J.P. Morgan: Yageo’s third-quarter volumes and prices rise together as JPMorgan bets on years of AI-driven capacity expansion and price increases

Why did third-quarter results beat expectations?

Yageo’s third-quarter 2026 revenue was 49.532 billion New Taiwan dollars, up 11% quarter on quarter and 50% year on year, exceeding JPMorgan’s forecast and market consensus by 4% and 2%, respectively. Higher shipments and average selling prices jointly drove growth; capacity utilization rose from about 85% in the second quarter to about 95%.
Gross margin reached 41%, up 2.5 percentage points quarter on quarter and about 1.2 percentage points above market consensus. Price adjustments and higher capacity utilization drove the improvement in profitability. Adjusted earnings per share for the quarter were 5.78 New Taiwan dollars, 8% above market consensus.

AI-related revenue accounted for 20% of the third-quarter total, up from about 16% in the second quarter. JPMorgan believes the mix improvement came not only from tantalum capacitors but also from multilayer ceramic capacitors (MLCCs), resistors and inductors.
Yageo’s specialty capacitors can be used in high-temperature and high-voltage environments. Among them, NP0/C0G products are increasingly used for current conversion in server racks; the company’s inductor products are also winning more AI server projects.
The book-to-bill ratio exceeded 2, and JPMorgan said the order book showed no signs of slowing as the fourth quarter began. The bank expects fourth-quarter revenue to rise 6% quarter on quarter, above management’s expectation of a slight increase, and gross margin to improve by about another 2 percentage points quarter on quarter.

JPMorgan expects Yageo to expand tantalum capacitor and MLCC capacity by 10%–15% each in 2026, maintaining a similar pace of expansion from 2027 to 2028. Increased capacity, a higher share of AI products and price increases for those product categories together support its forecast of roughly 70% compound annual profit growth over the next two years.
The company disclosed that several customers had approached it about long-term agreements for major products, involving capacity-expansion subsidies or even joint investment in new plants. JPMorgan sees this as a sign of AI-driven tightening supply and assumes double-digit price increases across several product categories in its model.
The sustainability of price increases is a key variable: downside risks identified by JPMorgan include a reversal in MLCC and chip resistor prices, with potential triggers including slower automotive electrification and inventory adjustments.

JPMorgan raised its earnings-per-share forecasts for 2027 and 2028 by 9% and 16%, respectively, to 35.69 and 57.36 New Taiwan dollars, respectively 10% and 30% above market consensus. The bank expects gross margin to rise from 40.3% in 2026 to 54.2% in 2028.
Earnings growth does not mean cash flow will improve in the same year: the bank expects operating cash flow of negative 10.187 billion New Taiwan dollars in 2026, versus positive 49.937 billion New Taiwan dollars the previous year; the working capital change in its model is negative 68.918 billion New Taiwan dollars. Inventory is expected to rise to 70.569 billion New Taiwan dollars at the end of 2026, from 31.636 billion New Taiwan dollars at the previous year-end.
JPMorgan maintained its overweight rating and raised its price target from 1,030 to 1,050 New Taiwan dollars. The bank lowered its target valuation multiple from 26 times to 22 times; the upward revision to earnings forecasts offset the impact of the lower multiple.