Morgan Stanley Upgrades Parade-KY to Overweight: Chipset Share Gain Drives New Growth

Overview

In this research report, Morgan Stanley maintains a cautious outlook on the greater China PC semiconductor industry as a whole, believing that chips related to desktops (DT) will continue to face challenges in the coming quarters. However, the institution holds a relatively optimistic view on laptop (NB) PC semiconductor demand in the second half of 2026, with the Apple supply chain showing stronger resilience. Based on positive changes in market share, the core highlight of the report is upgrading Parade-KY (Parade) rating to "Overweight" and significantly raising the target price to NT$1,000, believing that its breakthrough in the chipset market will bring new growth drivers.

Core views

Industry demand differentiation, NB and Apple supply chain more resilient: The institution believes overall PC semiconductor visibility remains low, and memory price hikes will negatively impact desktop (DT) PC semiconductors (e.g., ASMedia ASMedia). In contrast, notebook (NB) customers have not yet adjusted orders significantly, and 2H26 demand may be better than previous market pessimistic expectations. Additionally, companies with iOS/Apple business exposure show stronger risk resistance capabilities in the current environment. Parade-KY (Parade) welcomes new growth engine, market share expected to expand: The report points out that market share transfer is occurring in the PC semiconductor market. Parade, with excellent performance in power consumption control, is expected to grab competitors' share in the chipset (Chipset) market. This type of ASIC business breakthrough is viewed as Parade's core future growth driver, sufficient to support its valuation reshaping. Profit forecasts and valuations significantly upgraded: Based on expectations for supply chain diversification and chipset market share increase, Morgan Stanley has increased Parade's 2027 and 2028 EPS forecasts by 34% and 46% respectively, significantly higher than the market consensus of 16% and 17%. Correspondingly, it has significantly raised its target price from NT$530 to NT$1,000. For ASMedia, it maintains original forecasts to reflect risks of potential share loss in its PC business.

Analysis framework

The institution adopted an analysis approach combining "bottom-up company Alpha discovery" with "terminal demand tracking". First, by tracking downstream ODM shipment volumes and quarterly guidance from various chip manufacturers, it determined that PC semiconductor demand is bottoming out and differentiating, with NB end performing better than DT end. Secondly, at the competitive landscape level, the institution keenly captured the opportunity for market share transfer brought by product technical indicators (power consumption performance), using this as the core logic for Parade's earnings upgrade. Finally, at the valuation level, it used the Residual Income Model for absolute valuation, supplemented by historical P/E ratio intervals for relative valuation cross-verification, demonstrating the rationality of the current 26x expected P/E ratio under the background of new growth engines.

Methodology notes

• Valuation MethodRIM Residual Income Model

  Residual Income Model

  An absolute valuation method that calculates the present value of excess returns generated by the company beyond the shareholder required rate of return (i.e., residual income) added to the current book value to arrive at equity value. In this report, the institution used this model to price Parade, setting equity cost of 9.8% and terminal growth rate of 4.0%, and increased mid-term growth rate from 9.0% to 11.9% to reflect new business growth potential.

• Competition and Strategy FrameworkMoat / competitive advantage

  Competitive Advantage and Share Transfer Based on Product Technical Indicators (Power Consumption)

  In the semiconductor design industry, leadership in specific technical indicators (such as power consumption control) often directly translates into order tilt from major customers. The institution deduced the inevitability of Parade grabbing competitor shares in the chipset market based on its relative power advantage, thereby converting it into revenue and profit upgrade basis in the financial model.

Asset mapping & comparison

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

• Parade-KY (Parade, 4966.TWO)

  Core beneficiary. Gaining share in chipset market with power consumption advantage, deeply tied to Apple supply chain, benefiting from 2H26 NB demand recovery.

  Strengths

  Excellent power control performance; breakthrough in ASIC/Chipset market; Apple business exposure provides risk resistance resilience.

  Weaknesses

  90% revenue exposed to PC market, heavily affected by PC industry overall cycle fluctuations; low-end panel price competition may deteriorate.

  Comparison

  Compared to ASMedia, Parade is in share expansion phase in chipset market, while ASMedia faces PC business share loss risk.

  Risks

  Risk of Apple self-developing T-Con chips; intensifying competition in high-speed interface area; memory chip shortage causing overall PC market headwinds.

Key data

• Parade Target PriceNT$1,000Significantly raised from NT$530, based on RIM base scenario
• Parade 2027/2028 EPS Adjustment Magnitude+34% / +46%Significantly higher than market consensus of 16% and 17%
• Parade 2026 Expected P/E26xHigher than historical average of 19.6x since 2012, institution believes new business supports this valuation
• 2Q26 NB ODM Shipment ExpectationSeq+4%, YoY-8%Downstream colleagues forecast, reflecting relatively stable NB demand

Impact & implications

For the PC semiconductor sector, the report reminds investors to focus on structural differentiated opportunities rather than sector-wide beta trades. Under potential headwinds such as memory price hikes and limited CPU supply, companies bound to key major clients (such as Apple) and possessing technical barriers (such as low-power consumption design) will demonstrate stronger earnings resilience. The significant upgrade of Parade's rating and target price means the market gives higher valuation premium to the logic of its transformation from traditional display interface chip supplier to core chipset supplier.

Risks

• Apple product shipment volume and specification upgrades slower than expected, or Apple successfully self-develops T-Con chip.
• Intensifying competition in high-speed interface area (converters, switches, Redriver/Retimer).
• Memory chip shortage triggers overall PC market headwinds, affecting 90% PC revenue exposure of the company.
• Next-generation server platform release slower than expected, impacting data center business expansion.

What to watch

• Actual pull demand for 2H26 Notebook (NB) PCs and Apple supply chain order visibility.
• Actual progress of Parade gaining share in Chipset market.
• Pricing trend of memory chips and their squeezing effect on Desktop (DT) PC semiconductor demand.