Goldman Sachs: Co-Tech Development's Price Hike Cycle Begins, Target Price Raised to NT$940

Overview

Goldman Sachs released an earnings review for Co-Tech Development (8358.TWO). Although the company's 2Q26 profits fell short of expectations in the short term due to rising summer electricity prices, the firm views this as a temporary disturbance. The core logic of the report lies in the significantly widening supply-demand gap for high-end copper foil (HVLP3+). Price hike trends have accelerated since late June, and the company's aggressive capacity expansion plan in 2027 will substantially increase its market share. Based on stronger shipment and pricing expectations, Goldman Sachs maintains a 'Buy' rating and raises the target price from NT$900 to NT$940.

Core views

Short-term earnings fluctuations do not alter the long-term price hike logic. In 2Q26, Co-Tech's core operating profit was 5%/7% below Goldman Sachs/Bloomberg consensus, and net profit was 6%/9% lower. The primary reason was a 1.3 percentage point quarter-on-quarter decline in gross margin caused by rising summer electricity costs, despite the proportion of HVLP3+ copper foil increasing from approximately 15% in 1Q26 to 15-20%. However, this negative factor is considered temporary. For 3Q26, Goldman Sachs expects revenue to grow 15% quarter-on-quarter, driven by three factors: first, processing fee increases of 10-15% across all product lines, with potential further monthly adjustments; second, strong demand for general servers driving growth in RG copper foil shipments; and third, continuous improvement in HVLP3+ yield rates (exceeding 50% in 2Q26). July revenue hit a record high of NT$1.009 billion (up 55% year-on-year), and August is expected to rise another 7% quarter-on-quarter to NT$1.08 billion, indicating that order growth is outpacing shipments and the price hike effect is being realized. The widening industry supply-demand gap is the core support for this round of price hikes. Goldman Sachs raised its forecast for the global TAM for high-end copper foil by 2028 to US$2.7 billion (CAGR of 133% from 2025-28), reflecting the latest assumptions for AI PCB/CCL and GPU/ASIC shipments. More critically, considering the low yield rates of HVLP4+ copper foil, the firm has significantly revised up its estimate of the HVLP3+ industry supply-demand gap ratio for 2026-28 from the previous 25-40% to 45-55%. As mainstream AI server projects begin mass adoption of HVLP4+ in 2H26, effective supply shortages will push up industry capacity utilization rates, providing a solid foundation for Co-Tech Development's proactive pricing strategy. The firm expects the company to further increase processing fees in 2H26, with price hike幅度s of 10-15% in 3Q/4Q26 and 5-10%, significantly higher than the previously expected 3-5% per quarter. Aggressive capacity expansion locks in future market share and product structure upgrades. By the end of 2027, the company's HVLP3+ capacity is expected to grow more than 2.5 times compared to the end of 2026, far exceeding the 30%+ expansion幅度s of competitors during the same period. This will drive its global HVLP3+ market share to 43% and 51% in 2027/28 respectively (only 21% in 2026). Additionally, the company is adjusting its new capacity structure for 2027, allocating 20-30% to high-end copper foil used for HDI PCBs. These products have higher ASPs and margins than existing HVLP3+. Although this may lead to slightly lower HVLP3+ yield rates in 2027 than previously expected (dropping to 61%), the overall shift of the product mix towards higher-end segments will continue to drive revenue growth and margin expansion. Based on stronger shipment expectations, Goldman Sachs raised its 2026/27 revenue forecasts by 6%/8%, but simultaneously lowered its 2026-28 gross margin expectations by 2.2-2.5 percentage points due to rising copper prices and increased proportions of RG copper foil.

Analysis framework

The report adopts a typical 'volume-price breakdown + supply-demand gap' analytical framework. First, it breaks down 2Q26 performance to distinguish between seasonal costs (electricity) and structural improvements (product mix), assessing whether short-term negatives are persistent. Second, it updates terminal demand in the AI supply chain (GPU/ASIC) to bottom-up calculate the TAM for high-end copper foil, and combines yield rate bottlenecks to correct effective supply, thereby quantifying the supply-demand gap ratio as a leading indicator for pricing power. Finally, it compares the company's individual capacity expansion pace with the overall industry expansion to derive the path of market share changes, and adjusts forward earnings forecasts and valuation anchors accordingly.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Gap Ratio

  The report looks beyond nominal capacity and specifically considers the low yield rates of next-generation products like HVLP4+, calculating the gap between 'effective supply' and demand. When the gap ratio is as high as 45-55%, it means that even if manufacturers operate at full capacity, they cannot meet demand. This is a core quantitative indicator for judging seller's markets and the sustainability of price hikes.

