Goldman Sachs Reiterates Disco Buy Rating, Optimistic About Advanced Packaging Growth Drivers

Overview

Goldman Sachs published a research report on Disco (6146.T), reiterating buy rating and raising target price to 87,000 JPY. The report notes that advanced packaging technology expansion is the main growth driver for the company, and Disco has the capability to solve customer technical problems.

Core views

Goldman Sachs believes Disco has significant growth potential in advanced packaging technology expansion. The company leverages its cutting, grinding, and polishing technologies to play an important role in hybrid bonding (HB), co-packaged optics (CPO), and 2.5D packaging (excluding CoWoS) technologies. Additionally, Goldman Sachs believes that using high-cleanliness grinding machines and cutting machines can increase equipment added value, thereby enhancing profits. Although the mass production timeline for future technologies remains unclear, Disco has the capability to solve customer technical problems and can flexibly adapt to changes in the business environment. In terms of market share, Disco maintains a 70-80% share in the globally addressable market without significant changes. Goldman Sachs believes Disco's competitiveness stems from its strong customer support system.

Analysis framework

Goldman Sachs analyzed the impact of advanced packaging technology on Disco through discussions with Disco's management. The report notes that while the mass production timeline for some technologies remains unclear, these technologies have high processing difficulty, allowing Disco's technological advantages to be utilized. Additionally, Goldman Sachs assessed Disco's valuation through financial indicator analysis such as EBITDA, P/E, and P/B, and set the target price based on the global SPE industry average EV/EBITDA multiple and industry relative premium.

Methodology notes

• Valuation MethodEV/EBITDA valuation

  EV/EBITDA Valuation

  Goldman Sachs assesses the company's valuation level by calculating the ratio of enterprise value to EBITDA.

• Valuation MethodP/E Valuation

  P/E Valuation

  Goldman Sachs assesses the company's valuation level by calculating the price-to-earnings ratio (P/E).

• Valuation MethodPB valuation

  P/B Valuation

  Goldman Sachs assesses the company's valuation level by calculating the price-to-book ratio (P/B).

Asset mapping & comparison

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

• Disco (6146.T)

  Benefits from advanced packaging technology expansion

  Strengths

  Has cutting, grinding, and polishing technologies applicable to various advanced packaging technologies

  Weaknesses

  Technology mass production timeline remains unclear

  Comparison

  Market share remains stable compared to other semiconductor equipment companies

  Risks

  JPY appreciation, China demand slowdown, export control tightening, AI-related demand slowdown, market share loss, profit margin decline

Key data

• Target Price87,000Based on FY3/27E-3/28E EBITDA estimates, global SPE industry average EV/EBITDA of 18X plus 50% industry relative premium
• P/E Ratio45XBased on FY3/27E EBITDA estimates
• P/B Ratio13XBased on FY3/27E EBITDA estimates

Impact & implications

Goldman Sachs believes Disco has significant growth potential in advanced packaging technology expansion, which will help enhance the company's profitability. Additionally, the company has the capability to solve customer technical problems and can flexibly adapt to changes in the business environment. Furthermore, Disco maintains a 70-80% share in the globally addressable market without significant changes.

Risks

• JPY appreciation pressures revenue
• China demand slowdown may affect sales
• Export control tightening may limit market
• AI-related demand slowdown may affect growth
• Market share loss may lead to revenue decline
• Profit margin decline may affect profitability

What to watch

• Advanced packaging technology mass production progress
• Market demand changes
• Exchange rate fluctuation impact on revenue