Tokyo Ohka Kogyo (4186): UBS upgrades Tokyo Ohka Kogyo to Buy as advanced logic and memory demand supports photoresist-led earnings growth.

Overview

UBS upgrades Tokyo Ohka Kogyo (TOK) to Buy, arguing that growing demand for advanced semiconductor photoresists and back-end materials should sustain strong earnings growth while the valuation has become more attractive after the share-price decline.

Core views

UBS makes minor earnings-forecast revisions and upgrades Tokyo Ohka Kogyo to Buy from Neutral. Its central thesis is that expanding demand for advanced logic, DRAM and NAND will support sustained growth in photoresists and semiconductor back-end materials, including packaging and WHS materials. Through 2027, UBS expects rising resist demand from memory customers in South Korea and China, as well as advanced-logic resist shipments to Taiwan, South Korea and China. The report argues that continuing investment in AI servers is a key condition for photoresist sales to sustain annual growth of 20% or more in 2025-28. TOK is positioned as a major supplier of semiconductor photoresists, with an estimated global market share of around 30%, according to UBS. Semiconductor front-end photoresist sales rose 20% year on year in January-June 2026: combined EUV and ArF resist sales rose 25%, while KrF resist sales rose 20%. UBS forecasts resist sales CAGR of 26% for 2025-28. Semiconductor back-end materials sales increased 45% year on year in January-June 2026, and UBS expects these products, alongside photoresists, to become an important earnings driver. The firm sees no major production-capacity constraints and does not expect a material fall in selling prices if demand continues to expand. The advanced-logic case is tied to increasing CoWoS capacity: UBS forecasts CoWoS production capacity to rise about 68% year on year in 2027, supporting demand for advanced-logic resists and packaging materials. The report expects EUV resist shipments for the 2nm generation to ramp meaningfully in FY12/27. It forecasts core semiconductor-material sales growth of 29% year on year in that fiscal year, led primarily by photoresists; FY12/27 sales growth is projected at 30% after 54% growth in 2026. TOK, Shin-Etsu Chemical and JSR are described as having significant supply share for the 2nm generation, while TOK's bump-resist growth is linked to TSMC's CoWoS capacity expansion. UBS forecasts operating profit growth of about 30% annually across FY12/25-FY12/28: ¥64.0bn in FY12/26 (+35% year on year), ¥85.7bn in FY12/27 (+34%), and ¥104.4bn in FY12/28 (+22%). For FY12/26, it expects EUV, ArF and KrF resist sales growth of 54%, 25% and 33%, respectively, versus previous forecasts of 25%, 10% and 10%. Higher utilization at Japanese and overseas memory manufacturers is expected to support KrF demand, an area where UBS sees TOK as particularly strong; bump-resist sales are expected to rise just under 20% year on year. On valuation, UBS notes that TOK underperformed TOPIX by 5% over the prior six months and that its 12-month forward moving-average PER had declined to around 18x, which it views as underestimating the company's advanced-materials-driven growth. The ¥11,200 target price, reduced from ¥11,500, is based on 12-month moving-average EPS of ¥443, raised from ¥405, and a fair-value PER of 25x, lowered from 28x to reflect a higher market risk premium for semiconductor-related stocks. UBS values the shares using a TOPIX-33 Chemicals-relative PER.

Analysis framework

UBS assesses demand drivers across advanced logic, memory and semiconductor packaging, connects them to individual photoresist categories and production capacity, then translates those assumptions into sales and operating-profit forecasts. It compares the resulting earnings outlook with forward PER valuation and applies a TOPIX-33 Chemicals-relative PER to derive its price target.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Advanced-logic and memory demand transmitted through CoWoS capacity and semiconductor manufacturing into demand for photoresists and packaging materials.

  UBS links AI-server investment, memory utilization and CoWoS capacity expansion to demand for TOK's EUV, ArF, KrF and bump-resist products.

• Valuation methodsP/E and PEG Valuation

  TOPIX-33 Chemicals-relative PER and a fair-value PER applied to 12-month moving-average EPS.

  UBS applies a 25x fair-value PER to moving-average EPS of ¥443 to set the ¥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 beneficiary of advanced-logic, memory and semiconductor back-end material demand.

  Strengths

  Estimated global photoresist market share of around 30%; leading positions in KrF and EUV photoresists; supply share for 2nm-generation materials.

  Comparison

  TOK, Shin-Etsu Chemical and JSR are described as significant suppliers for the 2nm generation.

  Risks

  Memory-market adjustment, weak EUV-photoresist growth, loss of EUV resist share, or weak KrF demand could reduce the price-target case.

Key data

• January-June 2026 front-end photoresist sales growth+20% year on yearCombined EUV and ArF sales rose 25%; KrF sales rose 20%.
• 2025-28 resist sales CAGR26%UBS forecast for TOK photoresist sales.
• January-June 2026 back-end materials sales growth+45% year on yearUBS identifies packaging-related materials as an additional earnings driver.
• FY12/27 operating profit forecast¥85.7bn+33.9% year on year.
• FY12/28 operating profit forecast¥104.4bn+22% year on year.
• Target price and valuation basis¥11,200; 25x fair-value PERTarget lowered from ¥11,500; PER reduced from 28x, while moving-average EPS rose to ¥443 from ¥405.
• Forecast price appreciation35.6%UBS 12-month forecast from the stated price basis.

Impact & implications

UBS believes stronger advanced-semiconductor and memory-material shipments should allow TOK's earnings to grow faster than the valuation currently implies. Confirmation of continuing shipments and demand would, in UBS's view, support gradual share-price strengthening.

Risks

• A correction in the memory-semiconductor market could weaken demand.
• Growth in the EUV photoresist market could be sluggish.
• TOK could lose share in the EUV resist market.
• Demand for KrF photoresists could weaken.

What to watch

• Whether AI-server investment continues, supporting the assumption of photoresist sales growth above 20% annually in 2025-28.
• CoWoS production-capacity expansion and the associated demand for advanced-logic resists and packaging materials.
• The ramp of EUV resist shipments for 2nm-generation production in FY12/27.
• Memory-manufacturer utilization and resulting demand for KrF resists.