• Valuation MethodPE/PEG valuation

  Valuation Premium During Cyclical Upturns

  For the highly cyclical copper foil industry, the report does not use current static PE but instead selects 2028 forward EPS as the base, applying a 22x PE (mean of the past ten-year upcycle + 1 standard deviation). This method acknowledges that during periods of prosperity, the market is willing to grant valuation premiums for high growth and certainty, rather than mechanically applying historical average valuations.

• Competition and Strategy FrameworkMoat / competitive advantage

  Speed Differential in Capacity Expansion and Share Acquisition

  The report argues the company's ability to gain market share by comparing the expansion speed differences between Co-Tech Development (>2.5x) and the sum of competitors (+30%) in 2027. In niche fields with high technical barriers, aggressive capacity expansion by leaders is often a key window to consolidate moats and widen the gap with followers.

Asset mapping & comparison

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

• Co-Tech Development Corp. (8358.TWO)

  Core Beneficiary: Price elasticity and share acquisition from expanding supply-demand gaps in high-end copper foil

  Strengths

  Continuous improvement in HVLP3+ yield rates; expansion speed in 2027 far exceeds peers; active pricing strategy effectively executed in shortage environments; stable base of RG copper foil for general servers

  Weaknesses

  High sensitivity to summer electricity prices; ramp-up period for new products (HDI copper foil) may briefly drag down yield rates; pressure from rising copper price costs

  Comparison

  High-end capacity increase of 2.5x+ by 2027, while key competitors combined only see +30% increase, significantly leading in expansion intensity

  Risks

  Early penetration of CPO technology replacing copper foil demand; yield rate improvements falling short of expectations; competitor capacity expansion exceeding expectations weakening pricing power

Key data

• New Target PriceNT$940Raised from NT$900, based on 22x 2028E P/E
• 2Q26 Core Operating Profit Deviation-5% / -7%Below Goldman Sachs/Bloomberg consensus respectively, mainly due to rising summer electricity prices
• 3Q26E Revenue QoQ Growth+15%Driven by 10-15% price hikes and increased shipments of RG/HVLP3+
• HVLP3+ Industry Supply-Demand Gap (2026-28E)45-55%Previously estimated at 25-40%, revised up due to increased AI demand and yield rate bottlenecks
• HVLP3+ Capacity Increase by End of 20272.5x+Relative to end of 2026, far exceeding peers' +30% expansion幅度
• 2028E Global HVLP3+ Market Share51%Only 21% in 2026E, expected to reach 43% in 2027E
• 2026/27E Revenue Adjustment+6% / +8%Reflecting stronger-than-expected shipment volumes
• 2028E High-End Copper Foil TAMUS$2.7bn2025-28E CAGR 133%, previously 122%

Impact & implications

The report believes that Co-Tech Development is at a critical turning point from 'volume growth' to 'simultaneous price and profit growth'. Although short-term electricity costs have eroded some profits, the substantial widening of the high-end copper foil supply-demand gap has endowed the company with stronger pricing power, and these price hikes are sustainable rather than one-off pulses. The release of new capacity in 2027 not only brings scale effects but also optimizes long-term profitability quality through extending the product structure into higher value-added areas such as HDI. For investors, this means the company's valuation logic is shifting from traditional manufacturing to AI core material supplier, with forward earnings revisions and valuation multiple expansion likely forming a Davis Double Play.

Risks

• Optical Co-Packaging (CPO) technology applied in computing chips earlier than expected, potentially replacing part of the copper foil demand
• Yield rate improvement for HVLP3+/4+ products slower than expected, affecting effective supply and profitability
• Competitors' HVLP capacity expansion significantly exceeding expectations, alleviating industry supply-demand balance and limiting the company's pricing ability

What to watch

• Monthly revenue and frequency of processing fee adjustments, verifying whether the price hike trend continues to accelerate
• Progress of HVLP3+/4+ yield rate ramp-up and certification status of new HDI copper foil products
• Actual pulling rhythm of AI server and 1.6T switch projects
• Competitor capacity deployment progress and changes in industry supply-demand gaps