AI/HPC drives strong SPE orders, but margin improvement will still take time

Overview

This report is Goldman Sachs' summary of a call with Tokyo Seimitsu's (7729.T) IR team. The discussion focused on generative AI/HPC-related orders, overall SPE order trends, and the margin outlook. The report believes SPE orders remain strong mainly due to AI/HPC applications, and FY3/27 sales could approach the mid-term plan target of ¥185bn; however, margin improvement will take time and consensus upside appears limited.

Core views

The core views are: first, order trends are strong, with overall SPE orders in FY3/27 first half expected to increase 20% versus FY3/26 second half; second, generative AI/HPC demand remains the main driver, with especially strong HBM demand; third, the pace of margin improvement may be slower than the company suggested at its third-quarter earnings briefing; fourth, considering the historical valuation range, current valuation remains high, so the cautious stance and Sell rating are maintained.

Analysis framework

The report is based on a call with Tokyo Seimitsu's IR team, the company's FY3/27 order and margin guidance, application mix breakdown, capacity and lead-time information, and Goldman Sachs' relative valuation framework using FY3/27-28 EBITDA and global SPE industry valuation multiples.

Methodology notes

• Valuation methodsEV/EBITDA relative valuation

  Based on FY3/27-28 EBITDA estimates, using the global SPE industry's average 18x EV/EBITDA and applying a 40% relative sector discount.

  On this basis, Goldman Sachs derives a 12-month target price of ¥14,000, implying FY3/27 P/E of 20x and P/B of 2.7x.

• Factor analysisGS Factor Profile

  Compares the stock with the market and industry peers across four dimensions: growth, financial returns, valuation multiples, and composite factor.

  Growth, financial returns, and valuation multiples use standardized rankings converted into percentiles; the composite factor is the average of growth, financial returns, and value attributes.

• M&A scenarioM&A Rank

  Goldman Sachs uses an M&A score from 1 to 3 to assess the likelihood of a company becoming an acquisition target.

  A score of 1 represents a higher probability, 2 a medium probability, and 3 a lower probability; usually only scores of 1 or 2 lead to M&A factors being incorporated into the target price.

Asset mapping & comparison

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

• Tokyo Seimitsu (7729.T) stock

  The report's coverage target; a Japanese semiconductor production equipment company influenced by AI/HPC, HBM, and the SPE capex cycle.

  Strengths

  Strong SPE orders, with standout demand from generative AI/HPC and HBM; FY3/27 sales could approach the mid-term target of ¥185bn; strong prober demand has led to longer lead times.

  Weaknesses

  The pace of gross margin and OPM improvement is expected to be slow, with full-year SG&A rising by about ¥4bn; consensus upside is limited; valuation is high relative to historical ranges.

  Comparison

  The valuation method references the global SPE industry's average 18x EV/EBITDA and applies a 40% relative sector discount to Tokyo Seimitsu; covered comparable companies include Advantest, DISCO, Ebara, HOYA, JEOL, Kioxia Holdings, Lasertec, SCREEN Holdings, Tokyo Electron, Tokyo Seimitsu, and Ulvac.

  Risks

  The main upside risks to the Sell view include stronger-than-expected semiconductor orders, stronger generative AI demand, significant margin improvement in the metrology instruments business, and buybacks or other enhanced shareholder return measures.

Key data

• Report date2026-05-25 7:55AM JSTPublication time shown on the report cover page.
• Research institutionGoldman Sachs Japan Co., Ltd.The analysts are Shuhei Nakamura and Kaho Otake.
• RatingSellThe report maintains a cautious stance.
• 12-month target price¥14,000Based on FY3/27-28 EBITDA, 18x EV/EBITDA, and then a 40% discount.
• Current priceapproximately ¥16,915Taken from the price information listed next to Tokyo Seimitsu on the report disclosure page.
• Implied upside/downsideapproximately -17.2%Estimated using the ¥14,000 target price and the current price of approximately ¥16,915.
• Mid-term sales targetapproximately ¥185bn in FY3/27The report says FY3/27 sales could approach the company's mid-term plan target.
• Overall SPE order guidance for FY3/27 first half+20% half-on-halfRelative to FY3/26 second half; the company had revised this metric from year-on-year to half-on-half.
• Generative AI/HPC order outlook for FY3/27 first half+15% half-on-halfAgainst a backdrop of strong inquiries, actual orders could approach the overall SPE order guidance of +20%.
• HBM order guidance+88% half-on-halfThe main area of strength within generative AI/HPC-related orders.
• Logic order guidance-15% half-on-halfManagement said this mainly reflects customer investment scheduling and order timing, not weaker demand trends.
• Prober lead timeapproximately 5 monthsPreviously about 3 months at the time of the earnings release; the longer lead time reflects strong demand.
• FY3/27 OPM guidance21.4% in the first half, 22.7% in the second halfFY3/26 second half was 21.2%.
• Gross margin improvement in FY3/27 first halfabout +1 percentage point half-on-halfThe company expects more meaningful overall margin improvement only after further sales expansion in the second half.
• SG&A impactabout +¥4bn for the full yearHigher expenses are one reason margin improvement is expected to be gradual.

Impact & implications

Stronger AI/HPC and HBM demand improves visibility on Tokyo Seimitsu's orders and sales reaching its mid-term target and could also create a need for capacity expansion; however, margin recovery is constrained by slower gross margin improvement and higher SG&A, limiting short-term earnings elasticity. For the stock, strong orders support fundamentals, but with valuation already elevated and the target price below the current price, Goldman Sachs believes the risk-reward remains unattractive.

Risks

• Semiconductor orders exceed expectations, especially if generative AI-related demand further outperforms expectations.
• Profitability in the metrology instruments business improves significantly, lifting overall margins above the report's assumptions.
• The company implements stock buybacks or other measures to enhance shareholder returns, which could support the share price.
• If longer prober lead times and potential capacity expansion are not managed well, delivery, costs, and margin timing could be affected.
• If SG&A rises more or gross margin improves more slowly than company guidance, earnings recovery could be delayed further.

What to watch

• Whether overall SPE orders in FY3/27 first half can deliver +20% half-on-half growth.
• Whether generative AI/HPC inquiries can convert into orders, especially changes in the order mix between HBM and logic applications.
• Whether prober lead times continue to extend, and progress in utilizing Hachioji space and expanding capacity on adjacent land in Hanno.
• Whether the roughly +1 percentage point gross margin improvement in FY3/27 first half and the 22.7% second-half OPM guidance can be achieved.
• The extent to which the roughly ¥4bn increase in SG&A suppresses earnings elasticity.
• Whether stock buybacks, enhanced shareholder returns, or rating/target price revisions emerge.