260630_citi_ABF-BT

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Taiwan PCB & Laminates

ABF/BT Sector: GM/pricing Upcycle Underway; Buy with Higher TPs

CITI'S TAKE

Both ABF and BT substrate demand are rising on AI applications. With rising AI GPU/ASIC/CPU demand, we expect the ABF supply tightness to continue throughout 2027 with continued price hikes. For BT, we also see improving S/D status, given peers' less willingness in BT production. T glass is likely to still be a constraint throughout 2027, if new capacity ramps slower than expected. We expect substrate makers to enjoy GM expansion cycle evidenced by recent monthly earnings release. We raise TPs of NYPCB (new TP NT$1,550), Kinsus (new TP NT$1,100) and Unimicron (new TP NT$1,500) and reiterate our Buy ratings. In the short term, we prefer NYPCB and Kinsus on more aggressive pricing strategies. We open 30-day upside CWs for NYPCB and Kinsus on potential sales/GM upbeat on price hikes.

ABF substrate: tight supply evidenced by improving China UTR Besides rapid recovery in UTR of non-China capacity, we observe UTR in China ABF capacity is improving with peers like Zhen Ding announcing further capacity expansion. To note that, China ABF capacity is the least favorable option to US customers given geopolitical risk. However, it seems US customers are adopting it given lack of choices. Meanwhile, domestic AI demand for China is also improving, competing for capacity as well. Unless there is any sign of loosening demand in China capacity, we are confident on the growth prospects of the ABF industry. We currently forecast 1520% QoQ ABF price hike in 3Q26 considering higher willingness to pay in high season and followed by 10-15% QoQ in 4Q26 considering lower seasonality.

BT substrate: improving S/D with peers gradually cutting capacity Our industry checks suggest some peers are showing less willingness to take BT orders or are planning to convert BT production lines into ABF lines given better profitability and visibility. This coupled with its guidance, Unimicron now targets to cut at least 15% of its total BT capacity by end-2026, likely mostly for WBCSP-related products in Taiwan plants. We think Unimicron won't fully exit BT market in the mid-term given some of its major ABF customers like Apple and few key Chinese customers still have BT demand. Thus, we think its capacity in Suzhou's BT plant might be kept operational. As per our calculation (see figure 2), Unimicron's BT sales roughly account for 11% of BT sales from global major peers. We project Unimicron to cut 4050% of its BT capacity in the mid-term, thereby gradually transferring BT orders to other Taiwanese peers.