4 December 2025 | 1:54PM CST Equity Research TAIWAN TECHNOLOGY Expect solid AI PCB/CCL demand and positive pricing for CCL/PCB/Substrate in 2026E and beyond; marketing trip takeaways We have met with over 150 investors during the past two months (including our marketing trips in HK, SG and Taiwan), where investors remain positive on the PCB/CCL/Substrate industry, expecting a much better pricing and shipment environment. Key takeaways from our trips and industry trends suggest that solid AI demand and posit ...

Summary of Conference Call Notes Industry Overview - **Industry**: Technology Hardware - Asia-Pacific, specifically focusing on ABF substrate and PCB markets - **Key Drivers**: Continued demand from datacenter investments, particularly in AI and compute sectors Core Insights 1. **Demand Growth**: - AI server demand is projected to grow by over 25% from CY25 to CY27, significantly impacting the ABF substrate market [1][2] - Server accelerators and GPUs are expected to be the main growth drivers, with their mix in demand projected at 32% in 2025, 36% in 2026, and 43% in 2027 [2][15] 2. **Supply and Demand Dynamics**: - An oversupply of 6% is expected in 2025, followed by undersupply of 1% in 2026 and 6% in 2027 [2][10] - Ibiden aims to increase its capacity for GPU package substrates to 1.4x by FY3/26 and 2.3x by FY3/28 [2] 3. **Company Ratings and Price Objectives**: - Price objectives for Unimicron, NYPCB, and Kinsus have been raised to NT$150, NT$130, and NT$110 respectively, while maintaining an Underperform rating due to competitive pressures [1][9] - Ibiden maintains a Buy rating due to its technological strength in the high-end market [1] 4. **Competitive Landscape**: - Taiwan companies are losing market share to Chinese competitors due to faster production ramp-up and aggressive capacity expansion [4] - Unimicron's share loss in NVIDIA is highlighted as a significant concern [4] 5. **Material Supply Insights**: - Ibiden does not foresee major supply issues into FY3/26 and plans to diversify supply in FY3/27 [3] - Non-NVIDIA customers are adapting to substrate supply from non-Japanese vendors [3] Financial Projections 1. **Earnings Estimates**: - Unimicron's 2026/27 EPS estimates have been raised by 9-10% and 2-8% respectively, reflecting a better margin outlook due to price hikes [1][22] - The gross margin for Unimicron is expected to improve to 19.9% by 2027, up from 18.7% [22] 2. **Comparison with Consensus**: - BofA's estimates for Unimicron are 2% to 4% below consensus for 2026 and 2027 operating profit due to conservative gross margin assumptions [24][25] Additional Insights - **Technological Advancements**: The report emphasizes the importance of technological strength in maintaining competitive advantage in the high-end substrate market [1] - **Market Adaptation**: Non-NVIDIA customers are increasingly reliant on alternative supply sources, indicating a shift in the supply chain dynamics [3] This summary encapsulates the key points from the conference call, focusing on the industry dynamics, company performance, and financial projections.

