AT&S’s Malaysian Expansion Confirms Strong Demand; ABF Substrates Enter a Shortage Cycle

Overview

This report analyzes AT&S’s announcement of expanded AI/HPC IC substrate capacity in Malaysia. Morgan Stanley believes that AT&S’s receipt of long-term financing commitments from major customers and its substantial upward revision of earnings guidance underscore the strong demand for ABF substrates in the AI/HPC segment. The timing of the new capacity’s ramp-up does not alter the firm’s core view that ABF substrates will face a supply gap starting in 2027 and bodes well for Taiwanese peers in the sector.

Core views

Demand Side: AT&S announced it has signed key terms with AMD and another large technology customer to expand AI/HPC IC substrate capacity in Kulim, Malaysia. This €1.5–2 billion investment is fully underwritten by long-term customer commitments, reflecting exceptionally strong downstream demand for AI and high-performance computing. Supply Side and Earnings Guidance: Based on the new capacity plan, AT&S has sharply raised its FY26/27 guidance, increasing its revenue growth outlook after currency adjustments from 30–35% to 45–55%, raising its EBITDA margin from 25–29% to 32–37%, and more than doubling its capital expenditure estimate from €400 million to €1–1.2 billion. Industry Supply-Demand Assessment: The firm infers that AT&S is primarily adding production lines within its existing facilities, with the new capacity slated to come online in March 2027 (end of FY26/27). This expansion not only fails to alleviate supply pressures but reinforces the firm’s prior expectation of an ABF substrate supply shortage beginning in 2027. Investment Implications: AT&S’s strong demand and capacity move have a positive read-across effect on other Taiwanese players in the industry. The firm maintains an “overweight” rating on Unimicron, Nan Ya Printed Circuit Board, and Zhen Ding.

Analysis framework

The firm employed a combined “event-driven and supply-demand framework” approach. First, it tracked the capital expenditures and customer order trends of the industry leader (AT&S) to validate the authenticity and strength of downstream AI/HPC demand. Second, it projected the pace of supply-side capacity release based on the construction timeline (expansion of existing facilities expected to be completed by March 2027). Finally, it mapped the anticipated supply gap to other core names in the space to arrive at a sector-wide investment conclusion.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  By analyzing the capital expenditures and capacity ramp-up schedules of industry leaders, combined with downstream demand validation, the framework projects a supply-demand gap at a specific future point (e.g., 2027), serving as the core rationale for a bullish sector view.

• Event-Based Analysis and Behavioral FinanceEvent-driven analysis

  Event-Driven Analysis

  Using AT&S’s capacity expansion announcement and guidance raise as the focal event, the approach quickly assesses its spillover effects on the industry fundamentals and competitors (read-across).

• Valuation MethodologyRIM Residual Income Model

  RIM Residual Income Model

  The report applied the residual income model when valuing Unimicron, Zhen Ding, and Nan Ya Printed Circuit Board. This method estimates a company’s intrinsic value by calculating the excess returns generated above its cost of equity, making it suitable for capital-intensive, heavy-asset manufacturing sectors where equity costs must be factored in.

Asset mapping & comparison

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

• Unimicron Technology (3037.TW)

  A core ABF substrate supplier, set to benefit from the industry’s supply-demand gap and rising AI/server demand.

  Strengths

  Supported by PC and server ABF substrate demand, with a well-established capacity footprint.

  Comparison

  Alongside Nan Ya Printed Circuit Board, it forms the duopoly of ABF substrate suppliers in Taiwan, directly reaping the rewards of the anticipated supply shortage.

  Risks

  Sudden demand collapse, breakthroughs in alternative technologies (e.g., CoWoP), yield issues with new capacity.

• Zhen Ding (4958.TW)

  A leader in high-end PCB/F-PCB, poised to benefit from AI and consumer electronics upgrades.

  Strengths

  Increased F-PCB content in iPhones and a strong SLP market share.

  Comparison

  Its business leans more toward consumer electronics and F-PCB, differing slightly from pure ABF substrate players’ dynamics.

  Risks

  Weaker-than-expected iPhone sales, slower-than-anticipated increases in F-PCB content, intensifying competition from mainland Chinese peers.

• Nan Ya Printed Circuit Board (8046.TW)

  A key supplier of ABF and BT substrates, set to profit from AI and 5G demand.

  Strengths

  Strong ABF/BT demand and potential for ASP increases.

  Comparison

  Like Unimicron, it is a core ABF substrate player with significant exposure to AI/HPC applications.

  Risks

  Sudden demand collapse, technological shifts, intensifying competition.

Key data

• AT&S’s Malaysian Expansion Investment€1.5–2 billionFully supported and financed by long-term customer commitments
• AT&S’s FY26/27 Revenue Growth Guidance45–55%After currency adjustments; previously guided at 30–35%
• AT&S’s FY26/27 EBITDA Margin Guidance32–37%Previously guided at 25–29%
• AT&S’s FY26/27 Capital Expenditure Guidance€1–1.2 billionPreviously guided at €400 million

Impact & implications

AT&S’s capacity expansion and guidance revisions not only reflect improvements in its own fundamentals but also serve as an industry bellwether, confirming the explosive demand for high-end ABF substrates in the AI/HPC space. For other leading substrate manufacturers not directly involved in this expansion (such as Unimicron, Nan Ya Printed Circuit Board, and Zhen Ding), this means they stand to benefit from both higher volumes and stronger pricing when the supply gap materializes in 2027, providing robust support to overall sector sentiment.

Risks

• A sudden slowdown or failure to meet expectations in AI/HPC and PC/server demand for ABF substrates.
• Breakthroughs in alternative packaging technologies (e.g., CoWoP) that resolve yield challenges and gain traction.
• Intensified industry competition putting pricing under pressure, or yield and production issues during the ramp-up of new capacity.
• Weak terminal sales of smartphones (e.g., iPhones) or slower-than-expected increases in internal component content.

What to watch

• The actual construction and commissioning progress of AT&S’s new Malaysian capacity (expected in March 2027).
• The execution of long-term ABF substrate orders from downstream AI/HPC chip customers.
• The R&D and yield progress of alternative packaging technologies (e.g., CoWoP).