DISCO's fourth-quarter results and first-quarter shipment guidance both exceeded expectations; Goldman Sachs reiterates Buy

Overview

This report is Goldman Sachs' earnings review of DISCO (6146.T). The report notes that DISCO's 4Q3/26 operating profit and 1Q3/27 shipment guidance both exceeded market expectations, shipment momentum accelerated, and management also plans to extend production support from skilled engineers at headquarters to manufacturing sites by at least about three months. Goldman Sachs believes these factors are sufficient to lift market expectations for earnings in FY3/27 and beyond.

Core views

The core view is that DISCO's structural growth drivers remain clear: generative AI-related equipment, HBM, CoWoS, advanced packaging, hybrid bonding, and consumables demand together support earnings growth. Although some investors are concerned about elevated valuation, Goldman Sachs believes this objection may weaken if the earnings outlook improves significantly. The report maintains a Buy rating and raises the 12-month target price to ¥86,000.

Analysis framework

The report analyzes actual quarterly results, company shipment guidance, management call highlights, product shipment mix, generative AI-related demand, production support arrangements, and Goldman Sachs' updated earnings forecasts, and uses FY3/27E-FY3/28E EBITDA and the global SPE sector average EV/EBITDA for valuation.

Methodology notes

• Valuation methodsEV/EBITDA relative valuation

  The 12-month target price is based on FY3/27E-3/28E EBITDA, the global SPE sector average EV/EBITDA of 18x, and a 50% sector-relative premium.

  Goldman Sachs assigns DISCO a premium due to its high profitability; the target price implies FY3/27E P/E of 46x and P/B of 13x.

• Factor analysisGS Factor Profile

  The stock is compared with the market and industry peers on a percentile basis across four dimensions: growth, financial returns, valuation multiples, and composite factors.

  Growth is based on forward sales, EBITDA, and EPS growth; financial returns are based on ROE, ROCE, and CROCI; valuation multiples are based on metrics such as P/E, P/B, and EV/EBITDA.

• M&A assessmentM&A Rank

  Goldman Sachs classifies covered companies into levels 1 to 3 based on the probability of being acquired, where 1 represents high probability and 3 represents low probability.

  DISCO's M&A Rank is 3, indicating a low probability of being acquired, and it is not included in the target price.

Asset mapping & comparison

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

• DISCO (6146.T)

  Core covered asset

  Strengths

  It has more than 70% global market share in back-end process equipment such as dicers and grinders, and is driven by demand for generative AI, HBM, CoWoS, advanced packaging, hybrid bonding, and consumables.

  Weaknesses

  Its valuation is considered high by some investors, which is the main investor objection mentioned in the report.

  Comparison

  Compared with the Japan semiconductor, SPE, and precision equipment coverage group; the stock's absolute performance over the past 12 months was 176.7%, and its performance relative to TOPIX was 96.9%.

  Risks

  Yen appreciation against the US dollar, slowing demand in China or tighter export controls, slowing AI-related demand, loss of market share, and margin deterioration.

• TOPIX

  Market performance benchmark

  Strengths

  Used to measure 6146.T's excess performance relative to the Japanese market index.

  Weaknesses

  The report does not analyze it as an investment target.

  Comparison

  6146.T's performance relative to TOPIX over the past 3 months, 6 months, and 12 months was 5.3%, 23.2%, and 96.9%, respectively.

  Risks

  It is only a benchmark index and is not suitable as a direct proxy indicator for DISCO's fundamental risks.

Key data

• 4Q3/26 operating profit¥58.8bnAbove Goldman Sachs' estimate of ¥57.2bn and the Bloomberg consensus of just over ¥53bn.
• 4Q3/26 shipment value¥121.6bnA record quarterly high, about ¥5bn above company guidance of ¥116.8bn, and also above market expectations of about ¥117.0bn.
• 1Q3/27 shipment guidance¥132.0bnAssuming USD/JPY at 157, above the Bloomberg consensus of about ¥125bn.
• FY3/26 generative AI-related equipment shipmentsapproximately ¥75bnFY3/25 was approximately ¥55bn; in FY3/26, HBM-related shipments were roughly flat year on year, while logic/packaging grew significantly.
• FY3/27-FY3/29 operating profit forecast revisions+2%/+3%/+3%Goldman Sachs raised its medium-term earnings forecasts after the earnings release.
• 12-month target price¥86,000Previously ¥83,000; Goldman Sachs reiterated its Buy rating.
• FY3/27E revenue¥567.5bnGoldman Sachs forecast in the table, up from ¥436.9bn in FY3/26.
• FY3/27E operating profit¥274.1bnThe new forecast is above the old forecast of ¥267.7bn.
• FY3/27E EPS¥1,884.5The new forecast is above the old forecast of ¥1,845.4.
• Market capitalization¥8.1tr / $50.9bnDisclosed on the report's key data page.

Impact & implications

The report has positive implications for DISCO's share price and market expectations: strong first-quarter shipment guidance, extended production support, and demand for AI-related high-value-added equipment may prompt the market to raise earnings expectations for FY3/27 and beyond. If earnings expectations continue to improve, current market concerns about elevated valuation may ease.

Risks

• Yen appreciation against the US dollar may suppress earnings.
• Slowing demand in China or tighter export controls may affect orders and shipments.
• A slowdown in AI-related demand may weaken demand for HBM, advanced packaging, and high-value-added equipment.
• Loss of market share may weaken the long-term growth thesis.
• Deterioration in gross margin or operating margin may affect the valuation premium.
• High valuation is the main investor concern; if earnings upgrades fall short of expectations, valuation pressure may rise again.

What to watch

• Whether actual 1Q3/27 shipments reach or exceed the ¥132.0bn guidance.
• Whether the extension of headquarters engineers' production support to manufacturing sites brings sustained capacity release.
• Whether demand for equipment related to HBM, CoWoS, logic/packaging, and hybrid bonding remains strong.
• Whether market consensus earnings expectations for FY3/27 and beyond are revised upward.
• Whether gross margin fluctuations are only short term or indicate structural decline.
• The impact of China demand, export controls, and exchange-rate changes on orders and margins.