Goldman Sachs maintains a Neutral rating on E-Town Semis, raises the target price, but believes the positives are already reflected

Overview

Goldman Sachs maintains a Neutral rating on E-Town Semis in this report. The core view is that the company is positioned to benefit from China's semiconductor supply chain, with domestic storage and advanced-node capacity expansion, high-end server DRAM demand from generative AI, and supply-chain switching to Chinese suppliers all helping to drive revenue growth and improve profitability. At the same time, the report also believes these positive factors are largely already reflected in the current stock price.

Core views

Goldman Sachs remains bullish on Chinese semiconductor supply chain cyclical strength, especially strengthening domestic customer demand, product mix upgrading toward higher-end applications, and capex opportunities brought by domestic storage and advanced-node expansion. For E-Town Semis, the stronger-than-expected 1Q26 gross margin indicates improving earnings quality, while below-expectation revenue reflects that new product ramp-up still needs time. From a valuation perspective, although the target price was raised to Rmb32.9, current valuation is above the target multiple, supporting a Neutral rating rather than an upgrade.

Analysis framework

The report uses a method combining earnings revisions and relative valuation: first incorporating 4Q25 and 1Q26 performance, then adjusting 2026-2028 assumptions for revenue, gross margin, expense ratio, and net profit; then rolling the valuation anchor to 2027E and deriving a target P/E and 12-month target price using the relationship between peer 2027E P/E and 2027-2028E average EPS growth.

Methodology notes

• Valuation methodsnear-term P/E

  Near-term P/E valuation

  Goldman Sachs rolled the valuation anchor to 2027E and derived E-Town Semis' target P/E using the relationship between peers' P/E and EPS growth.

• Valuation methodsPEG comparison

  PEG relative comparison

  The report notes the new implied PEG is about 1.3x, within the peer range of 0.9x to 1.8x.

• factor_profileGS Factor Profile

  GS Factor Profile

  This framework compares a stock's relative characteristics versus the market and industry peers across four attributes: Growth, Financial Returns, Multiple, and Integrated.

Asset mapping & comparison

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

• E-Town Semis (688729.SS)

  covered name

  Strengths

  Benefits from domestic storage and advanced-node capacity expansion in China; supply-chain switching to Chinese suppliers may drive revenue growth and gross margin improvement; 1Q26 gross margin exceeded 40% for three consecutive quarters.

  Weaknesses

  1Q26 revenue was below Goldman Sachs expectations, with new product ramp-up taking longer than expected; current valuation is above target P/E.

  Comparison

  Current 2027E P/E is 57.9x, above Goldman Sachs' target P/E of 49.9x; implied PEG is 1.3x, within the peer range of 0.9x to 1.8x.

  Risks

  Changes in the pace of Chinese semiconductor capex expansion, changes in competitive intensity, and the ramp-up speed of RTP and dry etch equipment shipments.

Key data

• ratingNeutralGoldman Sachs maintains a Neutral rating.
• 12-month target priceRmb32.9Previously Rmb28.9.
• current priceRmb37.57E-Town Semis price shown in the report disclosure page.
• 2026E net profit revision-5%Mainly due to lower revenue expectation.
• 2027E net profit revision+4%Benefiting from expectations of storage and advanced-node capacity expansion.
• 2028E net profit revision+6%Reflecting subsequent revenue and gross margin improvement.
• target P/E49.9xPreviously 45.9x.
• current 2027E P/E57.9xAbove Goldman Sachs' target P/E, supporting the view that positives are already reflected.
• implied PEG1.3xWithin peer range of 0.9x to 1.8x.
• gross margin performanceabove 40% for three consecutive quarters1Q26 gross margin was above Goldman Sachs' expectation.

Impact & implications

The investment implication of this report for E-Town Semis is balanced: fundamental trends benefit from higher Chinese semiconductor capex, domestic supply-chain switching, and high-end storage demand, while short-term revenue pressure remains from slower new product ramp-up, and valuation has already priced in much of the growth expectations. Therefore, the report emphasizes structural improvement in earnings forecasts and a higher target price rather than a rating upgrade.

Risks

• Chinese semiconductor capex expansion accelerates faster or slower than expected.
• Competitive intensity is weaker or stronger than expected.
• The ramp-up speed of RTP and dry etch equipment shipments is faster or slower than expected.
• New product ramp-up continues to lag revenue realization.
• Current valuation already reflects storage and advanced-node expansion benefits to a large extent.

What to watch

• The pace of domestic Chinese storage and advanced-node capacity expansion.
• Changes in server DRAM demand and AI-related high-end application demand.
• E-Town Semis new product ramp progress and order conversion.
• Whether gross margin can continue to stay above 40%.
• The actual contribution of supply-chain localization to cost, gross margin, and revenue growth.
• Whether continued re-rating versus peers of 2027E P/E will continue to support the target multiple.