Advanced packaging glass progress at panel makers is gaining momentum, but revenue contribution likely has to wait until after 2028
AI summary card
Advanced packaging glass progress at panel makers is gaining momentum, but revenue contribution likely has to wait until after 2028
Morgan Stanley believes glass has potential in advanced packaging. Innolux is the furthest along, BOE is also advancing full-process manufacturing, and AUO is more focused on LEO antennas and CPO optical modules; sector preference ranking is BOE > Innolux > AUO.
- The report believes glass can deliver cost advantages through larger size, while also improving electrical performance, reducing signal loss, alleviating warpage caused by coefficient of thermal expansion mismatch, and enhancing mechanical strength.
- Innolux is viewed as one of the most aggressive panel makers in this direction, participating in a glass core substrate project for a wafer foundry. Proof of concept has been completed, but TGV formation and copper plating require new equipment, and initial capex may be NT$20-30bn.
- BOE aims to complete the full manufacturing process for glass core substrates. If progress goes smoothly, it may invest Rmb5bn in 2027 to build capacity for 15K 510mm*515mm substrates per month, targeting mass production in 2028.
- AUO's current focus is not on HPC advanced packaging, but on LEO antennas and CPO optical modules; the report has not incorporated AUO advanced packaging revenue into the model through 2028.
- Although market sentiment has warmed due to advanced packaging, the report emphasizes that AUO and Innolux still derive 40-50% of revenue from commodity panels, while BOE derives 70-80% from commodity panels, so near-term fundamentals remain driven by the panel cycle.
Report interpretation
Overview
This report discusses the progress of Greater China and Asia Pacific panel makers in applying glass to advanced packaging. Morgan Stanley believes the recent rise in panel stocks mainly reflects market expectations for glass use in advanced packaging, but a more realistic timeline for HPC adoption is 2028/2029. The report also reiterates that commodity panel prices, capacity utilization, and supply-demand discipline remain the core near-term fundamentals for these companies.
Core views
The core views include: first, glass offers cost and performance advantages in advanced packaging, but commercial contribution will not materialize quickly; second, Innolux is the leader in early validation of glass core substrates, but its current valuation has already been significantly rerated, making the risk-reward unattractive; third, although BOE has lower visibility in advanced packaging than Innolux, its valuation still has room relative to historical highs, making it the sector top pick; fourth, AUO's diversification includes LEO antennas and CPO optical modules, but the revenue timeline is the least clear.
Analysis framework
The report uses supply chain checks, comparison of company project progress, 2028 revenue contribution scenarios, P/B valuation, and a risk-reward framework for analysis, and evaluates the advanced packaging opportunity separately from panel-cycle fundamentals.
Methodology notes
Derive the target price by multiplying the target P/B multiple by estimated 2026 book value per share.
The report believes the panel industry remains cyclical, and profitability depends largely on capacity utilization, so P/B better reflects the intrinsic value of panel makers such as Innolux and AUO than earnings multiples.
Estimate bull, base, and bear case values through different P/B multiples and business progress assumptions.
The bull case typically assumes stronger demand, more proactive utilization adjustments, and faster progress in advanced packaging or LEO/CPO; the bear case assumes a deeper correction in panel prices, weaker supply discipline, and slower progress in semiconductor-related businesses.
Assess the visibility of advanced packaging glass opportunities through project validation stages, equipment needs, capex, and mass-production timing.
The report separately compares Innolux's proof of concept, BOE's pilot line and capacity plans, and AUO's LEO/CPO direction to judge who is more likely to generate earlier revenue contributions.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- BOE Technology（000725.SZ）A potential Greater China beneficiary in display panels and advanced packaging glass, rated Overweight.
- Strengths
- One of the world's largest panel makers, planning to attempt full-process manufacturing coverage for glass core substrates, and has already begun validation with domestic and overseas IC design companies.
- Weaknesses
- Visibility on the advanced packaging business is lower than Innolux, and its revenue share from commodity panels remains high.
- Comparison
- The report's sector preference ranking is BOE > Innolux > AUO, with BOE favored for its risk-reward and relative valuation positioning.
- Risks
- Declining panel prices, delays in advanced packaging validation or mass production, and returns on the Rmb5bn capital investment falling short of expectations.
- Innolux（3481.TW）One of the leading panel makers in early-stage glass core substrate projects, rated Equal-weight.
