UBS maintains a Buy rating on King Yuan Electronics and raises the target price to NT$380

Overview

This is a UBS company research report on King Yuan Electronics (2449.TW). The core view is that although KYEC's short-term share performance has lagged peers, its medium- to long-term fundamentals are still supported by cloud AI testing demand, higher test insertions, longer testing durations, increasing AI CPU and TPU volumes, and TSMC outsourced probe business. The report maintains a Buy rating and raises the target price to NT$380.

Core views

UBS believes KYEC's growth is not only dependent on existing cloud AI customers; the increased contribution from Google TPU, AI CPU, and server CPU testing will become a new growth leg after 2026. The report highlights that AI agent workloads and AI accelerator demand are re-accelerating server CPU growth, and KYEC is well positioned as a beneficiary as the sole final test supplier for key ARM server CPU projects. Although valuation has already been significantly rerated, UBS still believes that upward revisions to revenue and earnings in 2027-2028 can support the higher target price.

Analysis framework

The report argues its investment view through company business opportunities, end-market demand forecasts, customer and product mix, capex and plant expansion, revisions to revenue and EPS forecasts, comparison with consensus expectations, and PE multiple valuation. Financial forecasts cover 2026E to 2030E, and UBS's new forecasts are compared with prior forecasts and market consensus.

Methodology notes

• Valuation methodsPE multiple valuation

  PE multiple valuation

  UBS valued the stock using an unchanged 22x 2027 expected PE and, on that basis, raised the target price from NT$360 to NT$380.

• earnings_forecastUBS earnings estimate revision

  Earnings estimate revision

  The report fine-tunes 2026E EPS and raises 2027/2028E EPS by 7%/4%, mainly reflecting upside from CPU, TPU, and probe business.

• industry_demandCloud AI TAM expansion

  Cloud AI TAM expansion

  UBS incorporates AI accelerators, AI CPUs, networking chips, and outsourced probe business into KYEC's future TAM expansion framework, arguing that higher test insertions and longer test times will support revenue growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• King Yuan Electronics (2449.TW)

  Covered target, a Taiwan semiconductor testing service provider

  Strengths

  Benefits from expansion in cloud AI chip testing, final test for ARM server CPUs, Google TPU ramp-up, longer test times, and outsourced probe business growth.

  Weaknesses

  Year-to-date performance has lagged ASE and TWSE; the report notes that valuation was already relatively high at the start of the year, and the market has high expectations for gross margin and future business outlook.

  Comparison

  KYEC is up 37% year-to-date, below ASE's 116% and TWSE's 44%; UBS's 2027/2028E EPS is about 13%/11% above consensus expectations.

  Risks

  End-demand technology demand recovery may be weaker than expected; competition in China may intensify and impact pricing, market share, or margin.

Key data

• 12-month target priceNT$380Raised from NT$360; Buy rating maintained.
• Valuation multiple22x 2027E PETarget price is based on an unchanged 2027E expected PE multiple.
• Revenue growth forecast2026E 42%; 2027E 43%; 2028E 22%The 2027/2028E revenue growth forecast was raised from 39%/21% to 43%/22%.
• EPS forecast adjustment2027E +7%; 2028E +4%2026E EPS was slightly fine-tuned.
• UBS EPS forecast2026E NT$10.23; 2027E NT$17.36; 2028E NT$20.95The table shows UBS's new forecast.
• AI CPU shipment forecast3 million units in 2025 to 33 million units in 2030UBS expects this to correspond to 62% CAGR.
• Google CPU revenue contributionAbout 2% in 2026; above 5% possible in 2027EKYEC is the sole final test supplier for key ARM server CPU projects, including Google Axion CPU.
• TPU chipset forecastLess than 2 million units in 2025; 5 million units in 2026; 10.4 million units in 2027MediaTek TPU 8t ramp-up may accelerate from Q3 2026 and reach 3 million units in 2027.
• 2026 CapexNT$500bnNew factory space tied to 2026 capex is estimated to be about three times the 2025 expansion scale.
• 2026E P/BV6.8xTrading data and key metric disclosure.

Impact & implications

If UBS's view on CPU, TPU, and cloud AI testing demand is realized, KYEC's growth drivers will broaden from a single AI accelerator testing theme to a wider mix of server CPU, TPU, and probe businesses, with stronger revenue and profit operating leverage in 2027. However, valuation charts show KYEC's forward PE and PB are already substantially above historical averages, so subsequent stock performance will be more sensitive to the realization of earnings revisions and absorption of new capacity.

Risks

• Weaker-than-expected recovery in end-user technology demand may pressure revenue and testing demand.
• Intensifying competition in China may affect pricing, share, or margins.
• If cloud AI, CPU, TPU, and probe businesses ramp more slowly than expected, upward revisions in 2027-2028 profitability may not be fully realized.
• Valuation has been significantly rerated; forward PE and PB remain at historically elevated levels, making returns sensitive to earnings delivery.
• Large capex and new capacity may create utilization and return pressures if demand falls short.

What to watch

• Whether revenue contribution from Google Axion CPU and other ARM server CPU projects in 2026-2027 reaches around 2% and above 5%.
• The ramp-up pace of Google TPU and MediaTek TPU 8t, especially whether it accelerates after Q3 2026.
• The space ramp, capacity utilization, and order visibility associated with NT$500bn capex in 2026.
• Whether 2027/2028 revenue growth approaches 43%/22%, and whether gross margin can stay around 43%.
• Whether KYEC's forward PE and PB remain elevated versus historical averages but continue to be digested through ongoing EPS revisions.