UBS Raises Zhangchuan Technologies Target Price to 280 Yuan, Maintains Buy

Overview

This is a rating adjustment (target price upgrade) report by UBS on Zhangchuan Technologies (300604), a leading domestic IC testing equipment company. UBS maintains its Buy rating while significantly raising the 12-month target price from 150 yuan to 280 yuan, implying a 58x P/E for 2027 (previously 37x). The core judgment is that under the AI compute power trend, rising domestic GPU demand, increasing test complexity, and breakthroughs in memory testers will jointly open up growth potential for Zhangchuan Technologies. Therefore, they have upgraded revenue and profit forecasts for 2026-28 and believe the current stock price does not fully reflect its AI-related opportunities.

Core views

Overall view: UBS believes multiple favorable factors are driving increased optimism for Zhangchuan Technologies, thus raising revenue forecasts for 2026-28 by 7-22% and EPS by 7-24%. They also forecast 2027/2028 EPS to exceed market consensus by 8%/6%. The report emphasizes that Zhangchuan's stock price has risen 105% year-to-date, outperforming the A-share semiconductor equipment index (+53%), confirming their view that 'Zhangchuan is a key beneficiary of domestic GPU volume surge,' and there is still upside potential. Demand side (domestic GPU + architectural complexity): UBS expects strong domestic GPU demand, supported by DeepSeek v4 validating Huawei NPU, AI agents driving massive token consumption, and possible marginal relaxation of NVIDIA GPU imports but requiring local minimum proportion. Additionally, more complex chip architectures (e.g., Huawei’s Tau Scaling, SOIC using multi-die hybrid bonding) will bring more test insertion and longer test times, thereby increasing demand for GPU testers. As the only domestic manufacturer capable of mass production, Zhangchuan is expected to benefit significantly. The report forecasts its high-end SoC tester revenue to grow 65% from 2026-28. In the long term, assuming annual GPU shipments of 10 million units with a 1.5% test intensity, the TAM could exceed $2 billion. Memory tester breakthrough: The report believes Zhangchuan has achieved mass shipment of NAND package aging testers and shows signs of breakthrough in memory wafer testing, expected to start with NAND Flash before moving to DRAM. Storage testing is a key sub-segment of automatic test equipment (ATE) (Advantest estimates TAM of $24.5 billion in 2026, compared to $91 billion for SoC testers). Subsidiary Changmai Semiconductor (Chengdu) reported H2 2025 revenue of 420 million yuan, up 442% YoY and 411% QoQ, mainly producing storage-related testers. UBS expects storage testers to contribute over 20% of tester revenue from 2028-30 driven by higher volumes and pricing. Storage tester unit prices range from $300K to $3M; domestic storage WFE expenditure is estimated at $20.7B/25.7B in 2027/2028, implying TAM for domestic storage testers of $1B-$1.5B. Profitability and Financials: The report forecasts compound annual revenue growth of ~36% from 2026-28, with testers being the fastest-growing segment (42% CAGR), including high-end SoC +65%, memory testers +72%, AOI +21%, and sorters ~16% CAGR. Gross margin is expected to rise from 55.1% in 2025 to 60.4% in 2028 (exceeding previous highs in 2022-23), and net margin to reach ~33% by 2028. Short-term performance is supported by rapid growth in shipped goods: Q1 2026 shipped goods rose to 3.9 billion yuan (Q4 2025 was 3.6 billion, Q1 2025 was 2.5 billion), serving as a leading indicator of revenue. Cash spent on purchases and employee compensation in Q1 2026 rose 152% YoY, indicating strong order demand. Revenue YoY +37% in Q4 2025 and +69% in Q1 2026, with slight quarterly decline mainly due to recognition timing and seasonal effects. Note that the company plans to raise 2.2 billion yuan via equity issuance and invest 3.8 billion yuan in R&D for high-end testers and AOIs, which may result in low single-digit EPS dilution. Valuation: New target price of 280 yuan is based on 58x 2027 P/E. UBS finds this multiple reasonable due to higher profit growth (36% vs 26%), confidence in stronger growth prospects, and strong sentiment from AI-related opportunities. Implied PEG is approximately 1.6x, consistent with peers in post-test equipment. The report also notes that Zhangchuan’s current 2027 P/E of ~43x is below that of domestic peers in post-test equipment, suggesting attractive valuation.

