Rigaku Holdings Q2 Semiconductor Business Surges 69%, Maintains Overweight Rating

Overview

JPMorgan releases an earnings review for Rigaku Holdings' Fiscal Year 2026 Q2 results, reiterating the "Overweight" rating and JPY 3,100 target price. Although Q2 operating profit declined 32% YoY due to rising costs and front-loaded investments, falling short of market expectations, the core highlight was a 69% YoY increase in profit from the semiconductor process control instruments business. Management maintained its full-year performance guidance unchanged, noting that semiconductor-related inquiries remain strong, with performance expected to be concentrated in the fourth quarter. The research report argues that as semiconductor structures become more complex, X-ray inspection demand will grow structurally, allowing Rigaku Holdings to achieve growth exceeding the industry average.

Core views

Semiconductor Process Control Instruments are the Core Growth Engine: Q2 operating profit for this segment reached JPY 1.4 billion, up 69% YoY and 2.8x QoQ, primarily benefiting from significant growth in memory and logic chip demand. Management believes this segment's full-year performance is likely to exceed guidance, driven by the recovery of North American IDM manufacturers and the advancement of Joint Evaluation Projects (JEP). By the end of H1, there were 14 JEP projects underway, with expectations for further increases in H2, providing forward-looking indicators for profitability growth in FY2027 and beyond. Currently, semiconductor product inquiries remain strong, and the company has received most orders for FY2026, ensuring performance realization. General Analytical Instruments Business Undergoing Transformational Pain but Has Bottomed Out: Q2 operating profit for this segment was only JPY 300 million, a sharp 78% YoY decline, mainly impacted by budget cuts in US academia. However, the company is actively shifting its business focus from academia to industry, with order volumes recovering to a 6% YoY growth level. Management expects orders for this segment to have bottomed in Q2, with sales in Q3有望 achieving over 50% YoY growth. Although full-year sales recovery progress lags slightly behind original plans, the improvement trend is clear. Short-Term Profit Pressure Does Not Alter Full-Year Achievement Expectations: Overall Q2 operating profit was JPY 1.9 billion, down 32% YoY, below Bloomberg consensus estimates of JPY 3.0 billion and firm estimates of JPY 4.0 billion. The profit decline was mainly attributed to significant rises in material costs, negative impacts from exchange rates, and front-loaded investments in new product development. Although H1 operating profit completed only 13% of the full-year target, and Q3 performance is expected to be flat compared to Q2, management insists on maintaining the FY2026 full-year operating profit guidance of JPY 19.4 billion (+16% YoY). The firm judges that with the implementation of price correction measures and an increased proportion of high-margin semiconductor business, performance will show significant weight skew and concentrated recognition in Q4. Structural Substitution Opportunity for X-ray Inspection Technology: As semiconductor devices develop towards miniaturization and multi-layering, traditional optical/CD measurement technologies struggle to meet inspection needs in some scenarios. The research report argues that this technological bottleneck will drive the continued increase in penetration rate of X-ray inspection equipment (such as XRD) in the semiconductor market. Leveraging its deep accumulation and market position in this field, Rigaku Holdings is expected to achieve higher growth than the overall market. This long-term technological substitution logic is also the core support for the firm's Overweight rating and high valuation premium.

Analysis framework

The research report adopts an analytical approach combining segment business breakdown with forward-looking indicator verification. First, it breaks down the company's business into three segments: General Analytical Instruments, Semiconductor Process Control Instruments, and Components & Services, tracking supply/demand dynamics and profitability changes separately to identify semiconductor business as the current core driver. Second, when judging future performance, it not only focuses on current financial data but also emphasizes leading indicators such as "Joint Evaluation Project (JEP) quantity" and "Inquiry/Order Coverage Ratio" to verify the credibility of management's claim regarding concentrated performance release in subsequent quarters. Finally, at the valuation level, it uses Sum-of-the-Parts (SOTP) methodology, assigning differentiated valuation multiples to different business segments to reflect the high growth nature of the semiconductor business and the cyclical discount of traditional businesses.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-parts Valuation

  Independent valuation of different business segments followed by summation. This report uses this method to distinguish between high-growth semiconductor business and slower-recovering traditional instrument business, applying a 10% conglomerate discount to the overall valuation to more accurately reflect the true value of each segment.

