Strong semiconductor orders at Ulvac, but broad margin recovery may be delayed until 2H6/27

Overview

This report summarizes the key takeaways from Goldman Sachs' morning call with Ulvac's IR team on 2026-05-21, focusing on the FY6/26 guidance cut, order trends across major product lines, and the company's view on FY6/27 earnings. The core conclusion is that the FY6/26 earnings cut was mainly driven by one-off factors, while orders for high-margin products such as semiconductor equipment and rare-earth-related equipment are building, potentially raising market expectations for margin improvement after FY6/27. That said, low-margin sales from display-related equipment will continue into 1H6/27, and a surge in semiconductor orders has also lengthened lead times, so the timing of a full gross margin recovery still needs to be watched.

Core views

Goldman Sachs maintained its Buy rating on Ulvac. FY6/26 full-year operating profit guidance was lowered by ¥9.5bn to ¥19bn, of which ¥5.8bn was attributable to one-off factors, including delayed sales recognition into FY6/27 due to customer acceptance timing, bad debt provisions and cancellation costs related to power semiconductor equipment, and higher costs from inspection equipment failures in the materials business. The order picture is more positive: full-year order guidance was raised to ¥310bn, with strong demand in memory, logic, and advanced packaging among semiconductor-related areas, while orders for rare-earth-related equipment also remain solid. The company sees the starting point for FY6/27 earnings discussion at slightly below ¥23bn, with a better environment for margin expansion. However, because strong FY6/26 display equipment orders will continue to be recognized as revenue in 1H6/27, a full gross margin recovery may have to wait until 2H6/27.

Analysis framework

The report uses a conference-call-minutes style analytical framework: first breaking down the components of the FY6/26 operating profit guidance cut and separating one-off factors from operating factors; then organizing order trends by product area, including memory, logic, advanced packaging, power semiconductors, display, electronic components, and rare-earth-related equipment; and finally deriving the FY6/27 earnings discussion starting point by adding back one-off factors to the FY6/26 guidance and deducting the impact of business transfers, while assessing the margin recovery path based on order mix, revenue recognition timing, and production lead times.

Methodology notes

• Valuation methodEV/EBITDA relative valuation

  Target price based on FY6/27E-FY6/28E earnings and 18x EV/EBITDA

  Goldman Sachs uses an 18x EV/EBITDA multiple based on the global SPE sector average and notes that the resulting target price implies 19x FY6/27E P/E and 2.3x P/B. It also applies a 50% sector-relative discount to reflect Ulvac's recent valuation trend and uncertainty around its China business.

• Earnings bridge analysisAdd-back of one-offs and deduction of business transfer

  Deriving the FY6/27 earnings discussion baseline from FY6/26 guidance

  Using FY6/26 operating profit guidance of ¥19bn as the base, the company adds back ¥5.8bn in one-off factors to arrive at slightly below ¥25bn, then subtracts roughly ¥30bn in sales and about ¥2bn in operating profit lost due to business transfers and other reforms, resulting in a FY6/27 earnings discussion starting point of slightly below ¥23bn.

• Risk methodPrice Target Risks

  Target price risk identification

  The report identifies delayed order timing leading to slower-than-expected margin improvement, a larger-than-expected slowdown in FPD capex, and deterioration in the market environment for non-core businesses as key risks.

Asset mapping & comparison

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

• Ulvac (6728.T)

  Covered company and buy-rated name in the report

  Strengths

  Accumulating orders in semiconductors, advanced packaging, and rare-earth-related equipment; a higher share of high-margin products should support margin recovery after FY6/27.

  Weaknesses

  FY6/26 operating profit guidance was cut, and near-term results remain affected by low-margin display equipment revenue recognition and some one-off costs.

  Comparison

  Valuation uses the global SPE sector average of 18x EV/EBITDA as the benchmark, but a 50% sector-relative discount is applied due to recent valuation trends and uncertainty in the China business.

  Risks

  Slower-than-expected margin improvement, a larger-than-expected slowdown in FPD capex, and deterioration in the market environment for non-core businesses.

• Semiconductor equipment orders

  Core driver of Ulvac's medium-term margin improvement

  Strengths

  Memory, logic, and advanced packaging orders were raised; DRAM investment in North America, MHM process investment in China, and advanced packaging investment by Taiwan foundries are the sources of demand.