Summary of Conference Call Notes Industry Overview - **Industry**: ABF (Ajinomoto Build-up Film) and BT (Bismaleimide Triazine) substrates - **Outlook**: The overall supply-demand outlook for ABF substrates is improving, with expectations of a return to balance by mid-2026, leading to sustainable pricing for suppliers post-2026 [1][3][10] Key Points Demand and Growth Projections - **AI Server Applications**: Demand for high-end ABF substrates is primarily driven by AI server applications, projected to account for 18% in 2025, 21% in 2026, and 26% in 2027 of the overall Total Addressable Market (TAM) [2][10][18] - **TAM Growth**: The ABF substrate TAM is expected to grow at a CAGR of 24% from 2025 to 2027 [3][10][16] - **Capacity Growth**: Industry capacity growth is forecasted to slow to 11% YoY from 2025 to 2027, down from 17% CAGR from 2020 to 2024 [3][10] Pricing Outlook - **Price Increases**: ABF and BT substrate prices are expected to rise by 5-10% each quarter in 2026 due to supply shortages and strong demand [4][31][35] - **BT Substrate Pricing**: A significant price increase of 30-45% has been observed since July, with further increases anticipated [4][31] - **Material Shortages**: Shortages of key production materials are expected to restrict ABF substrate suppliers' utilization rates in 2026, leading to a high order backlog ratio in early 2027 [11][12] Company-Specific Insights - **NYPCB**: Maintained a Buy rating with a revised 12-month target price of NT$330, reflecting a positive outlook due to flexible pricing strategies [9][68] - **Kinsus**: Expected to outperform due to high exposure to BT substrates, with a target price increase to NT$125 [8][63][68] - **Unimicron**: Anticipated to underperform due to weak performance in the AI HDI market, with a target price adjustment to NT$150 [8][9][68] Earnings Revisions - **NYPCB**: 2025E earnings revised down by 1% due to rising costs, but 2026/27E earnings revised up by 6%/10% due to better pricing outlook [59][60] - **Kinsus**: 2025E earnings revised down by 2%, but 2026/27E earnings revised up by 12%/17% [63][64] - **Unimicron**: 2025E earnings revised down by 7%, with 2026/27E earnings revised up by 3%/15% [66][67] Additional Insights - **Networking Demand**: Anticipated surge in networking-related demand, projected to grow at a CAGR of ~150% from 2024 to 2027, driven by increased data traffic in AI datacenters [19][21] - **Supply Constraints**: Expected capacity constraints from 2027, with no new major capacity expansions announced by Japanese and Taiwanese suppliers [22][30] Conclusion The ABF and BT substrate markets are poised for significant growth driven by AI applications and networking demands, with favorable pricing dynamics expected to support supplier margins. Companies like NYPCB and Kinsus are well-positioned to capitalize on these trends, while Unimicron faces challenges in specific market segments.

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.

Summary of Conference Call Notes Industry Overview - **Industry Focus**: Taiwan Technology, specifically AI power applications and related components such as PCBs and substrates [1][2][3][4] Key Company Insights Delta Electronics - **Positive Investor Sentiment**: Investors are optimistic about Delta's AI power business, driven by solid growth in average selling price (ASP) per watt and product shipments, despite concerns regarding profitability and valuation [2][6] - **Revenue Growth**: Delta's revenue increased by 5% month-over-month and 27% year-over-year, reaching NT$47.9 billion, attributed to strong demand for AI power supply units (PSUs) [9] - **Market Share and Product Upgrades**: Delta is expected to maintain a high market share in the AI server PSU market, with AI power revenue projected to grow from 12% of total revenue in 2025 to 31% and 47% in 2026 and 2027, respectively [15][9] - **Long-term Growth Drivers**: The company is well-positioned to benefit from trends in EV, 5G infrastructure, and data center power needs, with a projected revenue CAGR of over 20% from 2023 to 2030 [35] NYPCB - **Substrate Market Position**: NYPCB is expected to benefit from favorable pricing trends in BT and non-LTA ABF substrates, with a significant portion of revenue (70%+) coming from these segments [38] - **Earnings Growth Outlook**: Anticipated earnings growth of 175% from 2025 to 2027, driven by increasing demand and pricing power in the substrate market [38] Zhen Ding Technology (ZDT) - **Market Share Expansion**: ZDT is projected to capture over 40% of the ABF substrate market in China by 2027, benefiting from the growing demand for AI computing components [40] - **Revenue Contribution from New Products**: The company is expected to see foldable smartphones contribute significantly to revenue, accounting for over 55% by 2027 [40] Competitive Landscape - **PCB and Substrate Competition**: Concerns exist regarding aggressive expansion plans from PCB players, which may lead to unfavorable competition dynamics. However, demand for AI PCBs is expected to grow at a CAGR of 40-50% from 2025 to 2027, while tier 1 suppliers' capacity growth is projected at 25-30% [3][4] - **Pricing Trends**: BT substrate prices have already increased by 20-25% since July, with further hikes expected due to T-glass shortages. ABF substrate pricing is anticipated to rise by 5-10% per quarter starting from Q4 2025 [20][22] Investment Ratings - **Delta Electronics**: Maintained a Buy rating with a target price of NT$670, reflecting a favorable long-term outlook despite valuation concerns [5][36] - **NYPCB**: Also rated Buy, with a target price of NT$280, supported by strong earnings growth potential [39] - **ZDT**: Rated Buy, with a target price of NT$220, driven by positive market dynamics in the ABF substrate sector [42] Risks and Considerations - **Market Risks**: Key risks include slower-than-expected growth in AI server power consumption, potential market share loss, and currency fluctuations impacting profitability [36][39][43] - **Valuation Concerns**: Some investors express discomfort with Delta's current valuation compared to historical averages, suggesting a need for caution [11] Conclusion - The Taiwan technology sector, particularly in AI power and related components, presents significant growth opportunities. Companies like Delta, NYPCB, and ZDT are well-positioned to capitalize on these trends, although investors should remain aware of competitive pressures and market risks.

