JCET's product mix improves, with high utilization at mature lines supporting gross margin

Overview

This report is UBS's review of JCET Group's (600584.SS) Q126 results. The company's first-quarter revenue and profit were broadly in line with expectations, and gross margin improved year over year, mainly due to high utilization at mature production lines and a higher mix of higher-quality applications such as advanced packaging, computing, and automotive. UBS continues to view the company positively as a beneficiary of recovering global semiconductor demand and growth in advanced packaging.

Core views

UBS's core views are: first, Q126 gross margin rose 1.9 percentage points YoY to 14.5%, showing that product mix improvement and high utilization have begun to feed through to profitability; second, revenue from automotive, computing, industrial, and medical applications accounted for more than 45% of total revenue, up 7 percentage points YoY, reducing dependence on traditional consumer electronics demand; third, the company's factories in South Korea and Singapore have entered new products for multiple international customers, which should further optimize the customer and product mix; fourth, 2026 capital expenditure will mainly be directed toward high-end OSAT capacity both in China and overseas. Although new capacity will bring depreciation pressure, it is expected to raise the contribution from high-end packaging revenue over the medium to long term.

Analysis framework

The report evaluates the company's investment value through earnings breakdown analysis, product mix analysis, capacity utilization assessment, tracking of capital expenditure and capacity ramp-up, and the P/BV valuation method. UBS compares first-quarter revenue, net profit, and gross margin against year-over-year, quarter-over-quarter, and seasonal performance, and combines this with changes in the contribution from automotive, computing, and industrial/medical applications to assess earnings quality.

Methodology notes

• Valuation methodsP/BV valuation

  Target price is based on 3.3x 2026E P/BV

  UBS uses the price-to-book method to value the company. The target price of Rmb56.70 corresponds to 3.3x 2026E P/BV, and the report shows current 12/26E P/BV at 2.6x.

• Earnings analysisYear-over-year and quarter-over-quarter breakdown

  YoY/QoQ comparison of revenue, net profit, and gross margin

  The report compares Q126 revenue, net profit, and gross margin on both a year-over-year and quarter-over-quarter basis, and notes that the QoQ revenue decline was better than the seasonal first-quarter pattern over the past three years.

• Short-term viewQuantitative Research Review

  Scoring of short-term industry structure, regulatory environment, and single-stock trend

  In UBS's quantitative research review, industry structure, regulatory environment, and stock trend over the past 3-6 months are all scored 4, while the risk score for EPS revisions relative to consensus expectations and UBS forecasts is 3.

Asset mapping & comparison

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

• 600584.SS / JCET Group（长电科技）

  Covered company in the report

  Strengths

  One of the world's leading OSAT providers, with production bases in China, Singapore, and South Korea; rising contribution from advanced packaging and computing applications; relatively high utilization at mature production lines; able to pass through part of cost pressure to customers.

  Weaknesses

  First-quarter revenue still declined both YoY and QoQ; expansion of high-end capacity may bring depreciation pressure; consumer electronics demand may be affected by memory shortages.

  Comparison

  The report believes Q126 revenue's QoQ decline was better than the seasonal pattern of first quarters over the past three years, while growth in automotive and computing applications outpaced overall revenue.

  Risks

  Downturn in the global semiconductor cycle, intensified competition from new entrants, loss of overseas customer share due to geopolitics, rising raw material costs, and weak consumer electronics demand.

Key data

• Q126 net profit attributable to shareholdersRmb290mRecurring net profit was Rmb265m, mainly including government subsidies of Rmb30.49m; +37% YoY, -55% QoQ.
• Q126 revenueRmb9.171bn-2% YoY, -10% QoQ, better than the roughly -19% seasonal QoQ performance in first quarters over the past three years.
• Q126 gross margin14.5%Up 1.9 percentage points YoY and down 0.7 percentage points QoQ.
• Revenue contribution from automotive/computing/industrial and medical applicationsMore than 45%Up 7 percentage points YoY.
• Revenue growth in automotive and computing applicationsAutomotive +29% YoY; Computing +14% YoYAn important driver of product mix improvement.
• Q126 capital expenditureRmb2.5bnThe company previously guided for 2026 capex of Rmb10bn, expected to be mainly invested in high-end OSAT capacity in China and overseas.
• Target priceRmb56.70Based on 3.3x 2026E P/BV, with a Buy rating maintained.
• Current priceRmb45.10Price date is April 28, 2026.
• Expected total return26.0%Including expected share price upside of 25.7% and expected dividend yield of 0.3%.
• UBS diluted EPS forecast2026E Rmb1.24; 2027E Rmb1.72; 2028E Rmb2.23Consensus expectations are Rmb1.35, Rmb1.73, and Rmb1.99, respectively.

Impact & implications

If global semiconductor demand recovers, AI application demand leads to tighter supply, and industrial control and automotive demand also recover, the company's mature production lines may maintain relatively high utilization. The ramp-up of high-end OSAT capacity and a higher share of advanced packaging revenue could drive gross margin improvement, but depreciation from new capacity, raw material costs, and volatility in consumer electronics demand may still affect earnings elasticity.

Risks

• The global semiconductor industry is highly cyclical, and a slowdown in overall demand could affect the company's earnings.
• An increase in new entrants in China's OSAT industry may intensify competition and compress gross margin.
• Geopolitical factors may cause the company to lose share with important overseas customers.
• Memory shortages may suppress consumer electronics demand.
• New high-end capacity additions may bring depreciation pressure.
• Raw material cost inflation may affect margins, although UBS believes the company has some ability to pass through costs.

What to watch

• The company's earnings call at 10:00 a.m. Beijing time on April 30, 2026.
• Whether the revenue contribution from automotive, computing, industrial, and medical applications continues to rise.
• Whether AI application demand leads to tighter supply in advanced packaging and computing-related assembly and testing.
• The construction and ramp-up pace of high-end OSAT capacity in China and overseas.
• The impact of depreciation pressure from new capacity on gross margin.
• The company's ability to pass rising raw material costs on to customers.
• Changes in the gap between 2026E-2028E EPS forecasts and consensus expectations.