing global semiconductor investment expansion, particularly in emerging fields driven by generative AI and advanced logic chips [5][17][21]. - The company has a strong market presence, with a 92% market share in the coating and developing sector, and is well-positioned to capitalize on the structural growth in demand for advanced processes in the semiconductor industry [5][17][21]. Summary by Sections Investment Logic 1: Benefiting from Structural Expansion in China's Advanced Process Demand - Tokyo Electron has significantly benefited from high capital expenditure in China's semiconductor industry, particularly in advanced processes like DRAM and logic chips. The company's revenue from mainland China is expected to grow by 24.8% year-on-year in FY25, maintaining its position as the largest market [6][18]. - Despite a projected 7% decline in the overall scale of the Chinese semiconductor market in CY25, demand for advanced process equipment is expected to structurally increase, allowing the company to maintain stable revenue growth in China [6][18]. Investment Logic 2: Benefiting from the Growth of High-End Equipment Demand Driven by Generative AI in the U.S. - In FY25, Tokyo Electron's revenue outside mainland China is projected to grow by 39.3%, with North America experiencing a significant 44.5% year-on-year increase. This growth is attributed to the ongoing investments in advanced semiconductor processes driven by U.S. semiconductor policies [7][19]. - The company holds a competitive edge in low-temperature etching and HBM wafer bonding technology, positioning it well to benefit from the expansion of advanced manufacturing in the U.S. [7][19]. Differentiated Market Perspective - While there are concerns about potential long-term declines in market share in China due to domestic semiconductor equipment initiatives, the report argues that Tokyo Electron has established a global supply chain capable of meeting regulatory and customer requirements, which will help maintain its market share in China [8][20]. Financial Forecast and Valuation - The report forecasts that Tokyo Electron's revenue will reach 2,431.6 billion JPY in FY25, marking a 32.8% year-on-year increase, with net profit expected to grow by 49.5% to 544.1 billion JPY. The company is projected to maintain strong growth in the coming years, with revenue growth rates of 8%/11%/11% and net profit growth rates of 9.8%/10.8%/11.6% for FY26/27/28 [9][27]. - The SPE new equipment business is anticipated to be the main revenue driver, accounting for 76.5% of total revenue in FY25, with a year-on-year growth rate of 35.6% [9][27].