InP substrates are the long-term core product, but near-term contribution is limited and the stock price has priced in growth too quickly

Overview

This report is a company research update by Morgan Stanley on JX Advanced Metals (5016.T). The report raises earnings forecasts, increases the valuation multiple for the semiconductor materials business, and lifts the target price to ¥4,300. The core view is that the company has multiple AI-related products, including semiconductor sputtering targets, InP substrates, tantalum powder, magnetic material targets, and titanium copper, giving it a clear medium- to long-term growth path; however, in the short term, InP substrate capacity is still ramping up and contribution in F3/28 remains limited, so it is premature to fully reflect the high-growth F3/31 scenario in the share price.

Core views

The report maintains an Equal-weight rating. Bullish factors include an improving semiconductor market, demand for optical communications and CPO driven by AI data centers, tight supply and demand for InP substrates, leading global market share in sputtering targets, and improving copper prices and TC/RC. The reason for staying neutral is that the share price rebounded rapidly after the InP expansion announcement, and short-term profit growth has largely been priced in by the market; at the same time, aggressive capacity expansion by JX and peers may reduce future supply tightness.

Analysis framework

The report assesses risk-reward by combining upward earnings revisions, sum-of-the-parts business valuation, peer P/E comparisons, profit contribution breakdown of AI-related products, and the stock's performance relative to TOPIX. The valuation base is rolled from F3/27 to F3/28, with different P/E multiples assigned to semiconductor materials, information and communication materials, and base materials.

Methodology notes

• Valuation methodSOTP sum-of-the-parts P/E

  Using F3/28e EPS of ¥197 as the base and applying a blended P/E of 22.0x to derive a target price of ¥4,300.

  The semiconductor materials business is valued at 41.2x P/E, information and communication materials at 25.7x P/E, and base materials at 13.2x P/E; within semiconductor materials, InP substrates are valued at 48x and other semiconductor businesses at 35x.

• Earnings forecastBusiness-segment operating profit forecast

  Changes in operating profit are broken down across semiconductor materials, information and communication materials, base materials, and other items.

  The upward revisions to F3/27 and F3/28 operating profit are mainly driven by copper price premiums and TC/RC improvements in the base materials business, but the main driver of year-over-year profit growth remains sales expansion of core semiconductor materials products.

• Market comparisonPeer comparable valuation

  References forward P/E multiples of peers in semiconductor materials, InP-related businesses, information and communication materials, and base materials.

  InP substrate valuation references Lumentum and Coherent, while base materials references Sumitomo Metal Mining and Mitsubishi Materials, with premium/discount adjustments based on JX's business mix.

Asset mapping & comparison

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

• JX Advanced Metals (5016.T)

  Covered company

  Strengths

  It has an AI-related product portfolio including semiconductor sputtering targets, InP substrates, tantalum powder, magnetic material targets, and titanium copper, with leading market share in multiple niches.

  Weaknesses

  Near-term valuation has already quickly reflected the AI and InP themes, while InP profit contribution in F3/28 remains limited.

  Comparison

  Compared with other nonferrous metal companies, the company has a stronger semiconductor materials profile; compared with pure-play semiconductor materials companies, it still includes base materials and information and communication materials businesses.

  Risks

  Stock price has priced in growth too quickly, semiconductor cycle volatility, copper price and FX fluctuations, and execution and supply-demand changes related to capacity expansion.

• InP substrates

  Long-term core growth driver

  Strengths

  Driven by demand from AI data center optical transceivers, external light sources, and CPO, the report expects demand to grow exponentially over the next few years; JX, Sumitomo Electric, and AXT together account for about 90% of global capacity.

  Weaknesses

  Contribution in F3/28 is still only expected to be ¥7.1bn in operating profit, so the benefits of capacity expansion have not yet been fully reflected.

  Comparison

  JX plans to increase capacity to 7-10 times the F3/26 level; Sumitomo Electric plans to triple capacity by 2028 versus 2024; AXT plans to double capacity in both 2026 and 2027.

  Risks

  Aggressive capacity expansion by peers may ease supply tightness; indium raw material supply and China's export licensing regime may create procurement risks.

• Semiconductor sputtering targets

  Existing core business and foundation of AI-related products

  Strengths

  The company has leading global market share in Cu, Ta, Ti, Co, and W targets, and the report expects demand from advanced logic, HBM, TSV, RDL, and chiplet interconnects to drive growth faster than the broader semiconductor market.

  Weaknesses

  Sales volume is still linked to the semiconductor market cycle, and the report expects market growth to slow after F3/27.

