JPMorgan has released a research report stating that demand in China's semiconductor equipment sector is accelerating notably, and after the sector experienced a roughly 15% interim pullback, the bank maintains a positive view on China's semiconductor equipment sector.
The report notes that the three key pillars supporting the sector's strength are very clear: first, the AI thesis and extended testing times for power and analog chips benefit testing equipment suppliers; second, upside surprises in memory capital expenditure and the localization of advanced logic drive growth in WFE manufacturers' backlog orders; third, concerns that competition will drag down margins are overstated, as the shift toward high-end products, recovering customer profitability, and the large-scale substitution of domestic components continue to unlock profit upside.
On the margin front, the bank believes that worries about competition compressing margins have persisted for more than a year and have weighed on sector valuations, but are overstated, because leading companies' revenue is shifting toward high-end equipment and applications, improving profitability at memory customers is easing pricing pressure, and tight global supply is driving large-scale adoption of domestic components, opening up incremental profit room.
On specific stock selection, JPMorgan assigns an Overweight rating to Huafeng Test & Control with a target price of RMB 234, naming it the top pick under the testing equipment theme, mainly due to power and analog testing demand, logic testing catalysts, and business progress closely tied to OSAT utilization rates and AI power testing.
At the same time, the bank is bullish on Naura and assigns it an Overweight rating with a target price of RMB 830, primarily because of its dominant position in advanced logic, its most comprehensive front-end platform, and a second growth axis formed by continuous breakthroughs with memory customers.
In addition, AMEC is listed as a memory and profit release candidate with a target price of RMB 420, as its leading market share in memory customers and applications means its high-end product mix upgrade will translate smoothly into further margin expansion as its deposition business ramps up rapidly.
Comments