South Asia Circuit April Net Profit Surges 654% YoY; Maintains Overweight Rating

Overview

This report provides Morgan Stanley’s commentary on South Asia Circuit’s (8046.TW) preliminary financial data for April 2026. The company demonstrated a sharp rebound in profitability, with April net profit surging 654% year-over-year and net margins improving significantly, primarily driven by strong volume and pricing in ABF and BT substrate businesses. The firm maintains its 'Overweight' rating, viewing the AI-driven PCB industry upcycle as still in its early phase and anticipating supply shortages beginning in 2027.

Core views

Strong earnings rebound with notable margin recovery. South Asia Circuit reported April revenue of NT$4.451 billion, up 39% YoY, and net profit of NT$597 million, a 654% increase from the same period last year. This monthly profit represents 36% of Morgan Stanley’s and 32% of the market’s consensus estimate for Q2 2026 net profit. Notably, the April net margin reached 13.4%, up 170 basis points from 11.7% in Q1 2026. Driver analysis: Margin improvement stems from three key factors—stronger pricing power, optimized product mix, and higher capacity utilization in ABF and BT substrates. This reflects the company’s growing competitiveness in high-end substrates and benefits from recovering downstream demand. Industry outlook and relative preference: Morgan Stanley reiterates its 'Overweight' rating on South Asia Circuit, underpinned by the view that the AI-driven upcycle remains in its early stages and that industry-wide supply shortages are expected to emerge from 2027 onward. However, on a 12-month horizon, analysts prefer Unimicron (3037.TW), followed by South Asia Circuit and Zhen Ding (4958.TW).

Analysis framework

The firm combines bottom-up financial tracking with top-down industry cycle assessment. First, it monitors the company’s monthly preliminary financial disclosures (e.g., revenue, net profit, margins) to validate short-term operational trends. Second, it benchmarks single-month data against quarterly forecast frameworks (e.g., April profit as a percentage of Q2 estimates) to assess the likelihood of full-year earnings realization. Finally, it integrates industry supply-demand dynamics—particularly AI-driven ABF substrate demand and potential 2027 supply shortages—to formulate long-term investment recommendations.

Methodology notes

• Valuation MethodRIM Residual Income Model

  Residual Income Model

  The report uses the Residual Income Model to value South Asia Circuit. This approach calculates the present value of future earnings exceeding the cost of equity, making it particularly suitable for equity-cost-sensitive valuations. Assumptions include a cost of equity of 9.3%, a medium-term growth rate of 17%, and a perpetual growth rate of 3%.

• Industry/Market Analysis FrameworkSupply-demand framework

  Supply-Demand Gap Analysis

  The report employs a supply-demand framework to assess industry sentiment, highlighting that AI-driven demand growth will lead to ABF substrate shortages by 2027—a core rationale supporting the long-term bullish view.

Asset mapping & comparison

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

• South Asia Circuit (8046.TW)

  Beneficiary directly benefiting from ABF/BT substrate demand recovery and margin expansion

  Strengths

  April results significantly beat expectations; rapid net margin recovery; early beneficiary of AI upcycle

  Weaknesses

  Lower institutional preference than Unimicron on a 12-month horizon

  Comparison

  Higher substrate exposure elasticity than Zhen Ding; less attractive than Unimicron per institutional view

  Risks

  Sudden shortage in ABF substrate demand, technological shifts eliminating need for ABF substrates (e.g., CoWoP), intensified competition

• Unimicron (3037.TW)

  Top institutional pick; major ABF substrate supplier

  Strengths

  Most preferred by institutions on a 12-month horizon

  Comparison

  Preferred over South Asia Circuit and Zhen Ding

  Risks

  ABF demand from PC/server clients falling short, halted capacity expansion, yield issues with alternative technologies

• Zhen Ding (4958.TW)

  Peer comparison; primarily involved in F-PCB and SLP

  Weaknesses

  Lower institutional preference than Unimicron

  Comparison

  Ranked after South Asia Circuit and Unimicron

  Risks

  iPhone sales below expectations, slower-than-expected increase in F-PCB content, intensifying competition from mainland Chinese peers

Key data

• April RevenueNT$4.451 billionUp 39% YoY
• April Net ProfitNT$597 millionUp 654% YoY
• April Net Margin13.4%Up 170 bps from 11.7% in Q1 2026
• Share of Q2 Net Profit Forecast36% (Morgan Stanley) / 32% (Market)Indicates strong start to Q2
• Target PriceNT$1,275Implies 41% upside

Impact & implications

South Asia Circuit’s strong April performance sets a solid foundation for Q2 2026 earnings, validating the firm’s thesis on margin recovery. For investors, this confirms that demand for AI-server-related high-end PCBs/substrates is translating into tangible financial results. Despite impressive near-term results, the firm favors Unimicron among peers, signaling the importance of relative return considerations.

Risks

• Sudden shortage in ABF substrate demand affecting pricing and orders
• Technological shifts rendering ABF substrates obsolete (e.g., improved yields in CoWoP or other alternatives)
• Intensified industry competition
• Yield issues or production disruptions during new capacity ramp-up

What to watch

• Actual demand growth pace for ABF and BT substrates
• Speed of AI and 5G demand recovery relative to expectations
• Magnitude of average selling price (ASP) increases
• Yield progress of alternative technologies that eliminate substrate requirements