- Strengths
- Participates in a glass core substrate project for a wafer foundry, has completed proof of concept, and is responsible for the TGV process on 510mm*515mm glass panels.
- Weaknesses
- TGV and copper plating are not traditional display panel manufacturing capabilities, requiring additional equipment, and the current valuation has already been substantially rerated.
- Comparison
- Technology progress visibility is higher than BOE and AUO, but the report believes its valuation near 2.1x 2026e P/B is no longer cheap.
- Risks
- Competitors joining during the mass-production stage, limited revenue contribution before 2028, and reduced risk-reward appeal after the share price increase.
- AU Optronics（2409.TW）An explorer of glass applications in LEO antennas and CPO optical modules, rated Equal-weight.
- Strengths
- Exploring glass substrate applications in LEO automotive antennas and micro LED-based CPO architecture, with a relatively low valuation among the three companies.
- Weaknesses
- Current efforts are less focused on HPC, and the LEO and CPO businesses lack a clear revenue contribution timeline.
- Comparison
- The report believes AUO has the lowest visibility in advanced packaging business, so its preference ranking trails BOE and Innolux.
- Risks
- Uncertain market acceptance of LEO and CPO, delayed revenue contribution, and a decline in panel prices affecting core business profitability.
Key data
- HPC adoption timing2028/2029The report believes a more realistic adoption timeline for glass panels in HPC advanced packaging is 2028/2029.
- Innolux advanced packaging capexNT$20-30bnFor new equipment related to glass core technology, with the main challenges in TGV formation and subsequent copper plating.
- Innolux 2028 packaging-related revenue forecastNT$20bn, about 6% of revenueThe report expects revenue contribution to begin in 2028, but does not rule out other competitors joining during the mass-production stage.
- BOE potential capacity planRmb5bn investment in 2027, monthly output of 15K 510mm*515mm substratesIf progress goes smoothly, BOE targets mass production of glass core substrates in 2028.
- BOE 2028 advanced packaging revenue forecastRmb5bn, about 5% of revenueBOE aims to cover the full manufacturing process for glass cores, TGV, and build-up layers.
- AUO advanced packaging revenue assumptionNo revenue contribution included before 2028The report believes visibility on the timing of contribution from AUO's LEO antennas and CPO optical modules is low.
- Commodity panel revenue share40-50% for AUO and Innolux, 70-80% for BOEThis implies near-term fundamentals are still mainly affected by commodity panel prices and the supply-demand cycle.
- Target price revisionsInnolux NT$60; AUO NT$27; BOE Rmb9.30Target prices for all three companies were raised, while the report also introduced 2028 earnings forecasts.
Impact & implications
The report is relatively restrained in its investment implications: advanced packaging glass does provide a narrative and long-term revenue optionality for panel makers to enter the semiconductor packaging market, but the market has already significantly rerated some companies. In the short term, investors still need to treat panel prices, supply-demand discipline, and valuation positioning as the core variables; among the three companies, BOE ranks first due to a better combination of valuation and risk-reward, Innolux has the highest technology visibility but the greatest valuation pressure, and AUO needs to wait for a clearer timeline for its LEO and CPO businesses.
Risks
- The current round of TV panel price increases may have ended, and the report expects prices may start falling from 3Q26.
- A slowdown in macro demand may suppress the recovery in TV and IT panel demand.
- Intensifying competition among Chinese panel makers may weaken pricing and supply discipline.
- Faster adoption of OLED panels in large-size applications may hurt demand for traditional panels.
- Progress in advanced packaging, TGV, LEO antennas, or CPO optical modules may be slower than expected.
- Mass production of glass core substrates requires new equipment and process capabilities, creating uncertainty around capex returns.
- Relevant stocks have already been rerated due to the advanced packaging theme; if revenue contribution is delayed, valuations may pull back.
What to watch
- Whether follow-up validation testing between Innolux and wafer foundry customers progresses smoothly.
- Whether Innolux confirms glass core-related capex at the NT$20-30bn level.
- Whether BOE starts in 2027 the Rmb5bn capacity build-out for 15K substrates per month.
- Whether glass core substrates and HPC advanced packaging can enter actual adoption in 2028/2029.
- Whether AUO's LEO antennas and CPO optical modules provide a clear revenue contribution timeline.
- Panel price trends after 3Q26, panel maker capacity utilization, and supply discipline.
- Whether advanced packaging revenue reaches the model assumptions of NT$20bn for Innolux and Rmb5bn for BOE in 2028.