Summary of the 2025 Taiwan AI Forum Insights Industry Overview - **Industry**: Greater China Technology Hardware - **Event**: 2025 Taiwan AI Forum - **Date**: September 12, 2025 - **Analysts Involved**: Howard Kao, Sharon Shih, Irene Yen from Morgan Stanley Key Insights 1. **Conventional ABF Supply**: Conventional ABF (Advanced Build-up Film) is expected to remain oversupplied, particularly with the entry of new competitors [6] 2. **Advanced ABF Substrate**: Although currently oversupplied, the advanced ABF substrate market may reach a more balanced supply-demand situation by calendar year 2026-2027 [6] 3. **PCB Design Trends**: There is a noticeable trend in AI accelerator server PCB designs shifting towards HDI (High-Density Interconnect) or HDI+HLC (High Layer Count) hybrid designs [6] 4. **Rubin Ultra ABF**: The Rubin Ultra ABF is projected to double in area size compared to the original Rubin, featuring a higher layer count but lower yields, necessitating approximately double the production capacity [6] 5. **CoWoP Technology**: CoWoP (Chip-on-Wafer-on-Panel) will utilize mSAP (Modified Semi-additive Process) PCB technology with line/space as small as 15µm to integrate RDL (Redistribution Layer) interposers into the SLP (System-in-Package). However, the larger area size of the platform PCB compared to the substrate may require T glass, which is currently constrained in supply [6] 6. **Fiber Cloth Shortages**: - T glass (low CTE glass cloth) is anticipated to remain in undersupply until 2027, with new capacity expected to come online from Nittobo in the second half of 2026 [6] - Level-1 low Dk (Dielectric Constant) glass cloth is currently oversupplied [6] - Level-2 low Dk glass cloth supply constraints are gradually easing [6] 7. **Operational Costs in Thailand**: The operational costs in Thailand are approximately 15% higher than in China, compounded by weaker logistical support and lower efficiency, making profitability challenging for some companies in the initial two years [6] Additional Considerations - **Industry View**: The overall view of the Greater China Technology Hardware industry is categorized as "In-Line" by Morgan Stanley, indicating expectations of performance in line with the broader market [4] - **Analyst Certification**: Analysts Howard Kao and Sharon Shih certify that their views on the companies discussed are accurately expressed and that they have not received compensation for specific recommendations [11] This summary encapsulates the critical insights and trends discussed during the 2025 Taiwan AI Forum, highlighting the current state and future expectations of the Greater China Technology Hardware industry.

Summary of Key Points from the Conference Call Industry Overview - The analysis focuses on the **Asia Tech Hardware** sector, particularly the **AI server** and **Apple supply chain** industries, over a 15-year horizon, examining business models, profitability, solvency, and operational efficiency [1] Core Insights Profitability Metrics - **Return on Equity (ROE)** for ODMs and equipment suppliers is projected to be between **20-30%** in 2024, with **Chroma** and **Delta** expected to show significant increases [2] - **Chroma's ROE** has improved from **12% in 2010 to 25% in 2024**, with expectations to reach **31% in 1H25** due to its focus on niche markets and divestment from low-margin segments [15] - **Largan** and **Sunny Optical** have shown fluctuating ROE due to market conditions, with signs of recovery noted since last year [15] Operational Efficiency - **Chroma** has the longest cash conversion cycle at **209 days** due to its industry characteristics, yet maintains a strong free cash flow margin [77] - **Luxshare** has achieved an almost zero cash conversion cycle, indicating high operational efficiency [78] - **Quanta's** cash conversion cycle is longer due to logistical complexities in its supply chain [78] Debt and Solvency - Most companies maintain healthy debt levels, with **Quanta's** net debt-to-equity ratio expected to rise significantly from **15% in 2024 to over 60% in 2025-26** due to AI server business expansion [4][69] - **Largan** has a notably low net debt-to-equity ratio, reflecting its strong cash position [69] Capital Expenditure and Free Cash Flow - **Unimicron** is identified as the most capex-intensive company with a capex-to-revenue ratio averaging **21%** over the past five years [5] - **Chroma** and **Largan** exhibit free cash flow margins between **20-40%**, indicating strong cash generation capabilities [5] Investment Ratings and Price Targets - **Delta Electronics**: Rated Outperform, Price Target (PT) of **NT$630** [8] - **Chroma ATE**: Rated Outperform, PT of **NT$570** [9] - **Quanta Computer**: Rated Underperform, PT of **NT$240** [10] - **Unimicron Technology**: Rated Outperform, PT of **NT$170** [11] - **Luxshare Precision**: Rated Outperform, PT of **RMB47** [12] - **Sunny Optical**: Rated Outperform, PT of **HK$97** [13] - **Largan Precision**: Rated Market-Perform, PT of **NT$2,400** [14] Additional Observations - The **camera and PCB sectors** show that CIS and lens suppliers achieve higher ROIC compared to module players, with higher technological barriers enhancing supplier concentration [3] - **Quanta's** financial performance is heavily reliant on the PC market, which has seen fluctuations impacting its ROE [15] - The **PCB market** is characterized by cyclical demand, with companies needing substantial capital investments to expand capacities [54] This comprehensive analysis highlights the competitive landscape and financial health of key players in the Asia Tech Hardware sector, providing insights into potential investment opportunities and risks.

