The ABF substrate price upcycle is accelerating, and Morgan Stanley raised expectations for three Taiwan-based substrate makers.

Overview

This Morgan Stanley Greater China technology hardware report focuses on the ABF substrate industry and three Taiwan-based suppliers: Unimicron, Nan Ya PCB, and Zhen Ding. The core view is that the substrate pricing upcycle is accelerating, with both momentum and start timing better than previously expected. 2Q earnings preview and supply-chain checks show improvements in utilization, product mix, and pricing; at the same time, upward revisions to AI ASIC, GPU, server CPU, and networking chip demand further widen the ABF substrate supply-demand gap.

Core views

The report reiterates a positive view on all three companies: Unimicron is the preferred name with a target price of NT$1,465 and implied upside of about 50%; Nan Ya PCB has a target price of NT$1,550 and implied upside of about 35%; Zhen Ding has a target price of NT$690 and implied upside of about 15%. At the industry level, the share of PC-related demand continues to fall, and server, AI GPU, AI ASIC, and networking applications have become the main growth sources; the report expects these applications to represent more than 80% of ABF substrate market value by 2030.

Analysis framework

The report combines 2Q earnings preview, supply-chain pricing checks, ASIC/GPU demand forecast updates, a bottom-up ABF supply-demand model, peer comparison, and company valuation models to revise assumptions for pricing, margin, and earnings forecasts. Unimicron is valued using a residual income model, with key assumptions including 9.2% cost of equity, 1% risk-free rate, 8.7% equity risk premium, 1.0 beta, 15% mid-term growth rate, and 3% terminal growth rate.

Methodology notes

• Valuation methodsResidual income model

  Residual income valuation

  Used for valuing Unimicron; the report believes this model can incorporate cost of equity and more accurately reflect company value.

• industry_analysisbottom-up supply-demand model

  Bottom-up supply-demand model

  By updating AI ASIC, GPU, server CPU, and networking chip demand and new capacity assumptions, the report derives the ABF substrate supply-demand gap out to 2030.

• earnings_previewMSe vs consensus

  Morgan Stanley estimate vs consensus comparison

  Compares 2Q revenue, gross margin, operating profit, non-operating income, net income, and EPS to determine the direction of earnings surprise.

Asset mapping & comparison

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

• Unimicron (3037.TW)

  Preferred beneficiary stock in ABF substrates, rated Overweight, with target price NT$1,465.

  Strengths

  Has a relatively high supply share in AI ASIC and server CPU substrates; profitability re-enters a growth track in 2026 and grows more strongly in 2027.

  Weaknesses

  2Q EPS estimates remain below consensus, mainly due to a more conservative non-operating income assumption.

  Comparison

  Ranks first in preference among the three companies and has the highest implied upside.

  Risks

  PC, mainstream server, or AI server demand weaker than expected; new capacity expansion; T-glass constraints being higher than expected; CoWoP substituting ABF substrates.

• Nan Ya PCB (8046.TW)

  Beneficiary with strong pricing sensitivity in ABF and BT substrates, rated Overweight, with target price NT$1,550.

  Strengths

  Has historically been proactive in executing price increases; 2Q BT substrate prices rose about 20–30% and ABF prices rose about 10%, with clear margin improvement.

  Weaknesses

  Earnings improvement is relatively dependent on continued price rises and sustained supply tightness.

  Comparison

  Ranks second in preference, with implied upside around 35%.

  Risks

  Weaker end-demand, industry capacity expansion, raw-material or T-glass constraints, and changes in advanced packaging technology pathways.

• Zhen Ding (4958.TW)

  Beneficiary of improving ABF industry supply-demand balance and upward revisions to AI demand, rated Overweight, with target price NT$690.

  Strengths

  Revenue and core operating performance are supported by stronger demand and margin improvement.

  Weaknesses

  2Q EPS estimate is about 5% below consensus, and non-operating income assumptions remain conservative.

  Comparison

  Ranks third in preference, with implied upside of about 15%.

  Risks

  Demand below expectations, cost or expense pressure, volatility in non-operating income, and increased industry supply.

Key data

• NYPCB 2Q BT substrate price increaseabout 20–30%Supply-chain checks showed prices rose in 2Q; the report believes this was a major reason 4Q and 5Q earnings beat expectations.
• ABF substrate 2Q price increaseabout 10%The report expects further upward pricing potential in 2H26 as supply remains tightening.
• 2030 ABF supply gap25% undersupplyAbove the previous assumption of roughly 22% undersupply.
• ABF demand growth2025–2030E CAGR 24.4%Previously expected 22.2%.
• PC-related ABF demand shareAbout 70% in 2015, about 23% in 2025, below 10% in 2030Shows terminal demand structure shifting from PCs toward AI, servers, and networking.
• Server, AI GPU, AI ASIC, and networking demand shareAbout 10% in 2015, about 60% in 2025, above 80% in 2030The report views this as the main driver for accelerated ABF market growth over the next five years.
• Unimicron 2026/2027/2028 EPS revisions25% / 33% / 14%Mainly from upward revisions to ASIC and GPU shipment assumptions and margin improvements.
• Unimicron target priceNT$1,465Raised from NT$1,285, implying about 50% upside.
• Nan Ya PCB target priceNT$1,550Implies about 35% upside.
• Zhen Ding target priceNT$690Implies about 15% upside.

Impact & implications

If the report’s views prove correct, the ABF substrate industry will move from an early-stage recovery into a much stronger upcycle driven by AI demand spillover. New supply-side capacity typically takes at least two years to come online, meaning price and margins over the next two years will depend mainly on end-demand changes; continued upward revisions to AI ASIC, GPU, server CPU, and networking chip demand would provide positive operating leverage for Taiwan-based substrate makers. For investors, the report emphasizes prioritizing suppliers with stronger pricing power and stronger exposure to AI high-end substrates.

Risks

• PC, general server, and AI server demand weaker than expected.
• A meaningful expansion of new industry capacity that could weaken the medium- and long-term supply-demand gap.
• T-glass constraints higher than expected, potentially affecting available output and costs.
• Technology pathways such as CoWoP could substitute for part of ABF substrate demand.
• U.S. executive orders, export controls, or compliance restrictions could affect relevant entities, securities, or supply-chain activity.

What to watch

• Whether ABF and BT substrate prices continue to rise in 2H26.
• AI ASIC demand, especially changes in demand forecasts for Amazon Trainium, Google TPU, and Chinese AI chips.
• How Nvidia and AMD GPU and Nvidia server CPU roadmaps continue to drive ABF substrate demand.
• The timing of new AI/HPC IC substrate capacity additions by competitors such as AT&S.
• 2Q gross margin, 3Q revenue outlook, and management commentary on pricing at Unimicron, Nan Ya PCB, and Zhen Ding.
• Whether the ABF supply-demand gap continues to widen before 2030.