Lotes Near-term margins remain subdued, but the long-term server upcycle is strengthening; OW

Research evidence excerpt

Lotes Near-term margins remain subdued, but the long-term server upcycle is strengthening; OW

J P M O R G A N Asia Pacific Equity Research

15 May 2026

Lotes Overweight

3533.TW, 3533 TT

Near-term margins remain subdued, but the long- Price (14 May 26):NT$2,450.00

term server upcycle is strengthening; OW ▲Price Target (Jun-27):NT$3,070.00 Prior (Dec-26):NT$2,800.00

Key takeaways from Lotes’ 1Q26 earnings call included: 1) 1Q26 margin dip due

to raw material cost hikes and lower yields; 2) management expects margin Technology - Hardware

pressure to persist into 2Q26, with improvement in 2H26 on new product ramps; Albert Hung AC

3) toned up industry server shipment growth to ~20% and Lotes server revenue (886-2) 2725-9875

growth to 30%+ this year, with demand materially exceeding supply; 4) strong albert.hung@jpmchase.com

J.P. Morgan Securities (Taiwan) Limited/ J.P.

demand visibility into next year, with initial customer feedback indicating 20%+ Morgan Securities (Asia Pacific) Limited/ J.P.

server growth; and 5) CPO-related projects to enter mass production next year, Morgan Broking (Hong Kong) Limited

which could drive a valuation re-rating. Overall, we see continued upside in Lotes’s Anthony Leng

server business on stronger-than-expected demand. While near-term margins are (886-2) 2725-9240

anthony.leng@jpmorgan.com

likely to remain under pressure, we expect a rebound in 2H26 driven by new J.P. Morgan Securities (Taiwan) Limited

product ramps, a more favorable mix, and positive OP leverage. We trim our 2026

Gokul Hariharan

earnings by 6% to reflect 1H26 margin headwinds, but keep our 2027 earnings (852) 2800-8564

largely unchanged as stronger server demand outlook offsets the PC downside. gokul.hariharan@jpmorgan.com

Lotes’ stock has outperformed TAIEX by 45% YTD.