ABF substrate supply share and pricing outlook Report Interpretation

Overview

This update addresses investor concerns that Broadcom could reduce Unimicron's and Nan Ya PCB's substrate supply share through its Singapore capacity project, as well as questions about fourth-quarter BT-substrate pricing. Morgan Stanley sees limited effect on its Overweight views of both companies.

Core views

Morgan Stanley responds to concern following Nan Ya PCB's 12% share-price decline over the prior two trading days, compared with a 0.8% gain in the TAIEX. Investors had questioned whether Broadcom could take substrate production in-house and displace Nan Ya PCB or Unimicron. The report concludes that this risk is limited because Broadcom appears to be securing FC-BGA substrate supply rather than vertically integrating production. The basis for this conclusion is Broadcom management's comment that the company is building substrate capacity at its Singapore factory with a partner. Morgan Stanley believes this refers to AST, the joint venture Broadcom has been developing with Toppan since March 2024. Toppan's first overseas substrate plant is planned in two phases, with phase one targeted to begin production by end-2026. Morgan Stanley therefore expects the project to add supply security while leaving the incumbent positions of Unimicron and Nan Ya PCB largely intact; both produce BT substrates and supply Broadcom. On BT-substrate pricing, the report says price increases since the second half of 2025 have reflected higher raw-material costs, including T glass, gold and copper. It expects T-glass supply constraints to peak in 2026 and gradually ease from 2027 as additional suppliers are qualified, making a plateau in raw-material-driven BT price increases plausible. However, Morgan Stanley stresses that its positive theses on Unimicron and Nan Ya PCB are driven by ABF-substrate tightness, so BT-price fluctuations should have limited bearing on the ratings. For valuation, Morgan Stanley applies residual-income models. For one company it uses a 9.2% cost of equity, composed of a 1% risk-free rate, 8.7% equity risk premium and 1.0 beta, with 15% medium-term growth and 3% terminal growth. For the other it uses a 9.3% cost of equity with the same 1% risk-free rate, 8.7% equity risk premium and 1.0 beta, alongside 17% medium-term growth and 3% terminal growth.

Analysis framework

Morgan Stanley first assesses the nature and timing of Broadcom's Singapore project to determine whether it represents supply sourcing or in-house production. It then separates BT-substrate pricing drivers from the ABF-tightness thesis underpinning its views on the two incumbent suppliers, while using residual-income valuation models that incorporate cost of equity and growth assumptions.

Methodology notes

• Valuation methodsRIM (Residual Income Model)

  Residual income valuation model

  The report values each company using a residual-income approach, explicitly incorporating cost of equity, medium-term growth and terminal growth assumptions.

• Industry AnalysisSupply-demand framework

  Substrate supply-demand analysis

  The report evaluates Broadcom's capacity project, T-glass supply constraints and supplier qualification to judge supply security, ABF tightness and pricing pressure.

Asset mapping & comparison

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

• Unimicron (3037.TW)

  Incumbent Broadcom supplier of BT substrates; Morgan Stanley sees limited supply-share impact from Broadcom's Singapore project.

  Strengths

  Exposure to Morgan Stanley's ABF-substrate-tightness thesis and incumbent supply position.

  Weaknesses

  BT-substrate pricing may plateau as raw-material pressures ease.

  Comparison

  Discussed alongside Nan Ya PCB as another incumbent Broadcom supplier.

  Risks

  Sudden demand shortfall; technology that does not require ABF substrates; intensifying competition; and yield or production issues during new-capacity ramp-up.

• Nan Ya PCB (8046.TW)

  Incumbent Broadcom supplier of BT substrates; Morgan Stanley sees limited supply-share impact from Broadcom's Singapore project.

  Strengths

  Exposure to Morgan Stanley's ABF-substrate-tightness thesis and incumbent supply position.

  Weaknesses

  BT-substrate pricing may plateau as raw-material pressures ease.

  Comparison

  Discussed alongside Unimicron as another incumbent Broadcom supplier.

  Risks

  Sudden demand shortfall creating headwinds for ABF demand and pricing.

Key data

• Nan Ya PCB share-price moveDown 12% over the past two trading daysVersus a 0.8% increase in the TAIEX.
• AST phase-one production targetEnd-2026The first phase of Toppan's two-phase overseas substrate plant is targeted to start production by then.
• T-glass constraint outlookPeak in 2026; gradually ease from 2027Morgan Stanley expects more suppliers to become qualified.
• Valuation assumptionsCost of equity 9.2% / 9.3%; medium-term growth 15% / 17%; terminal growth 3%Residual-income model assumptions for the two companies.

Impact & implications

Morgan Stanley believes Broadcom's project should improve FC-BGA supply security rather than erode the supply positions of Unimicron and Nan Ya PCB. A moderation in BT-substrate price increases would not materially alter its ABF-tightness-based theses for either stock.

Risks

• For Unimicron, weaker-than-expected ABF demand from PC and server customers could pressure the thesis.
• Capex cuts or a halt to capacity expansion could limit upside.
• Alternative substrate-free technology, including CoWoP, could face fewer yield issues than expected.
• A sudden demand shortfall, technological change that eliminates ABF-substrate needs, intensifying competition, or ramp-up production issues could weaken the outlook.
• For Nan Ya PCB, a sudden demand shortfall could create headwinds for ABF-substrate demand and pricing.