JX Advanced Metals: InP substrates are a core long-term product, but it is still too early to fully price in

Overview

The report focuses on JX Advanced Metals’ earnings outlook, valuation, and growth in AI-related materials. Morgan Stanley raised JX Advanced Metals’ F3/27 and F3/28 operating profit forecasts to ￥2,430bn and ￥2,600bn, respectively, and added a F3/29 operating profit forecast of ￥2,880bn. The report expects semiconductor materials, especially semiconductor sputtering targets and InP substrates, to continue driving profit growth; however, considering the still limited short-term profit contribution from InP substrates and the possibility that supply-demand tightness may ease as capacity expansion becomes aggressive, it maintains an Equal-weight rating.

Core views

The core view is that JX Advanced Metals has multiple AI-related materials products that benefit in the long term from optical communications, CPO, advanced logic, HBM, TSV, RDL, AI server connectors, and high-performance capacitor demand. InP substrates could become a core long-term product, and the report expects operating profit contribution to reach ￥700 billion in F3/31, representing 48% of the semiconductor materials segment operating profit. However, F3/28 remains the target-price valuation year, and InP substrate operating profit is only expected to be ￥71 billion then, so it is still too early to fully price in F3/31 growth potential.

Analysis framework

The report applies an earnings forecast revision process, segment operating profit decomposition, comparable-company valuation, and a SOTP valuation framework. It uses a 41.2x P/E for semiconductor materials, with InP substrates referenced to a long-term average P/E of about 48x based on Lumentum and Coherent, while other semiconductor materials are valued at 35x; information and communications materials at 25.7x P/E; basic materials at 13.2x P/E. The target price is based on F3/28e EPS ￥197 and a 22.0x P/E after SOTP.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  The report assigns different P/E multiples to segments such as semiconductor materials, information and communications materials, and basic materials, calculates segment EPS based on the company’s operating profit mix, and sums them to derive the target price.

• Valuation methodsP/E

  Price-to-earnings valuation

  The target price implies 22.0x P/E on F3/28e EPS of ￥197, while the semiconductor materials segment multiple was raised to 41.2x due to the long-term growth outlook for InP substrates.

• scenario_analysisBull/Base/Bear case

  Scenario analysis

  The report presents a bull case of ￥8,200, a base case of ￥4,300, and a bear case of ￥2,600. Key variables include semiconductor market conditions, exchange rates, copper prices, and deviations in operating profit.

Asset mapping & comparison

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

• JX Advanced Metals (5016.T)

  Research target

  Strengths

  The company has AI-related products including semiconductor sputtering targets, InP substrates, tantalum powder, magnetic materials targets, and titanium copper, with several categories having strong market share and relatively high long-term visibility for profit growth.

  Weaknesses

  Basic materials currently account for a larger share of profit, and copper prices, exchange rates, and cyclical fluctuations still affect earnings; short-term InP substrate contribution remains limited.

  Comparison

  The report uses Lumentum, Coherent, and Japanese domestic comparable companies in semiconductor materials, ICT materials, and basic materials as valuation references.

  Risks

  A prolonged semiconductor downturn, falling copper prices, yen appreciation, escalating trade frictions, procurement and pricing risk for sputtering targets, and weaker-than-expected supply-demand dynamics for InP substrates.

• InP substrates

  Core long-term growth product

  Strengths

  Demand from AI data center optical transceivers, external light sources, and CPO applications is supportive; the report expects supply-demand tightness to drive price increases.

  Weaknesses

  Capacity expansion is still ongoing and F3/28 profit contribution is limited; if major suppliers execute capacity additions successfully, supply-demand tightness may ease.

  Comparison

  Global supply is mainly held by Sumitomo Electric, AXT, and JX Advanced Metals, with the three estimated to control about 90% of total capacity.

  Risks

  Indium raw material availability, export controls, insufficient recycling infrastructure, and changes in supply-demand balance after expansion.

• Semiconductor sputtering targets

  Current core semiconductor materials business

  Strengths

  JX has leading global share in sputtering targets for copper, tantalum, titanium, cobalt, and tungsten, and benefits from advanced logic, increasing interconnect layers, and chiplet development.

  Weaknesses

  Sales are linked to the semiconductor cycle; the report expects market growth to peak around F3/27 before slowing.

  Comparison

  The company is expected to grow faster than the broader semiconductor market.

  Risks

  A slowdown in semiconductor demand, weaker customer demand, and volatility in raw material procurement costs.

Key data

• Target price￥4,300Raised from ￥3,800 based on F3/28e EPS ￥197 and 22.0x P/E.
• Current price￥4,398Closing price as of 2026-06-30.
• RatingEqual-weightThe report maintains a neutral, sector-relative rating.
• F3/27 operating profit forecast￥2,430bnRaised from ￥2,350bn, roughly up 38.9% year-on-year.
• F3/28 operating profit forecast￥2,600bnRaised from ￥2,530bn, roughly up 7% year-on-year.
• F3/29 operating profit forecast￥2,880bnNewly added forecast, roughly up 10.8% year-on-year.
• InP substrate operating profitF3/26 ￥15bn; F3/27e ￥39bn; F3/28e ￥71bn; F3/29e ￥184bn; F3/31e ￥700bnThe report sees this business as one of the largest long-term growth drivers.
• Semiconductor target operating profitF3/26 ￥300bn; F3/27e ￥410bn; F3/28e ￥510bn; F3/29e ￥680bnThe company holds leading global shares in various semiconductor sputtering targets.

Impact & implications

From an investment perspective, the report conveys the view that long-term growth visibility is strong but short-term valuation constraints remain. AI data center demand supports growth in InP substrates, sputtering targets, tantalum powder, and titanium copper, improving the company’s long-term profit visibility. However, the target price remains anchored to F3/28, and the current share price is already close to that level, so short-term risk-reward is not clearly skewed bullish. If semiconductor conditions accelerate further, AI-related product margins improve, or the company executes more active buybacks, the rating could turn more constructive.

Risks

• An extended semiconductor downturn causing demand for sputtering targets, InP substrates, and other AI-related materials to fall short of expectations.
• Copper prices falling in risk-off environments, or yen strengthening due to escalating trade tensions, pressuring basic materials profitability and valuation.
• Escalation of US-China trade frictions may affect supply chains, client demand, and investor risk appetite.
• After aggressive capacity expansion by major InP substrate players, the current supply-demand tightness and premium pricing assumptions may not be sustainable.
• Indium raw material supply may be affected by China export permit regimes, insufficient recycling networks, or insufficient non-China supply sources.
• Procurement cost and pricing risks in sputtering targets.

What to watch

• Progress of new InP substrate capacity ramp-up, yield performance, and customer onboarding.
• The strength of demand from AI data center optical transceivers, CPO external light sources, and 200G applications for InP substrates.
• The linkage between sputtering target sales and wafer shipment area, demand for advanced logic, and chiplet demand.
• The pace of demand growth for tantalum powder in GPU power rails and GB200/GB300-related applications.
• The contribution of copper prices, FX, TC/RC, and inventory levels to basic materials profit.
• Whether the company adopts more flexible share buybacks and capital efficiency improvements.
• The impact on sentiment from ENEOS stake reduction, conversion of convertible bonds, and liquidity changes.