  Comparison

  Excluding aluminum, the company's overall global target market share is about 60%, giving it clear scale and technological advantages.

  Risks

  A slowdown in wafer shipment area and semiconductor capex would affect revenue and profit elasticity.

• Tantalum-niobium, magnetic material targets, titanium copper

  Incremental businesses related to AI servers

  Strengths

  Tantalum powder is driven by demand from GPU power lines and 54V-to-12V DC/DC converters; magnetic material targets have an operating margin of about 35%; AI server connectors already account for about 30-40% of titanium copper sales.

  Weaknesses

  Some businesses are still in recovery or expansion stages, and tantalum capacitors were previously replaced by MLCCs and aluminum electrolytic capacitors in consumer electronics applications.

  Comparison

  The tantalum-niobium business is operated by TANIOBIS GmbH, and JX has about a 50% share in high-purity tantalum.

  Risks

  AI server demand, product pricing, expansion pace, and changes in substitute technologies will affect profit realization.

Key data

• RatingEqual-weightRating maintained.
• Target price¥4,300Previous value ¥3,800; based on F3/28e EPS of ¥197 and a 22.0x blended SOTP P/E.
• Current share price¥4,398Closing price on 2026-06-30.
• Implied upside/downside to target priceApproximately -2%The report table shows upside/downside as (2).
• F3/27 operating profit forecast¥243bnRaised from ¥235bn; up 38.9% year over year, broadly in line with consensus of about ¥240bn.
• F3/28 operating profit forecast¥260bnRaised from ¥253bn; up 7% year over year, broadly in line with consensus of about ¥260bn.
• F3/29 operating profit forecast¥288bnNew forecast; up 10.8% year over year, roughly equal to consensus of ¥286bn.
• F3/28e EPS¥197Valuation base for the target price.
• InP substrate operating profit trajectoryF3/26 ¥1.5bn; F3/27 ¥3.9bn; F3/28 ¥7.1bn; F3/29 ¥18.4bn; F3/31 ¥70bnThe report believes the contribution from existing capacity expansion will only be fully reflected by F3/31.
• AI-related product operating profitApproximately ¥15bn, ¥23bn, ¥34bn, ¥57bnCorresponding to F3/26, F3/27, F3/28, and F3/29, respectively; about 40% of the company's total operating profit increase comes from sales expansion of AI-related products.
• Semiconductor materials business valuation multiple41.2x P/EInP substrates 48x, other semiconductor businesses 35x.
• Market capitalization¥4,073.1bnDisclosed on the report's front page.

Impact & implications

The report takes a balanced view of the investment implications: JX Advanced Metals has medium- to long-term growth exposure to AI data centers, optical communications, advanced logic, HBM, and CPO, with InP substrates in particular potentially growing from a small business into an important part of semiconductor materials profit; however, when using F3/28 as the valuation base, InP profit contribution remains relatively limited, and the share price has already rebounded quickly due to the expansion announcement and AI theme, so the risk-reward profile is insufficient to support a more positive rating.

Risks

• Tight supply and demand for InP substrates may ease due to large-scale capacity expansion by JX and its peers, causing prices and margins to fall short of expectations.
• There are risks to indium raw material supply, especially after China implemented export licensing for indium, gallium, and germanium, which may affect Japan's procurement chain.
• If semiconductor market growth is weaker than expected, sputtering target sales and profit growth from AI-related products may slow.
• The current share price has already rapidly reflected the InP capacity expansion and AI theme; if short-term earnings delivery is insufficient, valuation may come under pressure.
• Copper prices, TC/RC, exchange rates, and inventory effects may cause earnings volatility in the base materials business.
• ENEOS stake sales, convertible bonds, and market liquidity expectations may continue to affect share price sentiment.

What to watch

• The progress, yield, and actual shipment pace of InP substrate capacity expansion in the Isohara and Hitachinaka areas.
• Whether demand for optical transceivers, CPO external light sources, and AI data centers continues to outpace supply expansion.
• Whether InP substrate ASPs can rise to more than three times the level from F3/26 to F3/31 as assumed in the report.
• The status of indium raw material procurement, recycling network development, and securing supply sources outside China.
• The linkage between semiconductor sputtering target sales and silicon wafer shipment area, advanced logic, and HBM demand.
• The sustainability of copper price premiums, TC/RC improvement, and the base materials business contribution to earnings upgrades in F3/27-F3/29.
• Whether the company adopts more flexible buybacks or capital efficiency enhancement measures, which could become catalysts for a more positive rating.