Yageo’s third-quarter revenue exceeds guidance; Morgan Stanley expects margins above consensus

What exceeded expectations in the third quarter?

Yageo’s unaudited revenue for the third quarter of 2026 was approximately NT$49.53 billion, up 11% quarter on quarter and 50% year on year, exceeding management’s earlier guidance of “moderate quarter-on-quarter growth.” Morgan Stanley interpreted that guidance as growth in the mid-to-high single digits quarter on quarter.
After stronger sales volume and prices lifted revenue, the bank expects a third-quarter gross margin of 40.4%, up 1.9 percentage points quarter on quarter, and an operating margin of 29.1%, up 2.7 percentage points. These are 0.5 and 1.4 percentage points above market consensus, respectively.
Morgan Stanley forecasts third-quarter net profit of approximately NT$11.6 billion, up 23% quarter on quarter and 82% year on year, and earnings per share of NT$5.63, 6% above market consensus.

Morgan Stanley expects demand for AI and conventional servers to remain strong. Demand and prices for non-consumer passive components could offset consumer weakness and support management guidance for slight quarter-on-quarter increases in fourth-quarter revenue, gross margin and operating margin.
The consumer segment is a direct constraint: the bank’s supply-chain survey suggests consumer demand could weaken in the fourth quarter, while IDC data also shows third-quarter PC demand was weaker than expected. Management’s earlier revenue guidance was conservative, which the bank attributes to limited visibility in the consumer market.
In the bank’s model, fourth-quarter revenue is NT$51.08 billion, up approximately 3% from the third quarter; gross margin and operating margin are 41.0% and 29.8%, respectively. These are the brokerage’s forecasts; actual guidance will depend on the company’s subsequent disclosures.

Morgan Stanley believes major Japanese and Korean manufacturers are shifting more MLCC capacity toward high-end products, which could leave mid- and low-end supply insufficient. Rising utilization is also leading suppliers to expect price increases for mid- and low-end products.
The bank observes that distributors and ODMs are increasing inventories, and expects growing AI demand could drive tantalum capacitor prices higher still. Inventory changes and consumer electronics demand are therefore also important factors in assessing whether subsequent price increases can be sustained.
The bank’s base case assumes high utilization for high-end products in 2027–2028, utilization for standard products stable above 70%, and continued price increases. If non-AI demand weakens or competition from peers intensifies, pricing power could shift to end customers.

Morgan Stanley maintains its Overweight rating and NT$1,050 price target, equivalent to approximately 32 times forecast earnings for 2027 and 24 times forecast earnings for 2028, above Yageo’s range of 8 to 18 times over the past five years. The bank believes the company’s transition into a global integrated solutions provider can support a higher valuation.
Although the bank is optimistic about third-quarter margins, its earnings-per-share forecast for 2028 is NT$43.39, approximately 5% below market consensus. Its operating-margin forecast for 2028 is 37.0%, also below the consensus of 38.3%.
On the earnings call, the bank will focus on visibility into non-AI demand, MLCC pricing for the next quarter, consumer customer inventories, and shortages of mid- and low-end capacity in 2027.