Nomura Upgrades ITEQ to Buy, Target Price TWD 472

Overview

Nomura Securities issued a research report upgrading the rating for Taiwan-based Copper Clad Laminate (CCL) manufacturer ITEQ (6213.TW) from "Neutral" to "Buy," significantly raising the target price from TWD 293 to TWD 472, implying an upside of approximately 21.3%. The report argues that the company's fundamentals have improved significantly, driven by opportunities to gain market share from spillover demand in AI servers, successful product price transmission, and product mix optimization, pushing gross margins toward historic highs. Meanwhile, the company announced a new expansion plan in Wuxi, providing support for mid-to-long-term growth. Based on stronger profitability expectations, Nomura has significantly revised its EPS forecasts for the next three years upward.

Core views

Performance and Earnings Forecasts Significantly Revised: ITEQ's gross margin in Q2 2026 reached 22%, increasing by 10.6 percentage points quarter-on-quarter (QoQ) and 6.4 percentage points year-on-year (YoY), exceeding both market and Nomura's previous expectations. The report estimates that the company's average selling price (ASP) increased by 25%-30% QoQ in that quarter, and expects ASP to grow by another ~20% in Q3, driving Q3 revenue to grow 22% QoQ and further pushing gross margins to a record high of 25.2%. Based on the effectiveness of pricing strategies and improved product mix, Nomura significantly adjusted its EPS forecasts for 2026/2027/2028 upward from TWD 8.2/11.7/13.8 to TWD 16.7/26.2/27.4. It also forecasts gross margins of 22.4% and 24.1% for 2026/2027, far higher than the 14.5% recorded in 2025. Demand Spillover and Market Share Opportunities: In the AI server sector, as leading competitors' AI project pipelines are nearing saturation, ITEQ, one of Taiwan's top three CCL suppliers, is well-positioned to absorb spillover demand, particularly in the rapidly growing general-purpose server market (currently dominated by M6 grade materials). The report notes that while there remains an approximate 25% shortage in E-glass raw material supply, limiting the revenue ceiling, the company is maximizing profit elasticity through price increases and product mix optimization, leveraging its technical advantages and cost competitiveness in low-to-medium loss materials. This enables stronger profitability performance against the backdrop of industry shortages. Capacity Expansion and Valuation Logic: The company announced an investment of RMB 2.13 billion between 2026 and 2029 to build a new factory in Wuxi, expected to commence production in 2027. Upon full capacity realization in 2029, monthly capacity will reach 2.85 million sheets. Combined with the May announcement of a Thailand factory expansion (adding 600,000 sheets per month), these two projects will increase total capacity by 60% compared to end-of-2026 levels. Regarding valuation, the new target price of TWD 472 is based on a 18x P/E multiple applied to the 2027 forecast EPS of TWD 26.2. This multiple sits at the mean level of the company's historical trading range of 8-36x since 2020. Although the multiple was reduced from the previously used 25x to reflect medium-term uncertainties regarding the utilization rates of new Wuxi and Thailand capacities, strong earnings growth continues to support the significant upward revision in the target price.

Analysis framework

The report adopts a 'volume-price decomposition + competitive landscape analysis' framework. First, by analyzing the better-than-expected quarterly gross margin performance, it breaks down price increases (ASP up 25-30%) as the core driver, rather than relying solely on shipment volumes. Second, combining current industry supply and demand dynamics, it judges that leading manufacturers' capacities are occupied by high-end AI projects, thereby deriving the logic that ITEQ will reap the benefits of 'demand spillover' in secondary high-end markets such as general-purpose servers. Finally, in terms of valuation, it employs a historical P/E range method, selecting the historical mean as the target multiple. This approach acknowledges the structural improvement in profitability while applying a slight discount to the multiple to account for execution risks associated with new capacity, reflecting a cautiously optimistic pricing strategy.

