NSIG expands capacity and sees strong Photonics SOI demand, but Goldman Sachs considers valuation too high

Overview

This report is an update to Goldman Sachs' company research on NSIG, focusing on 300mm wafer capacity expansion, Photonics SOI demand, earnings revisions, and valuation. The report believes the company is advancing 300mm capacity at its Shanghai and Taiyuan manufacturing bases and benefits from domestic Chinese memory, advanced logic, and photonics customers, but valuation already reflects growth expectations fairly fully.

Core views

The core view is that fundamentals are improving, but the investment rating remains relatively negative. Positive factors include 300mm wafer expansion, a higher share of Prime wafers and high-end applications, and Photonics SOI demand supported by generative AI-related optical communication demand. The negative callout is mainly valuation: Goldman Sachs derives a Rmb17.10 target price using a 2027E target P/E of 59.6x, while the stock currently trades at roughly 17x forward P/S, versus an implied 2027E P/S of about 8x at the target price.

Analysis framework

The report applies earnings revisions and a relative valuation framework: it first adjusts 2027/2028 earnings forecasts based on changes in 300mm wafer revenue, product mix, and gross margin, then references global comparable-company P/E relationships with net profit growth to determine the 2027E target P/E multiple and derive the 12-month target price.

Methodology notes

• Valuation methodsTarget P/E valuation

  Deriving 12-month target price based on 2027E target P/E

  Goldman Sachs raised the target price from Rmb15.0 to Rmb17.1, using a 59.6x 2027E target P/E, up from 54.0x previously, based on semiconductor-capacity-driven supply-chain re-rating in China and higher NSIG net profit growth expectations.

• Factor frameworkGS Factor Profile

  Comparison across growth, financial returns, valuation multiples, and composite factors

  GS Factor Profile compares the stock with the market and peers across growth, financial returns, valuation multiples, and composite indicators to provide investment context.

• M&A assessmentM&A Rank

  Acquisition probability scoring

  Goldman Sachs uses the M&A framework to rate the acquisition likelihood of covered companies on a three-point scale. The methodology is disclosed, but the report does not show a specific NSIG M&A score in the main text.

Asset mapping & comparison

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

• 688126.SS

  Research subject

  Strengths

  Continued expansion of 300mm wafer capacity, coverage of major Chinese memory and logic customers, higher share of Prime wafers and high-end applications, and Photonics SOI verified with multiple customers while benefitting from optical communication demand.

  Weaknesses

  Short-term pressure remains for 200mm wafers, valuation is considered high, and the current trading P/S is clearly above the implied level at the target price.

  Comparison

  The target price implies a 2027E P/S of about 8x, while current trading P/S is around 17x; target P/E was raised from 54.0x 2027E to 59.6x 2027E.

  Risks

  Higher-than-expected customer demand, lower-than-expected depreciation, faster yield improvement, or better-than-expected product mix could result in earnings and stock performance exceeding expectations.

Key data

• 300mm wafer capacity target1.05m pcs/monthThe company aims to reach this level by end-2026.
• 300mm wafer capacity at end-2025800k pcs/monthServes as the base benchmark for the end-2026 expansion target.
• 2027/2028 earnings forecast revisions+3%/+4%The 2026E estimate is unchanged, while 2027E and 2028E earnings were revised higher.
• 2027/2028 gross margin forecast revisions+0.2/+0.4 percentage pointsReflects higher shares of Prime wafers and high-end applications.
• Target priceRmb17.10The prior target price was Rmb15.00.
• Current priceRmb36.40Price disclosed in the report table.
• Implied downside53.0%Based on a target price of Rmb17.10 versus a current price of Rmb36.40.
• Target P/E59.6x 2027EPreviously 54.0x 2027E P/E.
• Target price implied P/S8x 2027EBelow the company’s current roughly 17x trading P/S.

Impact & implications

For investors, the report separates industry trends from equity return implications: 300mm wafers, memory/logic customer expansion, and Photonics SOI demand support mid-term improvement in revenue and profit. Under Goldman Sachs' framework, however, the current share price is already well above target, and valuation pressure offsets the fundamental improvement.

Risks

• Demand stronger than expected could lift ASPs and revenue growth.
• Lower-than-expected depreciation could lead to higher gross margins.
• Faster yield improvement or a better-than-expected product mix could drive faster profit ramp than expected.
• If the pace of expansion in China's semiconductor sector or Photonics SOI customer validation progress is slower than expected, revenue and profit improvement may fall short of forecasts.

What to watch

• Whether 300mm wafer capacity can reach 1.05 million units per month by end-2026.
• Ramp progress at the Taiyuan production base and its contribution to profitability.
• Validation progress and mass production pace of Photonics SOI products across multiple customers.
• Changes in the share of Prime wafers and high-end applications and their impact on gross margin.
• Whether the current high P/S valuation can be absorbed by revenue and earnings growth.