Analysis framework

Main theme selection: UBS focuses on the transmission chain of 'AI compute power trend → chip testing demand' and applies it to Zhangchuan’s position as a rare domestic mass producer. Top-down reasoning: First, demonstrate that AI drives massive token consumption and GPU (especially inference GPU) demand, then explain how domestic GPU gains traction (import relaxation, localization ratio, connectivity technology catch-up, declining per-token cost), finally use 'shipment volume × test intensity × unit price' to calculate TAM for testers, quantifying macro trends into revenue elasticity for Zhangchuan. Evidence support: The report cross-validates through multiple lines of evidence, including industry feedback, high growth data from subsidiary Changmai, continuously rising shipped goods (a leading revenue indicator), Advantest’s TAM data for SoC/memory testers, and the company’s large-scale R&D investment plan, to substantiate confidence in high-end SoC and memory tester growth. Valuation methodology: Uses PE method, with PEG to assess reasonableness of the multiple; draws analogy with Advantest’s historical re-rating during NVIDIA AI cycles to argue that structural growth can lead to valuation appreciation, and thus justify that the market still undervalues its growth opportunities.

Methodology notes

• Valuation MethodPE/PEG valuation

  Set target price using P/E and use PEG (P/E divided by earnings growth) to assess reasonableness of the multiple

  The report sets the target price at 58x 2027 P/E and points out an implied PEG of ~1.6x. PEG means that faster-growing companies can tolerate higher P/E ratios; 1.6x suggests slightly elevated valuation relative to earnings growth but consistent with peers, answering whether the high valuation is justified.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Calculate TAM for testers using ‘shipment volume × test intensity × unit price’

  The report assumes 10 million GPUs annually with 1.5% test intensity to estimate a TAM exceeding $2 billion for testers. This breakdown turns abstract concepts like 'AI is hot' into quantifiable equipment demand, helping readers understand where revenue elasticity comes from.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Demand-side prosperity (AI compute power) drives equipment demand, compounded by domestic supply scarcity

  The report follows the chain of 'AI boosts GPU demand, more complex architecture → more test insertions, longer test times → increased tester demand', then emphasizes Zhangchuan as the only domestic manufacturer capable of producing GPU testers. For such sectors as semiconductor equipment, demand prosperity and supply dynamics together determine elasticity — a classic supply-demand analysis.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Revenue growth driving margin improvement (operating leverage)

  The report attributes the EPS upgrade partly to 'better operating leverage' and expects net margin to reach 33% by 2028. Operating leverage refers to fixed costs remaining stable while revenue increases, lowering unit costs and accelerating profit growth beyond revenue, explaining why net profit can grow several times faster than revenue.

• Company Fundamentals and Financial Framework

  Shipped goods (goods in transit) as a leading indicator of revenue

  The report treats continuously rising 'shipped goods' (inventory already shipped but not yet recognized as revenue) as a forward-looking signal of future revenue. When goods are shipped but not yet booked, it often indicates upcoming revenue, helping ease concerns about demand sustainability.

• Event Game Theory and Behavioral FinanceExpectation Gap/Expectation Management

  Market underestimates growth (expectation gap) + comparable company re-rating analogy

  The report believes investors still underestimate Zhangchuan’s opportunities in high-end SoC, memory testers, SLT, and AOI — this is the 'expectation gap.' When actual outcomes exceed expectations, stock prices can be revalued. The report also draws an analogy to Advantest’s historical PE rise from ~20x to 70-80x during NVIDIA AI cycles to illustrate that structural growth can bring valuation uplift.

Asset mapping & comparison

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

• Zhangchuan Technologies (300604)

  AI compute power increases GPU and testing demand, accelerated domestic GPU penetration, Zhangchuan is the only domestic manufacturer capable of mass-producing GPU testers and benefits from memory tester breakthroughs.

  Strengths

  Only domestic manufacturer capable of mass-producing GPU testers; comprehensive post-process equipment portfolio including testers, sorters, AOI, SLT; good progress with key ASIC customers on high-end SoC testers; continuous gross and net margin improvements; positive leading indicators like shipped goods; compound EPS growth of ~36% from 2027-29, higher than peers.

