Why did profit beat expectations despite the revenue miss?

  • In the third quarter of 2026, JCET’s revenue was 11.425 billion yuan, up 14% year on year and 10% quarter on quarter, but 5% and 3% below the Bloomberg consensus and Citi’s forecast, respectively. Computing and automotive demand drove growth.
  • Gross margin for the period was 17.5%, up 1.8 percentage points quarter on quarter and 1.6 percentage points above the Bloomberg consensus. High capacity utilization and an improved product mix pushed gross margin close to its peak in the previous cycle.
  • Adjusted net profit was 773 million yuan, up 60% year on year and 10% above the Bloomberg consensus and 25% above Citi’s forecast. Management expects gross margin to remain stable or improve from the fourth quarter of 2026 through 2027.

Which businesses are seeing the effects of AI demand?

  • In the first three quarters of 2026, computing revenue rose 54% year on year and accounted for 31% of total revenue. Citi estimates third-quarter computing revenue at 3.7 billion yuan, up 85% year on year. The China business grew on AI applications and accounted for 50% of total revenue in the first three quarters.
  • Management sees growing demand for 2.5D and 3D packaging for HBM and ASICs. The number of new CPU projects exceeded GPU projects over the past two quarters; CPUs and DRAM are increasingly adopting multi-chip modules combined with flip-chip packaging, helping improve cost efficiency.
  • Data-center power-supply upgrades also expanded demand: AI power-supply business revenue exceeded 2 billion yuan in the first three quarters, more than doubling year on year. Citi believes demand for computing, memory and analog chips will jointly support revenue and earnings growth.

How large is the expansion plan, and what does it depend on?

  • The company raised its 2026 fixed-asset investment plan from 10 billion yuan to 17.3 billion yuan; it invested 8.9 billion yuan in the first three quarters, most of it in capacity expansion. Management plans to use more than 80% of the additional investment to further expand capacity.
  • Management expects advanced packaging capacity to remain tight for another one to two years; Citi expects capital expenditure intensity to remain at its level in 2027–2028, supporting demand for back-end equipment.
  • The returns from expansion depend on whether demand can keep pace with supply. Citi notes that industry capacity utilization could fall after expansion if advanced packaging capacity grows faster than demand or memory makers bring back-end packaging back in-house.

When will the new packaging technologies enter production?

  • The company expects co-packaged optics (CPO) based on its 2.5D platform to enter commercial production at an overseas plant in the first quarter of 2027; Citi expects broader adoption in 2028. The company says adoption of neural processing units (NPUs) is progressing faster, with several customers already starting production in China.
  • For 3D stacking, the company is ready for mass production based on thermocompression bonding and is installing a next-generation process using hybrid bonding for customer sampling. Panel-level packaging using silicon bridges has completed validation and is expected to be sampled to customers in the second quarter of 2027.
  • Citi rates JCET Buy with a target price of 110 yuan, based on 6 times expected 2027 price-to-book value; its valuation depends on expanding AI demand, the growing importance of advanced packaging and continued tight capacity.