Earnings Upgrades Drive Rating to Buy, While Wuxi Expansion Brings Long-Term Incremental Growth and Execution Risks

Overview

ITEQ is one of Taiwan's top three copper-clad laminate suppliers, with market position and cost competitiveness in mid- to low-loss materials for server platforms. The report believes that tight industry supply, price adjustment pass-through and demand spillover created by leading peers being occupied with AI projects will drive significant improvement in ITEQ's revenue, product mix and margins. Nomura therefore sharply raised its earnings forecasts and upgraded the rating from Neutral to Buy.

Core views

First, 2Q26 gross margin reached 22%, reflecting the effective conversion into profit of the company's approximately 25% to 30% quarterly price hikes. Second, 3Q26 average selling price is expected to rise by another approximately 20% QoQ, supporting 22% QoQ revenue growth, with gross margin expected to rise to 25.2%. Third, as leading peers' AI project capacity is busy, ITEQ is expected to gain more share in M4/M6-grade copper-clad laminates and the fast-growing general server market. Fourth, an approximately 25% E-glass supply shortage may continue to cap revenue, but price hikes and product mix improvement should still lift gross margins to 22.4% and 24.1% in 2026 and 2027. Fifth, the Wuxi and Thailand expansions lay the foundation for medium- to long-term growth, while also bringing uncertainty around utilization, raw material supply and customer qualification.

Analysis framework

The report combines quarterly results compared with market consensus expectations, average selling price and gross margin driver analysis, judgments on end demand such as servers and autos, assessments of industry supply-demand and competitive landscape, review of capacity expansion plans, and uses a forward P/E approach to determine the target price. Earnings forecasts are comprehensively revised upward based on assumptions for price hikes, sales volume, product mix and new capacity.

Methodology notes

• Valuation methodsForward P/E Approach

  The target price is calculated as forecast EPS multiplied by the target P/E ratio.

  The main analysis applies 18x 2027E EPS of TWD 26.2, corresponding to a target price of TWD 472; 18x is near the average of the company's historical trading range of 8x to 36x since 2020, and is lowered from the previous 25x to reflect uncertainty over utilization of new capacity in Wuxi and Thailand. In some appendix sections, TWD 26.2 is labeled as a 2026 forecast, but the earnings forecast table and main discussion both list it as a 2027 forecast.

• Earnings ForecastVolume-Price and Margin Driver Model

  Revenue and profit are projected through average selling price, sales volume, product mix and raw material supply.

  The model assumes 2Q26 average selling price increased by approximately 25% to 30% QoQ and will rise by another approximately 20% in 3Q26, while combining server demand spillover and product mix upgrade to forecast continued gross margin improvement.

• Relative PerformanceBenchmark Comparison

  The stock rating reflects expected performance relative to a specified benchmark over the next 12 months.

  ITEQ's comparison benchmark is TAIEX; a Buy rating means the analyst expects the stock to outperform the benchmark over the next 12 months.

Asset mapping & comparison

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

• ITEQ (6213.TW)

  The core subject of the report, benefiting from copper-clad laminate price hikes, spillover from server demand and new capacity.

  Strengths

  One of Taiwan's top three copper-clad laminate suppliers, with capabilities in mid-loss, low-loss and ultra-low-loss materials; it has server platform market position, cost competitiveness and potential room for share gains.

  Weaknesses

  Revenue release is constrained by E-glass supply, and the scale of new capacity is large with uncertainty over utilization.

  Comparison

  Currently trading at approximately 15x 2027E EPS, below the 18x target P/E used in the report; the target multiple is near the average of the company's historical 8x to 36x range.

  Risks

  Server, automotive and consumer electronics demand below expectations, unexpected market share losses in server or automotive markets, slower-than-expected RCC R&D progress, raw material price increases, and weaker-than-expected capacity ramp-up in Wuxi and Thailand.

• TAIEX

  The relative performance benchmark used for ITEQ's rating.

  Strengths

  Used to measure the stock's relative return performance over the next 12 months.

  Weaknesses

  Index performance may be affected by broad macro and market factors and cannot independently reflect copper-clad laminate industry fundamentals.

  Comparison

  The Buy rating means the report expects ITEQ to outperform TAIEX over the next 12 months.

  Risks

  Macroeconomic slowdown or overall valuation contraction in Taiwan's equity market may pressure relative and absolute returns.

Key data

• Rating changeNeutral upgraded to BuyProfitability is significantly stronger than previously expected.
• Target priceTWD 472Raised from TWD 293, implying 21.3% upside versus the closing price on August 7, 2026.
• 2Q26 gross margin22%Up 10.6 percentage points QoQ and 6.4 percentage points YoY, above Nomura and Bloomberg consensus expectations.
• 3Q26 forecastRevenue up 22% QoQ, gross margin 25.2%Mainly driven by average selling price expected to rise by another approximately 20% QoQ.
• Gross margin forecast2026 22.4%; 2027 24.1%A significant improvement compared with 14.5% in 2025.
• EPS forecast2026 to 2028 TWD 16.7, 26.2, 27.4Previous forecasts were TWD 8.2, 11.7 and 13.8, respectively.
• Revenue forecast2026 to 2028 TWD 51,243mn, 70,252mn, 72,967mnReflects expectations for price hikes, demand spillover and capacity growth.
• Wuxi investment plan2026 to 2029 CNY 2.13bnThe new plant is expected to start operations in 2027 and fully ramp up in 2029.
• Wuxi full-run capacity2.85mn sheets per monthTogether with the Thailand expansion project of 600k sheets per month, capacity could increase by approximately 60% versus end-2026.
• Current valuation15x 2027E P/ETarget valuation is 18x, and the historical trading range is 8x to 36x.
• Raw material supply shortageApproximately 25%E-glass supply capacity may still constrain revenue release.

Impact & implications

The sharp earnings forecast upgrade and rating upgrade constitute near-term valuation re-rating catalysts. If server demand spillover, price hike pass-through and product mix improvement continue as expected, ITEQ's profit growth may be significantly faster than revenue growth. In the medium to long term, the Wuxi and Thailand projects can expand growth potential, but with E-glass still in shortage, new capacity does not necessarily translate immediately into effective output; investors need to assess capex, customer qualification and capacity utilization risks at the same time.

Risks

• Server, automotive or consumer electronics demand weaker than expected.
• Unexpected market share losses by ITEQ in server or automotive segments.
• RCC product R&D progress slower than expected.
• Deterioration in macro factors such as economic slowdown and rising raw material prices.
• The approximately 25% E-glass supply shortage persists, constraining revenue and capacity release.
• Ramp-up, customer qualification or capacity utilization at the new Wuxi and Thailand plants falls short of expectations.
• Large-scale expansion may increase capex and uncertainty over medium-term returns.

What to watch

• Whether 3Q26 average selling price can achieve approximately 20% QoQ growth.
• Whether the forecasts of 22% QoQ revenue growth and 25.2% gross margin in 3Q26 are realized.
• Whether the E-glass supply shortage eases and the actual supply volume the company can secure.
• Changes in the share of M4/M6-grade copper-clad laminates in general server and AI-related demand.
• Whether the new Wuxi plant can start production in 2027 as planned and complete ramp-up in 2029.
• Construction, customer certification and utilization of the Thailand expansion project of 600k sheets per month.
• Whether the sharply raised EPS forecasts for 2026 to 2028 can continue to be delivered.
• Changes in capex, net debt and return on new capacity.