Why did third-quarter results grow?

  • JCET’s revenue in the third quarter of 2026 was 11.425 billion yuan, a quarterly record, up 14% year on year and 10% quarter on quarter. Net profit was 773 million yuan, up 60% year on year and 39% quarter on quarter. Overall results were in line with JPMorgan’s expectations.
  • Third-quarter gross margin was 17.5%, up 3.2 percentage points year on year and 1.8 percentage points quarter on quarter. JPMorgan attributed the improvement to high capacity utilization, a better product mix and price increases.
  • The bank expects revenue and profit to continue growing quarter on quarter in the fourth quarter, citing resilient AI-related demand, the release of capacity at overseas plants and price increases.

Where will the increased investment budget mainly go?

  • The company raised its 2026 investment budget by 65% to 18.2 billion yuan, including 17.3 billion yuan for fixed assets. Spending in the first three quarters reached 8.9 billion yuan, nearly twice the level in the same period a year earlier.
  • The capacity expansion is primarily aimed at 2.5D/3D advanced packaging, high-density storage and other high-end applications. JPMorgan believes it will both accommodate current growth in AI orders and position the company for long-term opportunities in AI computing power, power supply, storage and optical interconnects.

Why does expansion also put pressure on earnings?

  • The additional investment will bring more depreciation, weighing on margins in the short term. JPMorgan therefore cut its earnings forecasts for 2027 and 2028 by 10% and 5%, respectively; a better product mix could partly offset the impact.
  • The bank believes high capacity utilization and price increases can help ease depreciation pressure, while product upgrades and higher value per product can drive long-term margin expansion. On that basis, it expects compound annual revenue and earnings growth of 19% and 46%, respectively, over 2026–2028.
  • Cash flow must also absorb the cost of expansion: the bank expects firm free cash flow of negative 8.311 billion yuan in 2026 and negative 3.376 billion yuan in 2027, turning positive at 2.897 billion yuan in 2028.

How has JPMorgan adjusted its valuation view?

  • JPMorgan maintained its overweight rating and lowered its December 2027 price target from 115.01 yuan to 108 yuan. It continues to use a one-year forward price-to-earnings multiple of 40 times, reflecting the expansion potential of the AI-related advanced packaging business.
  • The report said that, as of 27 October, the company’s share price had fallen 17% that month, corresponding to approximately 27 times expected 2027 earnings. The bank considers the risk-reward profile attractive.