Nomura: TUC gross margin beats expectations: Price increases lift earnings forecasts, while key AI customer project remains uncertain

Why did third-quarter results exceed expectations?

TUC manufactures copper-clad laminates and provides lamination services for PCB customers. Revenue in the third quarter of 2026 was 17.949 billion New Taiwan dollars, 4.4% above Nomura’s forecast; net profit was 3.857 billion New Taiwan dollars, 23.0% above its forecast.
The profit beat was larger: gross margin was 36.9%, 5.1 percentage points above the Bloomberg consensus of 31.8% and 8.6 percentage points above Nomura’s forecast of 28.3%. Nomura attributes this to price adjustments for low-end materials that passed higher raw material costs, primarily for E-glass fiberglass, on to customers.

Nomura expects E-glass prices to continue affecting low-end copper-clad laminate prices and gross margins through at least the first half of 2027; tight low-end copper foil supplies may also affect price adjustments. Although demand for high-end products is strong, pricing is more cautious, and major suppliers are seeking to renegotiate prices at least once every six months.
The bank expects TUC to raise prices across the board by 10%–20% starting in the fourth quarter of 2026, and models an overall average selling price increase of 10%–15% each quarter in 2027. Given the company’s smaller size relative to other AI copper-clad laminate manufacturers, Nomura believes its earnings are relatively sensitive to price increases.
Nomura raised its earnings forecasts for 2026–2028 by 24%–57% and expects gross margin to rise from 34.0% in 2026 to 38.4% in 2027 and 39.3% in 2028.
Beyond profit growth, cash flow remains constrained by working capital requirements: Nomura expects changes in working capital to reduce cash flow by 18.279 billion New Taiwan dollars in 2026, with free cash flow negative at 9.824 billion New Taiwan dollars that year; it expects free cash flow to turn positive at 1.213 billion New Taiwan dollars in 2027.

The company said at the Taiwan Printed Circuit Association Show that it plans to add monthly capacity of 1.5 million sheets at its Thailand plant in 2030. Nomura believes overseas capacity will help it compete for orders requiring diversified supply locations.
The market is watching TUC’s position in a key AI customer’s next-generation project; Nomura estimates that the customer’s current project contributes 5%–10% of the company’s current revenue. The bank believes supply and demand for high-end AI copper-clad laminates remain tight and that the company has an opportunity to become a second supplier to other AI customers.
Nomura maintained its buy rating and raised its target price slightly from 2,115 to 2,130 New Taiwan dollars. Despite the earnings forecast upgrades, the bank lowered its target price-to-earnings multiple from 30 times to 21 times because of uncertainty surrounding the project mentioned above; the valuation uses forecast earnings per share of 101.5 New Taiwan dollars for 2027.