Goldman Sachs Reiterates Buy on Ebara: Semiconductor Business Exceeds Expectations, Profitability Improvement Expected

Overview

This report is based on Goldman Sachs’ ‘Beyond the Cycle 2026’ seminar and focuses on analyzing Ebara, a Japanese semiconductor equipment manufacturer, examining its latest business environment, future growth drivers, and profitability outlook. The firm believes that despite cyclical fluctuations, Ebara possesses ample growth momentum in the semiconductor precision machinery sector, particularly benefiting from the continued expansion of AI-related semiconductor capital expenditures. The report reiterates a ‘buy’ rating, expects the company to raise its guidance in the upcoming second-quarter earnings release, and sees potential for multiple expansion.

Core views

Demand Side and Market Outlook: Driven by the ongoing expansion of AI semiconductor capital expenditures, demand for semiconductor equipment remains robust. Management anticipates that the WFE market’s growth trajectory in 2026–2027 will outpace the 8% annual average growth projected in its mid-term plan (2025–2028). With the completion of the new Kumamoto production facility, Ebara now has the capacity to meet recent strong demand. In China, although local CMP equipment manufacturers are gaining market share, as Chinese semiconductor spending shifts toward more advanced processes, Ebara is expected to maintain a meaningful share thanks to its technological advantages. Growth Drivers: Ebara has identified several factors that could enable its sales growth to outpace the WFE market. In CMP systems, first, the increasing number of metal film CMP steps—where Ebara excels, particularly in metal film measurement and cleaning technologies—and second, by enhancing polishing heads and optical endpoint detection, the company aims to capture market share in oxide film CMP systems. On the component side, as deposition and etching conditions become increasingly complex and space-saving requirements grow, demand for energy-efficient, compact-footprint equipment is rising; Ebara plans to launch products meeting these needs to expand its footprint. Additionally, the company seeks to leverage its technical strengths in edge-polishing bonding processes and plating-based packaging plating to increase its market share. Profitability Improvement: Management notes that, given the relatively higher profitability of CMP systems within the precision machinery segment, as their sales weight increases, the segment’s margins are expected to expand. For CMP systems, Ebara plans to raise average selling prices (ASPs) by promoting new-specification equipment that meets customers’ latest technical requirements and appropriately pass on recent cost increases to product pricing. In Service & Support (S&S), the company aims to improve profitability by boosting service contract capture rates and expanding its share of replacement parts—such as retainer rings and polishing heads—that add value as an equipment manufacturer.

Analysis framework

Goldman Sachs’ analytical framework centers on the theme of ‘beyond the cycle,’ combining top-down industry sentiment assessment with bottom-up analysis of the company’s micro-level drivers. First, through direct discussions with management, the firm confirmed the robust momentum in industry capital expenditures, especially the structural upside from AI, concluding that the company’s performance growth will outperform the sector average (generating alpha returns). Second, it dissected the product mix to identify how an increasing share of high-margin CMP systems is driving overall margin expansion—a classic ‘product mix optimization’ analysis. Finally, using valuation methods, it derived the target price via a PB-ROE correlation model, emphasizing the potential for multiple expansion as investor perceptions improve.

Methodology notes

• Valuation MethodPB valuation

  PB-ROE Correlation Valuation

  The report uses the historical correlation between price-to-book ratio (P/B) and return on equity (ROE) to determine the target valuation multiple. This approach is commonly applied to heavy-asset or cyclical industries, assuming that high ROE should correspond to a high P/B. In this case, based on projected average ROE for 2026–2027, a target P/B of 5.1 was derived.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  WFE Market Supply-Demand Analysis

  By analyzing downstream semiconductor manufacturers’ capital expenditures (demand) and equipment manufacturers’ capacity and technological supply (supply), the firm assesses industry conditions. The report notes that AI-driven Capex expansion has made demand stronger than supply expectations, supporting rapid industry growth.

• Company Fundamentals and Financial FrameworkProfit Quality Analysis

  Impact of Product Mix on Margins

  It examines how changes in the sales mix across different product lines—such as high-margin CMP systems versus lower-margin equipment—affect overall gross and operating margins. The report identifies a rising share of high-margin products as a key driver of profitability improvement.

Asset mapping & comparison

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

• Ebara (6361.T)

  Direct beneficiary, core supplier to the semiconductor precision machinery business

  Strengths

  Technological leadership in metal film CMP, Kumamoto’s new capacity meets demand, rising share of high-margin products

  Weaknesses

  Facing intensifying domestic competition in China, traditional oil and gas business affected by energy price volatility

  Comparison

  Compared with peers, it boasts higher technical barriers in the CMP sub-segment, though the full potential of its service business remains untapped

  Risks

  Downward turn in semiconductor capital expenditures, rise of Chinese competitors, slow adoption of new technologies

Key data

• 12-Month Target Price7,100 yenBased on the PB-ROE correlation model, implying a 2027 P/E of 24x and a P/B of 5.1x
• Current Stock Price6,694 yenAs of the close on June 18, 2026
• Implied Upside6.1%The premium of the target price over the current stock price
• Expected EPS for 2026246.4 yenGoldman Sachs forecast
• Expected EPS for 2027293.1 yenGoldman Sachs forecast
• Expected P/B for 20265.3xGoldman Sachs forecast

Impact & implications

The report suggests that Ebara’s performance growth may outpace the overall WFE market, a rare outcome in the current environment. As investors’ understanding of the company’s fundamentals deepens, there is significant room for multiple expansion. For investors, the focus should shift from mere cyclical fluctuations to the quality-of-earnings improvements driven by the company’s structural growth engines—such as penetration into advanced processes and the rising share of service operations.

Risks

• Entry of semiconductor capital expenditures into a downturn phase
• Increased competitiveness of Chinese CMP system manufacturers
• Slow adoption of new semiconductor device technologies
• Decline in crude oil/LNG prices
• Falling refining/petrochemical margins

What to watch

• Whether the guidance for orders, sales, and profits in the precision machinery business will be raised in the second-quarter earnings report
• Continued strength of AI semiconductor capital expenditures
• Sales progress of new-specification CMP systems and developments in ASP increases
• Changes in the contract capture rate and replacement part share within the Service & Support (S&S) business