AI/HPC Supports SPE Orders, but Margin Improvement Will Take Time

Overview

This report summarizes the main takeaways from Goldman Sachs' conference call with Tokyo Seimitsu's IR team on the morning of May 21, with a focus on overall SPE orders, trends in generative AI/HPC-related orders, and the margin outlook. The report argues that SPE order momentum remains strong, especially on generative AI/HPC applications, and FY3/27 sales could eventually approach the company's medium-term target of ¥185bn. However, the pace of gross margin improvement may be more gradual than the company explained at its 3Q earnings call, so Goldman believes there is limited room for consensus upgrades and that valuation still looks high.

Core views

The core view is that the order side is stronger than expected, but earnings leverage is insufficient. 4Q3/26 orders were slightly above company expectations, and 1H3/27 orders are expected to grow 20% qoq versus 2H3/26. The growth is not concentrated only in generative AI/HPC, but also comes from Mainland China/Taiwan OSAT and general memory. Demand for generative AI/HPC orders remains strong, HBM stands out, and longer probe card lead times indicate rising capacity pressure. However, margin improvement is constrained by the pace of sales growth and higher SG&A, and a fuller earnings recovery is not expected until 2H3/27.

Analysis framework

The report uses a conference-call-minutes style framework that combines management/IR commentary with Goldman Sachs' own valuation and earnings views: it first reviews order growth, application mix, and lead-time changes, then assesses capacity response and the pace of margin expansion, and finally tests the reasonableness of the current share price and target price through a relative EV/EBITDA valuation framework.

Methodology notes

• Valuation methodEV/EBITDA Relative Valuation

  12-month target price

  Goldman values Tokyo Seimitsu using FY3/27-28 EBITDA forecasts and an 18x EV/EBITDA multiple, with the multiple taken from the global SPE industry average and then adjusted by a 40% industry-relative discount to arrive at a ¥14,000 target price.

• Valuation cross-checkP/E and P/B implied multiples

  Target price implied valuation

  The ¥14,000 target price implies a FY3/27 P/E of 20x and a P/B of 2.7x, which is used to help assess the fit between the target price and earnings forecasts and book value.

• Company quality profileGS Factor Profile

  Growth, financial returns, valuation multiples, and composite factor

  Goldman Sachs Factor Profile compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and composite indicators; growth is based on forward sales, EBITDA, and EPS growth, financial returns are based on ROE, ROCE, and CROCI, and valuation multiples are based on metrics such as P/E, P/B, P/D, EV/EBITDA, and EV/FCF.

• Potential M&A analysisM&A Rank

  Takeover probability score

  Goldman says its global coverage uses an M&A framework to assess the likelihood that a company becomes a takeover target; a score of 1 means high probability, 2 means medium probability, and 3 means low probability. If a company is ranked 1 or 2, M&A factors are usually incorporated into the target price.

Asset mapping & comparison

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

• Tokyo Seimitsu (7729.T)

  The research subject, a Japanese stock and a semiconductor production equipment-related company.

  Strengths

  SPE orders are strong, with clear support from generative AI/HPC demand; HBM orders are expected to grow 88% qoq; probe card lead times have extended to about five months, showing strong demand and higher capacity utilization pressure; FY3/27 sales could approach the medium-term plan target.

  Weaknesses

  The pace of gross margin and OPM improvement is slow, with 1H3/27 OPM expected at only 21.4%; roughly ¥4bn of full-year SG&A growth weighs on earnings; logic orders are expected to fall 15% qoq in the near term due to customer investment timing.

  Comparison

  Goldman uses the global SPE industry average EV/EBITDA multiple of 18x as the valuation reference and applies a 40% industry-relative discount to Tokyo Seimitsu; the coverage universe includes Advantest, DISCO, Ebara, HOYA, JEOL, Kioxia Holdings, Lasertec, SCREEN Holdings, Tokyo Electron, Tokyo Seimitsu, and Ulvac.

  Risks

  If semiconductor orders, especially generative AI-related orders, are stronger than expected, or the metrology instruments business improves profitability significantly, or the company introduces share buybacks or other shareholder return enhancements, that could create upside risk to Goldman Sachs' Sell view and target price.

Key data

• Report date2026-05-25The report time is marked as 25 May 2026 7:55AM JST.
• Research subjectTokyo Seimitsu (7729.T)A Japanese semiconductor production equipment-related company.
• RatingSellGoldman maintains a cautious stance.
• 12-month target price¥14,000Based on FY3/27-28 EBITDA estimates and relative EV/EBITDA valuation.
• Medium-term plan sales targetabout ¥185bnGoldman believes FY3/27 sales could approach this target over the medium term.
• 1H3/27 overall SPE order guide+20% hohThis wording was corrected from year-on-year growth at the FY3/26 results release to quarter-on-quarter growth.
• 1H3/27 generative AI/HPC order outlook+15% hohThe company said that, against a backdrop of strong inquiries, the final level could end up close to the overall SPE order guide of +20% hoh.
• HBM order guide+88% hohA key growth item in generative AI/HPC-related applications.
• Logic order guide-15% hohMainly reflects the timing of customer investment plans and order recognition, rather than a deterioration in demand trends.
• Probe card lead timeabout 5 monthsAbout three months at the previous earnings release, with the longer lead time reflecting strong demand.
• 1H3/27 OPM guide21.4%Only a modest improvement from 21.2% in 2H3/26.
• 2H3/27 OPM guide22.7%The company expects more meaningful profit improvement only after 2H sales expand further.
• Full-year SG&A increaseabout ¥4bnThis factor is already included in the company's FY3/27 margin guidance and weighs on the pace of margin improvement.

Impact & implications

The investment implication is that strong orders alone are not enough to justify another upward re-rating of the valuation. AI/HPC and HBM demand provide clear growth support and may push FY3/27 sales close to the medium-term plan target, but longer lead times, higher SG&A, and delayed gross margin improvement mean earnings realization will be slower. Goldman therefore sees limited room for consensus upgrades, with current valuation still high versus the historical range and the risk-reward profile looking unattractive.

Risks

• Semiconductor orders stronger than expected, especially further upside in generative AI-related orders.
• Significant improvement in the profitability of the metrology instruments business.
• The company implements share buybacks or other measures to enhance shareholder returns.
• AI/HPC demand remains stronger than expected, potentially pushing sales and earnings above current cautious assumptions.
• Capacity expansion or production-space utilization efficiency exceeds expectations, which could ease lead-time and supply constraints.

What to watch

• Whether 1H3/27 overall SPE orders reach or exceed the +20% hoh guidance.
• Whether generative AI/HPC orders are upgraded from the +15% hoh outlook to a pace closer to overall SPE order growth.
• Whether HBM orders can deliver the +88% hoh guide, and whether the -15% hoh logic order guide is only a timing issue.
• Whether probe card lead times stay at about five months or lengthen further.
• Progress on near-term capacity utilization in Hachioji and the adjacent-land expansion plan at the existing Hanno, Saitama site.
• Whether the roughly 1ppt qoq gross margin improvement in 1H3/27 can be achieved.
• Whether 2H3/27 OPM can rise to 22.7%, and how much SG&A growth actually weighs on margins.
• Whether consensus estimates are upgraded on the back of strong orders, and whether current valuation continues to trade away from the historical range.