Summary of Conference Call Notes Industry Overview - The conference call discusses the Taiwan ABF (Ajinomoto Build-up Film) and BT (Bismaleimide Triazine) substrate industry, focusing on pricing trends and supply chain dynamics. Key Companies Mentioned - NYPCB (Nanya PCB) - Unimicron Technology - Kinsus - Ibiden Core Insights and Arguments 1. **Pricing Hike Expectations**: - A pricing hike for both ABF and BT substrates is anticipated in October, driven by a ~30% increase in T-glass related raw material costs, which accounts for ~5% of ABF and ~15% of BT substrate COGS [1][4] - Expected pricing increases: ABF substrate by 10%+ and BT substrate by 15%+ [1][4] 2. **Demand and Supply Dynamics**: - Solid demand for AI ABF substrates is expected, aligning with capacity expansion plans from Ibiden [2] - A supply shortage for ABF and BT substrates is projected due to lengthening raw material lead times and low inventory levels among suppliers [4][7] 3. **Earnings and Price Target Revisions**: - NYPCB's price target raised from NT$280 to NT$310, reflecting a positive outlook on revenue and gross margin improvements [3][14] - Unimicron's price target increased from NT$130 to NT$144, maintaining a Neutral rating due to high exposure to LTA business [3][20] 4. **Market Share and Competitive Position**: - NYPCB is expected to benefit significantly from the pricing uptrend, with a projected earnings CAGR of 175% from 2025 to 2027 [21][22] - Unimicron holds a 27% market share in ABF substrates but may lose market share in the AI server PCB segment due to production yield issues [24] 5. **Long-term Supply Constraints**: - T-glass supply is expected to remain tight until new capacity comes online in 1Q27, leading to sustained pricing pressure [11][12] - The shift in T-glass usage from BT to ABF substrates is anticipated due to higher demand from AI applications [8][9] Additional Important Points 1. **Raw Material Shortages**: - The shortage of T-glass could limit growth in BT applications and impact AI ASIC shipments, as T-glass is crucial for high-layer count ABF substrates [8][10] 2. **Earnings Estimates**: - NYPCB's 2025 earnings estimate revised down by 7% due to higher production costs, despite a 2% increase in revenue expectations [14] - Unimicron's earnings estimates for 2025-2027 revised up by 1-7% based on improved pricing outlook [19][20] 3. **Risks and Methodology**: - Key risks for NYPCB include slower-than-expected demand recovery and pricing upgrades [23] - Unimicron faces risks related to market share loss and demand recovery in the PC segment [25] 4. **Valuation Metrics**: - NYPCB's target price based on a 3.8x 2026E P/B, while Unimicron's target price based on a 2.1x blended 2026E P/B [22][25] This summary encapsulates the critical insights from the conference call, highlighting the dynamics of the ABF and BT substrate market, the performance outlook for key players, and the implications of raw material shortages on future growth.

Investment Rating - The report maintains a "Buy" rating on ZDT and raises the target price (TP) to NT$140 from NT$130, maintains a "Neutral" rating on Unimicron and NYPCB with TP raised to NT$97 and NT$110 respectively, and maintains a "Sell" rating on Kinsus with a new TP of NT$70 from NT$63 [8][21][31]. Core Insights - The increase in BT substrate prices in early Q3 2025, driven by T-glass and gold price hikes, is expected to improve revenue trends for substrate makers, particularly Kinsus and NYPCB, with BT revenue exposure projected to exceed 25% of total revenue in 2025 [2][3]. - The report anticipates a potential further pricing hike for high layer count ABF substrates in the coming months, which could enhance revenue and profitability outlook for substrate suppliers in the second half of 2025 [3][7]. - The T-glass shortage is expected to ease by the first half of 2026, which may stabilize pricing levels despite the current supply constraints [4][7]. Summary by Sections Pricing and Revenue Outlook - BT substrate prices have increased by 5%-20% in early Q3 2025 due to T-glass supply tightness and rising gold prices, which account for 30-40% of BT cost of goods sold (COGS) [1][2]. - The report expects improved profitability for BT substrates in the second half of 2025 compared to the first half, despite potential unfavorable gross margin and operating profit margin conditions due to material cost hikes and currency appreciation [2][3]. Company-Specific Earnings Revisions - Unimicron's 2025 earnings estimate has been cut by 25% due to unfavorable foreign exchange conditions, while revenue is expected to increase by 1% [17][19]. - NYPCB's earnings estimates for 2025, 2026, and 2027 have been revised up by 3%, 11%, and 7% respectively, reflecting a positive outlook on substrate pricing [23][25]. - Kinsus's 2025 earnings estimate has been reduced by 16% due to unfavorable FX conditions, but 2026 and 2027 estimates have been increased by 10% and 11% respectively [28][30]. - ZDT's earnings estimates for 2025, 2026, and 2027 have been revised down by 17%, 1%, and 1% respectively, primarily due to unfavorable FX conditions [33][35].