• Industry/Industrial Analysis FrameworkSubstitution Effect Analysis

  Technological Path Substitution and Penetration Rate Increase

  When existing technologies (e.g., optical inspection) encounter physical bottlenecks, the penetration rate of substitute technologies (e.g., X-ray inspection) accelerates. The report uses this logic to demonstrate Rigaku Holdings' long-term growth space under the trend of semiconductor complexity, rather than relying solely on industry cycle beta.

• Event Gaming and Behavioral Finance

  Joint Evaluation Project (JEP) as a Leading Indicator

  In the semiconductor equipment industry, Joint Evaluation Projects (JEPs) between customers and suppliers typically lead formal mass production orders by 1-2 years. The report tracks the accumulation of JEP quantities to predict the profitability inflection point for the company in 2027 and beyond, which is an effective method for verifying the authenticity of mid-to-long-term demand.

Asset mapping & comparison

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

• Rigaku Holdings (268A.T)

  Core Beneficiary: Increasing complexity of semiconductor structures drives X-ray inspection demand; the company holds leading market share and has a full order book

  Strengths

  High-speed growth in semiconductor process control instruments business; Rich reserve of JEP projects; Deep technical barriers in X-ray technology

  Weaknesses

  Recovery of general analytical instruments business lags; Short-term facing dual pressure from material costs and exchange rates; Large seasonal fluctuations in performance

  Comparison

  Irreplaceable in multi-layer/miniaturized structure inspection compared to traditional optical inspection equipment makers; But short-term profit margin stability is weaker than pure semiconductor equipment leaders

  Risks

  Breakthroughs in optical inspection technology may reduce the attractiveness of X-rays; Downturn in the semiconductor market leading to demand shrinkage; Delays in new factory commissioning

Key data

• Q2 Operating ProfitJPY 1.9 BillionDown 32% YoY, up 3x QoQ; below market expectation of JPY 3.0 Billion
• Semiconductor Process Control Instruments Q2 ProfitJPY 1.4 BillionUp 69% YoY, up 2.8x QoQ, double increase in memory and logic demand
• FY2026 Full-Year Operating Profit GuidanceJPY 19.4 BillionUp 16% YoY, maintained unchanged by management, expected significant weight increase in Q4
• General Analytical Instruments Q2 ProfitJPY 300 MillionDown 78% YoY, affected by US academic budget cuts, but orders have turned positive
• Target PriceJPY 3,100Based on SOTP valuation using FY2026 forecasts, including a 10% conglomerate discount

Impact & implications

For Rigaku Holdings, short-term profit fluctuations do not change its long-term growth logic. The strong performance of the semiconductor business validates the company's competitiveness in advanced process inspection, while the bottoming out and recovery of the general instrument business eliminates the largest uncertainty factor. The research report believes that with the concentrated recognition of Q4 performance and the conversion of new JEP projects, the company is likely to welcome a dual opportunity for profitability repair and valuation re-rating in the second half of FY2026. For investors focusing on the semiconductor equipment industry chain, Rigaku Holdings provides a differentiated X-ray inspection track exposure distinct from traditional lithography/etching equipment.

Risks

• If optical/CD measurement technologies achieve breakthrough progress, it may reduce the attractiveness of X-ray measurements
• The semiconductor market entering a downturn or delays in the process of complexity/miniaturization, leading to demand falling short of expectations
• Delays in new factory start-ups or slow improvements in X-ray throughput, affecting capacity release and profitability
• Persistently high material costs and exchange rate volatility may further erode profit margins

What to watch

• Whether Q3 sales for General Analytical Instruments will achieve over 50% YoY growth as scheduled
• Number of new Joint Evaluation Projects (JEPs) added in H2 and their conversion progress
• Whether the concentration of Q4 performance meets management expectations
• Actual improvement effect of price correction measures on gross margin