Original source：Goldman Sachs (Asia) L.L.C.First published on Unhidea：Original source date：
Key takeaway
Goldman Sachs believes demand for high-end copper-clad laminates and product upgrades are lifting margins at the two manufacturers. Long-term customer agreements support capacity expansion, but the timing of new capacity coming online and customer project transitions will affect the pace of growth.
Why did the third quarter exceed expectations?
Elite Material’s (EMC) core operating profit in the third quarter of 2026 was 6% above Goldman Sachs’ forecast and 15% above Bloomberg consensus. M9 copper-clad laminates began shipping, with an average selling price 3 to 4 times the company-wide average. Higher adoption of M8 and the implementation in the third quarter of some price increases announced in the second quarter also improved the product mix.
EMC’s third-quarter gross margin rose 3.8 percentage points quarter on quarter, exceeding Goldman Sachs’ forecast by 0.9 percentage points; its operating margin was 30.7%. Although the company increased R&D investment in substrates and next-generation M10 and M11 copper-clad laminates, with R&D expenses up 44% quarter on quarter, higher-value products continued to support margins.
Taiwan Union Technology’s (TUC) third-quarter core operating profit was 16% above Goldman Sachs’ forecast and 25% above Bloomberg consensus. A surge in demand for M8.5 copper-clad laminates from a major ASIC customer, a faster-than-expected ramp-up at its Thailand plant, and price increases for mid- and low-end products and power-supply products together drove the results.
TUC’s third-quarter operating margin was 31.0%, surpassing EMC’s 30.7% for the first time; Goldman Sachs attributed the change mainly to better operating efficiency.
How much further can fourth-quarter margins improve?
Goldman Sachs expects EMC’s fourth-quarter revenue to grow 20% quarter on quarter and its gross margin to rise to 40.9%. Its forecast rests on price increases for high-end copper-clad laminates announced in early October, the ramp-up of new Kunshan capacity from December, and demand for high-end products from new AI projects such as Vera Rubin and TPU v8.
Goldman Sachs expects TUC’s fourth-quarter revenue to grow 18% quarter on quarter and its gross margin to rise to 40.8%, up 3.9 percentage points from the third quarter. The bank estimates that average selling prices for high- and mid-end copper-clad laminates will rise 15% to 20% quarter on quarter in the fourth quarter.
An important AI ASIC customer of TUC is transitioning between projects, and demand is slowing. Goldman Sachs expects other high-end Ethernet switch projects to take up the freed capacity; this substitution is an important condition underlying its fourth-quarter outlook.
Why might capacity expansion still fail to keep up with demand?
EMC plans to increase monthly capacity from the current 5.85 million sheets to 15.25 million sheets by the end of 2030. The company says its expansion is supported by long-term agreements under which customers commit to volumes, and that even if it expands as currently planned, capacity will still be insufficient to meet demand under signed agreements; the demand covered by those agreements extends at least three years out.
The near-term production schedule has changed: new Kunshan capacity of 1.2 million sheets per month will come online as early as December 2026 and be rolled out month by month through May 2027, faster than the original two-phase plan. The addition of 300 thousand sheets of monthly capacity at Guanyin, originally scheduled for the fourth quarter of 2026, has been postponed to the second half of 2027, partly because of tight construction resources in Taiwan and long equipment delivery lead times.
Goldman Sachs expects more switch and AI projects to adopt M9 in 2027, and EMC to begin supplying M10 for a single customer’s AI GPU project in the second half of 2027. As the newer grades carry higher prices, product upgrades could further lift average selling prices and profits.
How is Goldman Sachs adjusting its earnings and valuation outlook?
Goldman Sachs believes the widening supply-demand gap for high-end copper-clad laminates will help sustain price increases and margins. Bloomberg consensus forecasts 2027 gross margins of 38% for EMC and 34% for TUC; Goldman believes both could be revised upward to 40% to above 42%, leaving room for earnings-per-share forecasts to rise 10% to 25%.
Based on third-quarter results, more favorable pricing and faster growth in high-end demand, Goldman Sachs raised its net profit forecasts for EMC for 2026 through 2028 by 13%, 22% and 22%, respectively, and its forecasts for TUC by 12%, 20% and 27%, respectively.
Goldman Sachs maintained buy ratings on both companies, raising its price target for EMC from 10200 New Taiwan dollars to 11700 New Taiwan dollars and its target for TUC from 3010 New Taiwan dollars to 3460 New Taiwan dollars. The targets continue to use valuation multiples of 27 and 22 times, respectively, forecast earnings per share from the second half of 2027 to the first half of 2028.