  Weaknesses

  Still weak smartphone-related demand, resulting in EPS forecast below consensus for 2026; potential low single-digit EPS dilution from rights issue and new share issuance; domestic localization rate of post-process equipment still lags behind front-end.

  Comparison

  Current ~43x 2027 P/E, lower than domestic peers in post-process equipment; peers average ~50x but 2028 EPS growth is only ~23%, whereas Zhangchuan’s is higher, so report considers valuation still attractive. It also uses Advantest’s historical PE rise to 70-80x during NVIDIA AI cycles as a re-rating analogy.

  Risks

  2026 semiconductor cycle downturn; intensified domestic ATE (automatic test equipment) competition causing price and margin declines; corporate governance issues.

Key data

• Target Price280 yuanUpgraded from previous 150 yuan, corresponding to 58x 2027 P/E (previously 37x)
• Current Price207.62 yuanJune 2, 2026; valuation benchmark date stock price 214.25 yuan
• RatingBuyMaintained
• Projected Stock Return35.0%Including ~34.9% stock price upside and 0.2% dividend yield
• Revenue Forecast Upside (2026-28)7-22%Due to optimistic views on domestic GPU, test intensity, and memory testers
• EPS Forecast Upside (2026-28)7-24%Driven by revenue growth, product mix improvement, utilization rate, and operating leverage
• EPS Relative to Consensus (2027/2028)8% / 6% aboveStronger confidence in high-end SoC and memory tester growth
• High-end SoC Tester Revenue (2026-28)+65%Driven by domestic GPU volume and architectural complexity
• Tester Revenue CAGR (2026-28)42% CAGRMemory testers +72%, AOI +21%, sorters ~16% CAGR
• Overall Revenue CAGR (2026-28)~36%Large room for localization of post-process equipment
• Gross Margin55.1% → 60.4%From 2025 to 2028, surpassing 2022-23 peak
• Net Margin (2028E)~33%Still improves despite heavy R&D investment
• Subsidiary Changmai H225 Revenue420 million yuanYoY +442%, QoQ +411%, main business: storage-related testers
• Memory Tester Revenue Share (2028-30)20%+Driven by volume and pricing improvements
• Memory Tester Unit Price Range$300K - $3MFrom entry-level low-pin Flash to high-speed, high-parallelism high-end models
• Advantest Estimated TAM (2026)SoC $9.1B / Memory $2.45BUp from $6.9B/$2.1B in 2025, driven by AI
• Domestic Memory Tester TAM$1B-$1.5BBased on domestic storage WFE of $20.7B/$25.7B in 2027/2028
• Shipped Goods (Q126)3.9 billion yuanCompared to Q425 3.6 billion, Q125 2.5 billion, leading revenue indicator
• 2025 Revenue5.3 billion yuanTester/Sorter/AOI split 61%/20%/9%
• Year-to-Date Stock Price Increase+105%Outperforms A-share semiconductor equipment index +53%, A-share IC index +43%
• Implied PEG~1.6xConsistent with peers in post-test equipment
• Dilution from Rights IssueLow single digitsAssuming new share issuance at 172 yuan (80% of 20-day average)

Impact & implications

UBS believes that under the AI compute power trend, Zhangchuan, with its complete portfolio of post-process equipment including high-end SoC testers, memory testers, AOI, and SLT, possesses multiple structural growth drivers. Its AI-related opportunities remain underpriced by the market. The report characterizes this round of growth as more structural and sustainable than the last (pandemic-driven inventory pull), hence raising the target multiple from 37x to 58x. The report also notes that the company's 2026 EPS forecast remains slightly below consensus (due to cautiousness on smartphone-related demand), but still expects a 49% YoY increase, with profits in 2027-28 exceeding consensus.

Risks

• 2026 semiconductor cycle downturn
• Intensified domestic ATE (automatic test equipment) market competition leading to declining ASPs and margins
• Corporate governance issues

What to watch

• Domestic GPU volume rhythm and changes in NVIDIA GPU import policies and localization ratios
• Progress and volume of high-end SoC testers with key ASIC customers
• Breakthrough and shipment progress of memory testers (first NAND, then DRAM) and Changmai's revenue performance
• Leading indicators such as shipped goods and order demand trends
• Smartphone-related demand and Zhangchuan's gross margin improvement