Methodology notes

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Price Transmission and Profit Margin Elasticity

  When a company possesses pricing power, increases in product selling prices translate directly into gross margin expansion. In this report, ITEQ successfully raised prices by 25-30% against the backdrop of raw material shortages, with price hikes exceeding cost increases. This demonstrates its bargaining power and profit elasticity in specific niche markets, which is the core basis for institutions upgrading earnings forecasts.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Demand Spillover Effect

  When industry supply is constrained or leading players' capacities are saturated, sub-optimal suppliers often absorb unmet demand. The report points out that orders for leading AI server CCL manufacturers are fully booked, causing demand for general-purpose servers to spill over to ITEQ. This passive share gain, resulting from competitors' capacity bottlenecks, is an important perspective for analyzing investment opportunities in cyclical manufacturing industries.

• Valuation MethodPE/PEG valuation

  Historical Valuation Range Anchoring

  For cyclical growth stocks with volatile earnings, institutions often refer to their own historical P/E ranges for relative valuation. This report selects the mean of ITEQ's 8-36x P/E range since 2020 (18x) as the target multiple. This both acknowledges the positive fundamental trend and avoids assigning historical peak valuations, thereby balancing growth expectations with uncertainties surrounding new capacity deployment.

Asset mapping & comparison

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

• ITEQ (6213.TW)

  Core Beneficiary: Recipient of AI server CCL demand spillover, smooth price transmission, release of profit elasticity

  Strengths

  Top three CCL manufacturers in Taiwan; leading technology in low-to-medium loss materials; strong cost competitiveness; solid market share in Intel platforms

  Weaknesses

  Approximate 25% shortage in E-glass raw material supply limits the revenue ceiling; uncertainty in new capacity execution

  Comparison

  Compared to peer Elite Material (2383.TW), ITEQ demonstrates stronger profit elasticity and market share acquisition opportunities in the current cycle

  Risks

  Server/automotive/consumer electronics demand falling short of expectations; unexpected loss of market share in server/automotive sectors; RCC R&D progress lagging behind schedule

Key data

• 2Q26 Gross Margin22%QoQ +10.6pp, YoY +6.4pp, exceeded market expectations
• 3Q26F Gross Margin Forecast25.2%Expected to hit a record high, continuing QoQ improvement
• 2026F/2027F/2028F EPS16.7 / 26.2 / 27.4 TWDSignificantly revised up from original forecasts (8.2/11.7/13.8 TWD)
• Target PriceTWD 472Based on 18x 2027F EPS, a 61% increase from the previous target price of TWD 293
• Wuxi New Plant InvestmentCNY 2.13 BillionInvestment from 2026-2029; production starts in 2027; full capacity adds 2.85 million sheets per month
• Capacity Increase Magnitude+60%Combined increase in capacity from Wuxi and Thailand projects compared to end-of-2026 levels

Impact & implications

For ITEQ, the rating upgrade and significant upward revision of earnings forecasts imply a re-evaluation of its position within the AI supply chain. In the short term, price dividends and demand spillovers will drive explosive业绩 growth. In the mid-to-long term, if new capacity layouts in Wuxi and Thailand can be smoothly absorbed, they will further consolidate its market share in the global CCL market. However, the report also warns that the ramp-up pace of new capacity heavily depends on raw material supply conditions and customer certification progress, which constitutes the main source of uncertainty for mid-term valuations. The current stock price corresponds to a forecast P/E ratio of only 15x for 2027, lower than the 18x target multiple, indicating that there is still room for valuation repair even after earnings revisions.

Risks

• Terminal demand for servers, automobiles, or consumer electronics weaker than expected
• Unexpected loss of market share in the server or automotive CCL markets
• RCC (Resin Coated Copper Foil) technology development progressing slower than expected
• Macroeconomic slowdown or significant rises in raw material prices eroding profits
• Ramp-up of new Wuxi and Thailand factories and customer certification falling short of expectations

What to watch

• Whether the tight supply situation for E-glass raw materials eases or intensifies
• Progress of the Wuxi new plant construction and yield rates/customer validation post-production start in 2027
• Execution of the Thailand factory expansion project and the pace of customer introduction
• Subsequent quarterly ASP trends and whether gross margins can maintain high levels
• Actual pulling intensity for M4/M6 grade CCL in the general-purpose server and AI server markets