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2026-10-22 16:37:47 JPMorgan published a research report stating that recent supply chain checks indicate demand growth in China's semiconductor equipment industry is accelerating. Following the recent market correction, the bank believes there are three major reasons to revisit related beneficiary stocks. First, AI-related components, including logic and power/analog chips, require longer testing time to improve yield rates, which is expected to benefit testing equipment suppliers. Second, stronger-than-expected memory capex and localization of advanced logic are expected to drive stronger backlog growth for wafer fabrication equipment (WFE) vendors. Third, the bank believes concerns over competition-driven margin pressure have been overstated, as industry leaders are shifting product mix toward high-end equipment, improving profitability among customers is easing pricing pressure, and scaled adoption of domestic components is opening room for margin expansion. The bank maintained a positive view on China's semiconductor equipment sector and favored HUAFENG TEST&CONTROL (688200.SH), NAURA (002371.SZ), and AMEC (688012.SH), citing higher visibility for backlog growth. However, it also noted that shortages of global semiconductor equipment components could become a major risk to sales and earnings forecasts. In the near term, HBM supply bottlenecks may constrain shipment growth of domestically produced AI components such as ASICs, GPUs, and power/analog chips. However, longer testing time is expected to drive demand for logic, power/analog, and memory testing equipment. If HBM bottlenecks are resolved in 2H27, the trend could strengthen further. The bank believes HUAFENG TEST&CONTROL (688200.SH) will benefit from AI testing solutions, with short-term sales growth driven by power/analog testing machines and longer-term growth supported by new logic and memory testing systems. JPMorgan stated that memory capex and localization of advanced logic will provide further upside for domestic WFE vendors. NAND and DRAM capacity expansion is accelerating to address memory supply constraints for AI applications and localization of HBM, particularly due to yield losses in early-stage stacking and packaging, requiring additional capacity. Meanwhile, advanced logic WFE will also benefit from rising capex and increasing localization rates. The bank expects backlog growth forecasts for domestic WFE vendors in 2027 to be substantially revised upward by major semiconductor manufacturers. Regarding margins, the bank said concerns over competition compressing margins have persisted for more than a year and weighed on sector valuations, but such concerns are overstated. Industry leaders are shifting revenue mix toward high-end equipment and applications, improving profitability among memory customers is reducing pricing pressure, while tight global supply is accelerating large-scale adoption of domestic components, opening additional profit expansion opportunities. JPMorgan noted that China's semiconductor equipment sector has corrected 15% over the past three months, with weaker market sentiment. However, accelerating backlog growth could provide stronger growth visibility and support sector re-rating. The bank assigned an Overweight rating to HUAFENG TEST&CONTROL (688200.SH) with a TP of RMB234, naming it the top pick in the testing equipment theme due to demand for power/analog testing, catalysts from logic testing, and business exposure linked to OSAT utilization rates and AI power testing demand. It also maintained an Overweight rating on NAURA (002371.SZ) due to its leadership in advanced logic and comprehensive front-end platform, as well as continued breakthroughs among memory customers forming a second growth driver, with a TP of RMB830. AMEC (688012.SH) was highlighted as a beneficiary of memory growth and earnings release, given its leading market share among memory customers and applications. The bank expects its upgraded high-end product mix to translate into margin expansion as deposition business volume increases, with a TP of RMB420. (da/u)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |