L-T direction still holds but belated demand uptick again

We update our ABF substrate industry supply/demand model, and also provide preview of the firms’ CY3Q23 result preview in this report. For the industry S/D we now expect a 10% (was 9%) oversupply in 2023E given still tepid outlook for demand recovery, yet this should be followed by 2%/9% under-supply (was 1%/8%) in 2024/25E, thanks to 28%/21% demand growth vs a more disciplined supply expansion (vs 2023 over 2022) of 14%/13% YoY in corresponding years. By end markets - we see near-term resilience in PC and high-end GPU, but see sluggishness in smartphone and datacenter, in which (see report) Intel commented ongoing inventory digestion. Into 2024, while magnitude of recovery in end demand remains to be seen, a bigger demand increase should be driven by higher ABF content in new platforms in our view. Within such context, we highlight key Buy-rated names Ibiden, Shinko and Unimicron out of their better industry position, while we remain conservative on U/P-rated Kinsus given its less favorable end market exposure. We tweak PO on Unimicron and rollover the valuation base on NYPCB in this report (exhibit 1), and please refer to page 2 for more color on Unimicron, NYPCB & Kinsus.

Japanese names: expect muted 3Q vs mildly recovering 4Q

Ibiden’s 2Q FY3/24 (CY3Q23) numbers will be in line with market expectation. Although demand from traditional server market seems to have been weak, Ibiden should have enjoyed good demand from GPU market and recovery of demand from PC market. We estimate OP for the quarter to be Y12.7bn (down 46% YoY), versus market expectation at Y11.6bn. Given the continuing growth of GPU substrate business, results will be positive for the shar price performance.
Although Shinko suffered from low margin in 1Q FY3/24, we believe the company has seen an improvement of profitability in 2Q (CY3Q23) backed by an improvement of capacity utilization and the benefit from weaker yen. We estimate 2Q OP to be 11.8bn (down 53% YoY), versus market expectation at Y10.2bn. Demand has remained weak especially from traditional server market, the company should have enjoyed an increase of demand from PC market. The key thing to check going forward is how the company will utilize the new Chikuma factory which will be established in 2H of FY3/25.
We estimate Kyocera’s OP for 2Q FY3/24 (CY3Q23) to be Y31.7bn (down 10% YoY) ,vs market expectation at Y35.8bn. We anticipate there will a chance for the company revise down its full-FY3/24 guidance with weak demand from smartphone or server markets, But the short-tern downside of the share price should be limited with low P/E and high expectation for long-term growth of semiconductor-related businesses including fine ceramic components for SPEs and FC-BGA.