JX Advanced Metals is reportedly set to expand InP substrate capacity to 7 to 10 times FY3/26 levels

Overview

This report focuses on news of JX Advanced Metals' InP substrate capacity expansion. Nikkei reported that the company plans to raise InP substrate capacity by 7 to 10 times versus FY3/26 through investment of about ¥120bn by FY3/31. Citigroup believes this expansion is related to growing demand for optical networking between AI servers and could strengthen the company's thematic positioning in the data center/AI materials chain.

Core views

The core view is that demand for InP substrates is growing rapidly, the supplier landscape is concentrated, and supply-demand conditions are extremely tight; if the company expands capacity further, it will continue the trend of multiple expansions over the past year. Citigroup expects about a 25% price increase to begin gradually materializing from 1Q FY3/27. However, based on Citigroup's FY3/27 forecast, InP substrates account for only about 2% of Focus Business revenue, so investors may still view the impact on overall company earnings as limited in the near term. Whether valuation can move higher will depend on whether details of operating profit contribution in the tens of billions of yen by FY3/31 become clearer.

Analysis framework

The report uses an event-driven analysis combined with fundamentals: it first assesses the capex and capacity multiple cited in the Nikkei report, then compares them with the company's previously announced expansion plans to judge that the reported figures may reflect the cumulative scale of four expansions; it then evaluates the potential impact on the company's valuation from the perspectives of demand drivers, competitive landscape, pricing pace, revenue share, and FY3/31 profit contribution.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  Citigroup uses an SoTP model and references sector comparable multiples; it applies 30x PER to Focus Business and 20x PER to Base Business, resulting in a blended FY3/28E PER of 25x and a target price of ¥5,100.

• Valuation methodsPER

  Price-to-earnings valuation

  The target price is based on 25x FY3/28E PER; Focus Business is benchmarked against DC/AI server-related companies such as Fujikura and Mitsui Mining and Smelting, while Base Business is benchmarked against nonferrous metals companies such as Sumitomo Metal Mining and Mitsubishi Materials.

Asset mapping & comparison

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

• JX Advanced Metals (5016.T)

  Research subject

  Strengths

  It has about 40% market share in InP substrates and benefits from growing demand for optical networking between AI servers, concentrated supply, and potential price increases.

  Weaknesses

  Current revenue contribution from InP substrates remains low, limiting short-term contribution to overall earnings; the company's short listing history also leads quantitative models to show higher volatility.

  Comparison

  Focus Business valuation references DC/AI server-related companies such as Fujikura and Mitsui Mining and Smelting; Base Business references nonferrous metals companies such as Sumitomo Metal Mining and Mitsubishi Materials.

  Risks

  Higher investment spending may compress earnings, falling copper prices may weigh on Base Business, larger-than-expected parent share sales may occur, and the pace of capacity expansion or price increases may fall short of expectations.

Key data

• Report date2026-06-15The report header time is 15 Jun 2026 08:53:42 ET.
• Target price¥5,100Based on 25x FY3/28E PER.
• Proposed capital expenditureAbout ¥120bnNikkei reported investment by FY3/31; Citigroup believes this figure may represent the cumulative scale of four expansion rounds.
• Capacity expansion magnitude7 to 10 times versus FY3/26If accurate, this would be significantly above the previously announced target of about 3x expansion.
• Previous related capital expenditureAbout ¥25bnCorresponding to expansion plans announced in July 2025, October 2025, and February 2026.
• Supplier market shareJX Advanced Metals 40%, Sumitomo Electric 40%, AXT 20%The report says these three companies dominate the InP substrate market.
• Expected price increaseAbout 25%Citigroup expects gradual pass-through to customers starting in 1Q FY3/27.
• InP substrate revenue shareAbout 2% of Focus Business revenueBased on Citigroup's FY3/27 forecast, so the short-term impact on overall earnings is seen as limited.
• FY3/31 InP substrate sales forecastAbout ¥100bnCitigroup forecast.
• FY3/31 InP substrate operating profit forecastAbout ¥30bnCitigroup forecast.

Impact & implications

The news is positive for JX Advanced Metals, mainly because it reinforces the growth narrative around AI server optical networking materials and could bring medium-term earnings leverage through tight supply-demand conditions and price increases. However, since InP substrates still account for a small share of current Focus Business revenue, the near-term boost to overall earnings and valuation may be limited; a bigger re-rating catalyst would be clearer visibility on FY3/31 operating profit contribution, confirmation of customer demand, and progress in execution of the capacity expansion.

Risks

• Increased investment spending in Focus Business may lead to deteriorating profitability.
• Falling copper prices may erode Base Business earnings.
• If the parent company sells more shares than expected, it may pressure the stock price.
• Whether InP substrate capacity expansion and price increases can be delivered still depends on customer demand, the pace of supply release, and execution progress.

What to watch

• Whether the approximately ¥120bn capex and 7 to 10 times capacity expansion cited in the Nikkei report are confirmed by the company.
• The specific composition and credibility of the tens-of-billions-of-yen operating profit contribution by FY3/31.
• Whether the roughly 25% price increase from 1Q FY3/27 can gradually be implemented with customers.
• Changes in demand for optical networking between AI servers and the supply landscape among JX Advanced Metals, Sumitomo Electric, and AXT.
• Potential parent sell-down timing and Base Business sensitivity to copper prices.