Summary of Conference Call on ABF Substrate Industry Industry Overview - The ABF (Ajinomoto Build-up Film) substrate market is expected to experience oversupply conditions until the second half of 2026, with a projected 7% oversupply in 2025 [1][11][25]. - The total addressable market (TAM) for ABF substrates has been revised down by 12% and 10% for 2025 and 2026, respectively, due to lower-than-expected AI server GPU substrate shipments and increased pricing pressure [2][22]. Key Insights - **Demand Dynamics**: The demand for AI server substrates has been cut by approximately 50% for 2025, reflecting a significant decrease in AI server rack shipments, which are expected to decline by 35% [2][60]. - **Pricing Pressure**: The average selling price (ASP) for AI GPU substrates has decreased from over US$120 earlier in the year to US$100, indicating a challenging pricing environment [2][60]. - **Impact on Suppliers**: Tier-2 suppliers like Unimicron and Kinsus are expected to face significant challenges due to their exposure to legacy ABF products and weaker-than-expected spillover orders from tier-1 suppliers [2][9][24]. Supplier Performance - **Unimicron**: Downgraded to Neutral from Buy due to weaker AI spillover orders and a slow PC demand outlook. Target price revised from NT$170 to NT$90 [9][10]. - **Kinsus**: Downgraded to Sell from Neutral, with a new target price of NT$63, reflecting less favorable growth in the mid-to-low-end ABF substrate market [9][10]. - **Ibiden**: Maintained Buy rating with a target price of ¥6200, benefiting from its leading position in the high-end substrate market [10][22]. - **Zhen Ding Technology (ZDT)**: Initiated with a Buy rating, expected to benefit from ABF demand expansion from Chinese IC design houses [8]. Future Catalysts - The mid-to-long-term outlook for Taiwan ABF suppliers is expected to improve with the localization of AI IC production in China, projected to grow at a CAGR of 53% from 2025 to 2027 [3][4]. - Adoption of CPO (Chip-on-Package) technology is anticipated to double the consumption of switch IC ABF substrates compared to general 2.5D packaging substrates [3]. Capacity and Utilization - The overall industry capacity is expected to increase by approximately 40% from 2024 to 2027, with a significant portion of new capacity planned before 2024 [29][53]. - Utilization rates for ABF substrate suppliers are projected to improve in 2025, but overall industry utilization will remain below 80% [27][24]. Risks and Challenges - Potential risks include higher electricity costs in Taiwan and the impact of tariffs, which could increase costs as a percentage of revenue significantly [46][45]. - The overall cash margins for ABF substrate suppliers are expected to remain under pressure until at least the second half of 2025, with a potential recovery starting in 2026 [44][59]. Conclusion - The ABF substrate industry is currently facing a challenging environment with oversupply and pricing pressures, particularly affecting tier-2 suppliers. However, long-term growth opportunities exist through technological advancements and increased demand from AI-related applications. The market is expected to stabilize post-2026, with significant growth driven by AI and server upgrades.