WinWay Technology: Expansion Plans Underpin Strong Growth; Target Price Raised to RMB 15,000

Overview

Morgan Stanley has issued a report reaffirming its “Overweight” rating on WinWay Technology Co., Ltd. (6515.TW) and raising the target price by 25% from NT$12,000 to NT$15,000. The research notes highlight that the company’s aggressive capacity‑expansion plan, rising component self‑sufficiency, rapid growth in MEMS probe cards, and the upside potential from CPO/Hypersocket all underpin strong revenue visibility through 2030. The firm expects the company’s revenue to post a compound annual growth rate of over 50%–60% in the coming years, with EPS CAGR reaching 111% from 2025 to 2028.

Core views

Capacity expansion and vertical integration are the core drivers. Management plans to significantly ramp up Pogo Pin production, with monthly output expected to reach 9 million units by the end of 2026 and 14 million units by the first half of 2027, largely supported by the commissioning of Plants 1 and 2 in Renwu. Currently, the self-sufficiency rate for Pogo Pins stands at around 35%–45%, with a long-term target of 50%–60%. The research report notes that vertical integration not only shortens production lead times to enable agile responsiveness to AI‑cycle dynamics but also reduces socket costs by leveraging in‑house‑produced pins, thereby helping to sustain gross margins above 45% and potentially pushing them toward 50%. Clear growth catalysts lie in new business segments: MEMS and CPO. The company’s MEMS probe card project in collaboration with Technoprobe is progressing smoothly, with demand expected to double year on year in 2026 and to benefit further from TSMC’s capacity expansions in advanced process nodes. In addition, the company has begun shipping CPO equipment and test sockets; while full supply-chain maturity is not anticipated until 2028, its Hypersocket products—designed for high‑speed, large‑package AI and HPC applications—are projected to contribute 5% of revenue in 2027. These new product lines, underpinned by higher pin counts and the trend toward higher‑specification migration, are driving both average selling prices (ASPs) and margin expansion. Financial performance and valuation rationale. First‑quarter 2026 results exceeded expectations, with the North American market accounting for 81% of revenue, primarily fueled by AI demand. Contract liabilities increased 7.6% quarter over quarter and 71% year over year, now equivalent to 10% of revenue, reflecting rising customer prepayments and enhancing visibility into future earnings. On this basis, the firm has raised its 2027 and 2028 profit forecasts by 13% and 26%, respectively. Although the 2028 gross margin assumption was modestly lowered to factor in the ramp‑up phase of the MEMS business, economies of scale are still expected to boost operating margins. The current share price trades at 73 times 2027 estimated EPS and 34 times 2028 estimated EPS.

Analysis framework

The research report employs a bottom-up fundamental analysis framework, with a focus on tracking the company’s capacity utilization, changes in its self-sufficiency ratio, and the penetration rate of new products. First, by disaggregating the capacity expansion plan—Renwu Facilities 1 and 2—and its timeline, we quantify future supply capacity and, combined with the self-sufficiency target, derive a pathway for margin improvement, factoring in the cost differential between in-house and outsourced lead frames. Second, we use contract liabilities as a leading indicator to validate order visibility and the certainty of future revenue. Finally, for valuation, we adopt the Residual Income Model (RIM) rather than the conventional P/E multiple, in order to better capture the company’s long-term value creation. The RIM parameters include a cost of equity of 9.14%, a dividend payout ratio of 80%, a mid‑term growth rate of 16.4%, and a terminal growth rate of 4.5%.

Methodology notes

• Valuation MethodologyRIM Residual Income Model

  Residual Income Model

  A valuation method based on book value and excess earnings, it calculates the present value of a company’s future earnings that exceed its cost of capital. Compared with the P/E ratio or DCF, the RIM places greater emphasis on the balance sheet and long-term profitability, making it well suited for evaluating high-growth firms with stable capital structures and better able to capture long-term value.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  The Impact of Vertical Integration on Gross Profit Margin

  The research report analyzes the positive impact of the company’s increased self-sufficiency in key components (Pogo Pins) on its gross margin. By shifting production from outsourcing to in-house manufacturing, the company can better control costs and reduce its reliance on external suppliers, thereby achieving higher marginal profits as it scales up—exemplifying a classic operating leverage effect.

• Industry/ Sector Analysis FrameworkSupply-and-Demand Framework

  Demand driven by the increased packaging complexity of AI/HPC chips

  The research report notes that the increasing package sizes and pin counts of AI and high-performance computing (HPC) chips are driving a structural rise in demand for advanced test sockets—such as Hypersocket—and probe cards. This represents a quintessential example of industry‑cycle analysis driven by technological iteration, where supply‑side capabilities align with demand‑side upgrades.

Asset mapping & comparison

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

• WinWay Technology Co., Ltd. (6515.TW)

  Key beneficiaries. As the leader in test sockets, the company stands to gain directly from the surge in demand for AI chip testing and its own capacity expansion.

  Strengths

  A globally leading manufacturer of test sockets; an aggressive capacity-expansion plan; vertical integration driving margin improvement; and a pioneering position in the emerging MEMS and CPO businesses.

  Weaknesses

  Valuations are currently elevated; the early-stage ramp-up of the MEMS business may temporarily weigh on gross margins.

  Risks

  Hypersocket and MEMS probe cards are being adopted at a slower pace than anticipated; the rollout of SLT and burn-in sockets has been delayed; and demand for edge AI remains muted.

Key data

• Target PriceNT$15,000Upgraded from the previous target price of NT$12,000 by 25%.
• Pogo Pin Capacity Planning9 million/month (2026E), 14 million/month (1H27E)Primarily from the expansion of the Renwu plant.
• Long-term self-sufficiency target50-60%Currently around 35–45%, with the aim of improving gross margin.
• Growth rate of contract liabilities+71% YoYAccounting for 10% of revenue, this indicates strong revenue visibility.
• 2025-2028 EPS CAGR111%High compound growth rate projected by institutions
• Hypersocket’s revenue contribution~5% (2027E)New products addressing the high-speed, large-package requirements of AI and HPC applications

Impact & implications

The research report concludes that WinWay Technology is a key beneficiary of the increasing complexity and rising pin counts in AI/HPC chip packaging. With the adoption of Hypersocket technology and growing demand for SLT and burn-in testing, the company is poised to achieve sustained growth in average selling price (ASP) and profit margins. Its vertically integrated business model not only enhances supply-chain resilience but also improves earnings quality through cost advantages. For investors, this translates into exceptionally high growth certainty over the coming years; although current valuation multiples remain elevated—trading at 73x 2027 P/E—the strong growth outlook helps offset some of the valuation pressure.

Risks

• The market adoption rate for hypersockets and MEMS probe cards has been slower than anticipated.
• Customer adoption of SLT (System-Level Testing) and burn-in (aging) sockets has been slower than anticipated.
• In the coming years, demand for edge AI has failed to materialize as expected.
• Enhanced customer bargaining power has driven the gross margin below 40% (bear-market scenario).

What to watch

• The production ramp-up progress and capacity utilization rate of Renwu Facility 2.
• The actual improvement in the self-sufficiency rate of pogo pins and its specific impact on gross margin.
• The production scale of the mass‑production project in collaboration with Technoprobe for MEMS probe cards.
• The actual revenue contribution share of CPO/Hypersocket products in 2027.
• Monitor order visibility by tracking changes in quarterly contract liabilities.