Citi: Copper-clad laminate leaders beat third-quarter profit expectations as AI product price increases take over from capacity expansion

Where did third-quarter results exceed expectations?

Elite Material (EMC) reported quarter-on-quarter revenue growth of 29% in the third quarter, with infrastructure revenue growing 32%. Its gross margin was 37.7%, above Citi’s forecast of 36.3% and the market consensus of 35.7%. Higher gross margin and operating leverage helped net profit exceed Citi’s forecast and the market consensus by 20% and 15%, respectively.
TUC’s third-quarter gross margin rose 7.2 percentage points quarter on quarter to 36.9%, exceeding Citi’s forecast and the market consensus by 4.3 and 5.1 percentage points, respectively. Price increases and improved efficiency at its Thailand plant were the main reasons; management said the plant’s gross margin had turned positive.
TUC’s third-quarter operating profit exceeded Citi’s forecast and the market consensus by 28% and 25%, respectively. A higher tax rate narrowed the net profit beats to 16% and 15%.

EMC guided for fourth-quarter revenue growth of 15%–20% quarter on quarter and a gross margin of 38%–39.5%. The company plans to raise prices for AI and non-AI products, with effective dates varying by customer. Citi believes the contribution from new capacity during the quarter will be limited, with growth coming mainly from price increases and an improved product mix.
TUC brought new capacity online in Thailand in the third quarter and plans further expansion in the fourth quarter. Because price increases for AI products were modest in the first half of 2026, the company plans to focus on raising prices for those products in the fourth quarter. Citi expects fourth-quarter revenue to grow 17% quarter on quarter and gross margin to rise to 39.3%.

Citi believes more customers are seeking long-term agreements to secure supply, and its view that overall copper-clad laminate demand will exceed supply in 2027 and beyond is unchanged. EMC is negotiating long-term agreements with customers and plans year-on-year capacity increases at each year-end from 2027 through 2030 of 49%, 20%, 14% and 28%, respectively. TUC’s corresponding plans are 43%, 34%, 11% and 25%.
Alternative materials and new suppliers are competitive variables. EMC’s management takes a conservative view of PTFE adoption and plans to compete with it using its M10 product. Its M9 product accounted for only a low-single-digit percentage of total revenue in the third quarter; the company expects that share to rise to a double-digit percentage in 2027.
TUC said its position with ASIC customers remains unchanged despite the entry of new suppliers into the ASIC business. Citi also noted that the pace of copper-clad laminate upgrades, demand for AI servers and 800G, and supply-chain capacity bottlenecks will all affect growth.

Taking price increases and an improved product mix into account, Citi raised its net profit forecasts for EMC for 2026 through 2028 by 20%, 31% and 44%, respectively, and its forecasts for TUC by 21%, 29% and 27%. It maintained buy ratings on both companies.
Citi also lowered its target price-to-earnings multiples for both companies, citing factors including recent AI-related concerns and the backdrop of rising interest rates. The bank also noted that material upgrades for next-generation servers require consideration of scalability and cost, and the pace of upgrades may be slower than expected.