  Weaknesses

  The surge in orders has extended production lead times, making it harder to receive orders and recognize revenue in the same FY6/27 period.

  Comparison

  Compared with display equipment, semiconductor equipment is described as a higher-margin product group.

  Risks

  Delayed order recognition, insufficient allocation of production capacity, or slower customer investment.

• Display equipment business

  A drag on short-term gross margin improvement

  Strengths

  Strong FY6/26 orders still provide revenue contribution.

  Weaknesses

  Margins are relatively low, and related sales are expected to continue into 1H6/27, delaying a full gross margin recovery for the company.

  Comparison

  FY6/27 display order outlook is about ¥40bn, below FY6/26's ¥70bn.

  Risks

  A larger-than-expected slowdown in FPD capex.

• Rare-earth-related equipment

  An important incremental contributor to high-margin orders and the general industrial segment

  Strengths

  FY6/26 order guidance is ¥18bn, with annual order expectations of about ¥15-20bn in the future, which should help margin improvement.

  Weaknesses

  The demand outlook depends on subsidy policies in various countries, especially the United States.

  Comparison

  The broader general industrial segment has annual order expectations of about ¥35-45bn.

  Risks

  Changes in subsidy policies or a slower-than-expected project pace.

Key data

• FY6/26 operating profit guidance¥19bnCut by ¥9.5bn from the previous ¥28.5bn.
• Impact of one-off factors¥5.8bnIncludes delayed sales recognition, bad debt provisions and cancellation costs, and costs related to inspection equipment failures in the materials business; the company said these are unlikely to persist into FY6/27.
• Latest FY6/26 full-year order guidance¥310bnRaised by ¥30bn from the ¥280bn guidance at 2Q results.
• FY6/27 earnings discussion starting pointslightly below ¥23bnDerived by adding back one-off factors to FY6/26 operating profit guidance and then deducting the impact of business transfers and other reforms.
• FY6/27 display equipment order outlookabout ¥40bnBelow FY6/26's ¥70bn, but strong FY6/26 orders may still be recognized as revenue in 1H6/27.
• FY6/26 order guidance for rare-earth-related equipment¥18bnFuture demand depends on subsidy policies in various countries, especially the United States; the company expects annual orders of about ¥15-20bn.
• Semiconductor production lead timeextended by about 2-3 months from the usual roughly 6 monthsDue to some unplanned orders in the semiconductor segment, the company is allocating production capacity slots.
• 12-month target price¥12,000Based on FY6/27E-FY6/28E earnings and 18x EV/EBITDA.

Impact & implications

For Ulvac, the near-term earnings cut may weigh on market confidence, but a meaningful portion of the downgrade is attributable to one-off factors, while improving orders for semiconductors, advanced packaging, and rare-earth-related equipment strengthen the case for margin recovery in the medium term. The investment implication is that share price performance will depend more on whether the order mix can be successfully converted into high-margin revenue, whether low-margin display equipment revenue fades as expected, and whether FY6/27 can match order intake with revenue recognition in the context of longer lead times. If recognition of high-margin equipment revenue is delayed or if FPD capex slows again, the path to the target price will come under pressure.

Risks

• Delayed order timing leads to slower-than-expected margin improvement.
• A larger-than-expected slowdown in FPD capex.
• Deterioration in the market environment for non-core businesses.
• Continuation of low-margin display-related revenue into 1H6/27, delaying a full gross margin recovery for the company.
• The surge in semiconductor orders extends production lead times and may affect the matching of FY6/27 orders and revenue recognition.
• Uncertainty around Ulvac's China business may weigh on valuation.

What to watch

• Whether semiconductor, advanced packaging, and logic equipment orders continue to rise in FY6/27.
• Whether display equipment revenue declines as expected after 1H6/27 and whether gross margin begins to improve broadly.
• Whether longer semiconductor lead times affect the pace of revenue recognition.
• Whether power semiconductor orders recover or remain weak.
• Whether rare-earth-related equipment orders are supported by subsidy policies in the U.S. and other countries.
• Whether the company can deliver incremental profit through product-mix improvement after setting FY6/27 earnings as a baseline slightly below ¥23bn.