Initiation of Coverage Kokusai Electric: Can tailwinds lift sales to a new level?

Research evidence excerpt

Initiation of Coverage Kokusai Electric: Can tailwinds lift sales to a new level?

ncreasing as processes become more complicated, and demand for horizontal film coating is

also expected to grow in future generations. We thus expect the company’s share in the WFE market

to rise over the medium term.

In the near term, the company has commented that inquiries in its advanced DRAM logic category are

significantly improving in FY3/27, with signs of supply and demand tightening including projects

brought forward and the lead times getting longer. We believe these moves are consistent with

structural change including demand sustainability and a shift to long-term contracts, indicating that

earnings might be becoming more stable compared with previous semiconductor cycles. In addition,

as production capacity and the ability to respond to the supply chain increase, supply constraints are

easing from before, raising the ability to absorb demand as it materializes.

Likelihood of significant top-line growth in 2028 is still uncertain

In contrast, while mini-batch equipment is positioned as a greater upside factor and its potential

impact is large, we currently do not see a high likelihood of this playing out. The shift to mini-batch

has been underway in NAND since the 200+ layer generation and in logic since the GAA generation,

but both are highly dependent on progress in customer processes and their investment decisions.

We believe the key issue is the extent to which the company can capture WFE investment in NAND

(+20.4% yoy) and logic (+40.7%), and we see the need to watch the adoption rate for Intel 14A in

particular.

WHAT´S PRICED IN? The company’s EV/EBITDA multiple has been 30-40% of the SPE sector average, but has recently

risen to around 50%.