Nittobo (3110): Cut PO; reiterate Buy on strong growth in T and NER glass cloth

Research evidence excerpt

Nittobo (3110): Cut PO; reiterate Buy on strong growth in T and NER glass cloth

Short-term view

• We forecast 1Q operating profit at ¥6.5bn, implying about 50% progress versus the

company’s 1H guidance of ¥12.6bn. As price pass-through for T glass cloth is still in

progress in 1Q and the +30% price increase will fully contribute from 2Q, we expect

underlying earnings momentum to be viewed positively.

• Reflecting management commentary at the May briefing, we revised our outlook for

T glass cloth and NER glass cloth. The company guided to T glass cloth volumes of

about +25% YoY in FY3/27 and +35–40% YoY in FY3/28, and NER glass cloth

volumes of +60% YoY and close to +100%, respectively. In addition, T glass cloth

capacity is set to expand by +50% in FY3/29.

o We raised our revenue forecast for NER glass cloth. However,

incremental volumes are expected to be supplied as NER glass yarn

(with weaving outsourced to Nanya Plastics), implying revenue growth

will be lower than volume growth.

o Meanwhile, FY3/28 growth for T glass cloth is lower than our previous

assumption, leading us to cut our revenue forecast. Given T glass cloth

carries the highest margin, the expected deterioration in product mix

results in downward revisions to our operating profit forecasts.

o Alongside volume growth, we factor in annual cost increases of ¥6–

7bn from higher depreciation and headcount associated with capacity

expansion (slightly higher than initially expected).

• While the pace of increase in FY3/28 is slower than expected, the medium- to long-

term outlook for T glass cloth is increasingly favorable.

o Nitto Boseki's market share stands at 90–95%.

o Ultra-thin T-glass cloth is increasingly adopted for semiconductor

package substrates used in LPDDR (Low Power Double Data Rate)