Foundry momentum flows downstream, creating opportunities for packaging and testing profit improvement and AI testing growth

Overview

The report is positive on the continued strength of China's semiconductor packaging and testing industry in 2H26. Strong shipments, price increases, and order backlogs at SMIC and Hua Hong Semiconductor are viewed as leading signals for downstream packaging and testing demand over the next one to two quarters.

Core views

Packaging and testing companies can enhance profitability through price increases, order-mix optimization amid tight supply, and rising demand from AI and local-for-local supply chains. JCET has clearer near-term catalysts through the transmission of price increases into margins and earnings; V-Test is in a phase of upfront capital expenditure and depreciation pressure, but a ramp-up in domestic AI chips from late 2026 is expected to drive simultaneous improvements in revenue, gross margin, and valuation.

Analysis framework

The report infers downstream demand from foundries' quarterly revenue, shipments, and guidance, and compares JCET and V-Test based on preliminary earnings, capacity expansion, pricing elasticity, product mix, and forward P/E valuations.

Methodology notes

• Supply Chain TransmissionFoundry-to-Packaging-and-Testing Demand Leading Indicator

  Transmission of foundry wafer shipments to packaging and testing demand

  Given production cycles, wafers shipped by foundries in the second to third quarters of 2026 typically translate into packaging and testing demand one to two quarters later.

• Valuation methodsForward P/E Valuation

  One-year forward P/E target valuation

  JCET's target price uses 40x one-year forward P/E; V-Test's target price uses 30x one-year forward P/E, assessed in conjunction with their respective historical valuation ranges and growth prospects.

Asset mapping & comparison

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

• JCET (600584.SS)

  Report's top packaging and testing pick

  Strengths

  AI demand, localization, tight supply, and price increases drive margin improvement; advanced packaging investment strengthens the long-term growth narrative.

  Weaknesses

  High intensity of advanced packaging R&D and capital expenditure creates near-term depreciation and investment pressure.

  Comparison

  Compared with V-Test, JCET's path toward price increases and margin improvement is closer to realization; the report states that its expected 2027 P/E is 42.1x, a 19% premium to its historical average.

  Risks

  Weaker-than-expected consumer electronics demand, constrained raw-material supply, and intensified competition in traditional packaging.

• V-Test (688372.SH)

  Report's top third-party testing pick

  Strengths

  Countercyclical capacity expansion in high-end testing equipment, substantial CP business exposure, and its customer mix are expected to benefit from rising domestic AI chip volumes; valuation is relatively low.

  Weaknesses

  Near-term margins are constrained by rising depreciation, weak consumer electronics, and resource investment for AI project onboarding, while pricing flexibility is limited.

  Comparison

  Compared with JCET, V-Test's growth realization is more weighted toward 2H26 to 2027; the report states that its expected 2027 P/E is 25.5x, a 17% discount to its historical average.

  Risks

  Restrictions on testing-equipment procurement, export controls affecting the return of chip testing business from overseas foundries to mainland China, intensified competition supported by domestic ATE, and weak non-AI demand.

Key data

• SMIC 2Q26 revenue growth20% QoQ, 36% YoYThe report states that quarterly revenue reached a record high.
• Hua Hong Semiconductor 2Q26 revenue growth9% QoQ, 27% YoYThe report states that quarterly revenue reached a record high.
• JCET net profit before non-recurring gains and lossesRmb560mnMidpoint of preliminary 2Q26 results, up 112% QoQ and 28% YoY.
• V-Test projected 2026–2028 revenue CAGR59%Report forecast.
• V-Test projected 2026–2028 profit CAGR73%Report forecast.
• JCET target priceRmb110December 2027 target price, Overweight.
• V-Test target priceRmb220June 2027 target price, Overweight.

Impact & implications

If high foundry utilization rates, order backlogs, and price-increase trends persist, packaging and testing companies will benefit from greater demand and improved pricing. Advanced packaging capital expenditure may weigh on short-term profits through depreciation, but it supports companies in capturing long-term growth from the expansion of domestic AI supply chains; investors should distinguish between JCET's more near-term earnings realization and V-Test's later-stage growth realization.

Risks

• Smartphone and other consumer electronics demand falls below expectations.
• Shortages of raw materials such as substrates due to logistics or supply issues.
• Intensifying competition in traditional packaging and testing compresses profitability.
• Restrictions on high-end testing-equipment procurement may hinder capacity expansion.
• Export controls may affect the return of overseas-foundry chip testing business to mainland China.
• AI chip volume ramp-up, advanced packaging projects, or price-increase progress falls short of expectations.

What to watch

• SMIC's and Hua Hong Semiconductor's 3Q26 shipments, pricing, capacity utilization, and guidance.
• Implementation of price increases by packaging and testing companies and changes in the share of high-value orders.
• Capital expenditure, capacity ramp-up, and depreciation impact of JCET's advanced packaging projects.
• The shipment ramp of locally manufactured AI chips from late 2026 and its pull-through effect on V-Test's testing demand.
• Improvements in V-Test's revenue, gross margin, and operating leverage from 4Q26.
• Changes in consumer electronics demand, raw-material supply, and regulatory restrictions.