Tokyo Ohka Kogyo (4186): UBS upgrades Tokyo Ohka Kogyo to Buy on advanced logic and memory material growth

Overview

UBS upgrades Tokyo Ohka Kogyo (TOK) to Buy, arguing that demand from advanced logic and memory production should support sustained expansion in photoresists and semiconductor back-end materials. The report expects solid earnings growth through FY12/28 and views the valuation as increasingly attractive after the share-price decline.

Core views

UBS's central thesis is that growth in advanced logic, DRAM and NAND will continue to lift demand for TOK's photoresists and back-end semiconductor materials, including packaging and WHS materials. The firm estimates that TOK holds roughly 30% of the global photoresist market. Front-end semiconductor photoresist sales rose 20% year-on-year in January-June 2026, led by 25% growth in combined EUV and ArF resists and 20% growth in KrF resists. Back-end-related material sales rose 45% year-on-year in the same period. UBS forecasts a 26% CAGR in resist sales over 2025-28 and sees the back-end materials business as an additional earnings driver. The demand outlook rests on continuing investment in AI servers, higher memory-fab utilisation and the rollout of advanced nodes. UBS expects resist demand from South Korean and Chinese memory customers to increase through 2027, alongside greater advanced-logic shipments to Taiwan, South Korea and China. It expects TOK to face no major production-capacity constraints and does not anticipate a material selling-price decline if demand expands. TOK, Shin-Etsu Chemical and JSR are described as Japanese suppliers with significant share in 2nm EUV and immersion-ArF resists; TOK also benefits from rising bump-resist demand linked to TSMC's CoWoS capacity expansion, which UBS expects to continue beyond 2027. UBS forecasts operating profit growth of roughly 30% annually from FY12/25 through FY12/28: ¥64.0bn in FY12/26, up 35% year-on-year; ¥85.7bn in FY12/27, up 33.9%; and ¥104.4bn in FY12/28, up 22%. In FY12/26, it expects EUV, ArF and KrF resist sales to grow 54%, 25% and 33%, respectively, versus previous estimates of 25%, 10% and 10%. For FY12/27, UBS forecasts 29% sales growth in core semiconductor materials, driven chiefly by photoresists. It estimates CoWoS capacity will rise about 68% year-on-year in 2027 and expects EUV-resist shipments for the 2nm generation to ramp in earnest, supporting 30% sales growth after 54% growth in 2026. The upgrade also reflects valuation. TOK's share price fell 26% in the preceding three months and underperformed TOPIX by 5% over six months, bringing its 12-month forward moving-average PER to around 18x. UBS argues that this valuation understates the company's advanced-materials growth. Its ¥11,200 target price, down from ¥11,500, uses 12-month moving-average EPS of ¥443, raised from ¥405, and a fair-value PER of 25x, reduced from 28x to reflect a higher market risk premium for semiconductor-related shares. UBS reports forecast price appreciation of 35.6%, a 1.0% forecast dividend yield and a 36.5% forecast stock return.

Analysis framework

UBS combines product-demand trends in EUV, ArF, KrF and back-end materials with customer-region demand, capacity assumptions and earnings forecasts. It then compares the resulting earnings outlook with TOK's share-price performance and values the shares using a TOPIX-33 Chemicals-relative price-to-earnings multiple.

Methodology notes

• Industry AnalysisSupply-demand framework

  Semiconductor-materials supply and demand analysis

  UBS links AI-server investment, memory-fab utilisation, 2nm production and CoWoS capacity growth to demand for TOK's photoresists and packaging materials, while assessing production capacity and pricing.

• Valuation methodsP/E and PEG Valuation

  TOPIX-33 Chemicals-relative PER valuation

  UBS applies a 25x fair-value PER to 12-month moving-average EPS of ¥443 to derive its ¥11,200 target price.

Asset mapping & comparison

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

• Tokyo Ohka Kogyo (4186.T)

  Primary covered company expected to benefit from growth in advanced logic, memory and semiconductor back-end materials.

  Strengths

  Significant supply share in advanced photoresists, leading KrF share, major EUV supply position, and rapid growth in bump resists.

  Comparison

  UBS identifies TOK, Shin-Etsu Chemical and JSR as Japanese suppliers with significant supply share for 2nm-generation EUV and immersion-ArF resists.

  Risks

  Memory-market adjustment, slower EUV photoresist growth, lower EUV-resist market share and weak KrF demand.

Key data

• Global photoresist market shareAround 30%UBS estimate for TOK
• Front-end photoresist sales growth+20% yoyJanuary-June 2026; combined EUV and ArF sales rose 25%, and KrF sales rose 20%
• Back-end material sales growth+45% yoyJanuary-June 2026
• Photoresist sales CAGR26%UBS forecast for 2025-28
• FY12/27 operating profit¥85.7bn+33.9% year-on-year
• FY12/28 operating profit¥104.4bn+22% year-on-year
• 2027 CoWoS capacity growthAround +68% yoyUBS estimate supporting advanced-logic resist and packaging-material demand
• 12-month target price¥11,200Previously ¥11,500; based on ¥443 moving-average EPS and a 25x fair-value PER

Impact & implications

UBS believes the market is not fully pricing TOK's exposure to advanced semiconductor materials. Its outlook depends on ongoing AI-server investment, continued memory-demand recovery and the expected ramp in 2nm EUV-resist shipments and CoWoS-related packaging demand.

Risks

• Downside risks include a correction in the memory-semiconductor market.
• Sluggish growth in EUV photoresists or a decline in TOK's EUV-resist market share could pressure the target price.
• Weak demand for KrF photoresists is a stated downside risk.

What to watch

• Whether AI-server investment continues, supporting the projected 26% 2025-28 photoresist sales CAGR.
• Demand from South Korean and Chinese memory customers and advanced-logic customers in Taiwan, South Korea and China.
• The timing and scale of 2nm EUV-resist shipment ramp-up and CoWoS capacity expansion.
• TOK's EUV, ArF, KrF and bump-resist shipment growth relative to UBS forecasts.