Nomura Raises Tokyo Electron Earnings Forecasts and Maintains Buy Rating

Overview

Against the backdrop of an improving WFE market outlook, Nomura raised Tokyo Electron's earnings forecasts from FY27/3 and maintained its Buy rating. The report believes that the company is likely to attract investor interest as expectations for industry expansion strengthen, supported by its exposure to high-growth equipment, increasing share in advanced NAND process equipment, and more ample capacity reserves than peers.

Core views

Key themes include: first, the company has strong positions in equipment areas expected to grow faster than the overall market, including wafer bonders and probe stations; second, share gains in the advanced NAND deposition and etching market can support sales growth above the industry rate; third, early capacity investments and the commissioning of the Miyagi Technology Innovation Center can enhance its ability to capture rising WFE demand. Nomura expects the degree of gross-margin improvement in FY27/3 second-half guidance and the pricing impact from cost pass-through to be key near-term earnings focus areas.

Analysis framework

The report combines earnings forecast revisions with relative valuation: earnings expectations are adjusted based on the updated WFE market view, while the target price is derived by applying a justified P/E multiple to FY29/3 EPS; the company's expected operating profit growth is also compared with that of Japan's semiconductor manufacturing equipment industry.

Methodology notes

• Valuation methodsP/E Relative Valuation Method

  Target price = FY29/3 EPS forecast × justified P/E multiple

  Applying the FY29/3 EPS forecast of JPY 3,138.8 to a justified P/E range of 24-25x produces the JPY 77,000 target price. The justified multiple references the Japanese SPE industry's 20-21x P/E and the approximately 15x benchmark P/E for the Russell/Nomura Large Cap ex-Financials index.

• Industry ComparisonEarnings Growth Comparison

  Operating profit CAGR comparison

  Nomura expects Tokyo Electron's two-year operating profit CAGR from the FY29/3 base year to be just under 12%, above the industry average of approximately 11.5%.

Asset mapping & comparison

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

• Tokyo Electron (8035.T)

  Covered Company

  Strengths

  Estimated to hold approximately 90% global share in coat/develop equipment and approximately 23% in etch systems; benefits from rising share in advanced NAND equipment, demand for high-growth equipment such as wafer bonders and probe stations, and relatively ample capacity.

  Weaknesses

  Earnings and valuation are highly sensitive to the semiconductor equipment cycle, customer capital expenditure, and industry inventory adjustments.

  Comparison

  Nomura expects the company's two-year operating profit CAGR from FY29/3 to be just under 12%, slightly above the industry average of approximately 11.5%.

  Risks

  A delayed SPE market recovery, customer capex cuts, tighter China export restrictions, supplier bottlenecks, Chinese localization competition, and data-leakage-related risks.

Key data

• RatingBuy (Maintained)Nomura expects the stock to outperform its benchmark over the next 12 months.
• Target PriceJPY 77,000Implies 28.1% upside from the current price.
• Current PriceJPY 60,090Price date: 2026-08-17.
• FY29/3 EPS ForecastJPY 3,138.8Used for target-price valuation.
• FY29/3 Operating Profit ForecastJPY 1,849,400 millionForecast is based on consolidated financial data.
• FY27/3 Operating Profit ForecastJPY 1,005,200 millionReflects the raised earnings outlook.
• 2027 WFE Market ForecastSlightly above USD 190bnThe report states that the company's existing plans can address a WFE market of approximately USD 200bn.
• Capacity ExpansionApproximately 3x current capacityExpected after the Miyagi Technology Innovation Center reaches full utilization.

Impact & implications

If the WFE market continues to expand, Tokyo Electron's excess capacity and exposure to high-growth products could translate into improved orders, sales, and margins. The market will focus on validating FY27/3 second-half guidance, quarter-on-quarter gross-margin improvement, and the effectiveness of price pass-through; on valuation, although earnings forecasts were raised, the decline in the benchmark market P/E from approximately 16.5x to approximately 15x limits target-price upside.

Risks

• Prolonged customer inventory adjustments could delay the recovery in semiconductor manufacturing equipment market earnings.
• Cuts to customer capital expenditure budgets could cause SPE market growth to fall short of expectations.
• New export restrictions could curb semiconductor equipment investment in China.
• Supply chain or supplier bottlenecks could constrain capacity expansion.
• Competition and regulatory risks arising from China's efforts to develop its domestic semiconductor industry.
• Potential impact from a data-leakage incident involving a former employee.

What to watch

• Whether full-year guidance is issued in FY27/3 second quarter.
• The extent of quarter-on-quarter gross-margin improvement in second-half guidance.
• The impact of price increases of several percentage points implemented to pass through rising costs.
• Changes in market share for advanced NAND deposition and etching equipment.
• Completion of the Miyagi Technology Innovation Center in summer 2027 and subsequent capacity ramp-up progress.
• Changes in WFE market size, customer capital expenditure, and China-related export restrictions.