Citi: Fire weighs on Globalwafers’ third quarter, shifting the focus of recovery to 2027

How much did the fire affect third-quarter results?

A fire at an Italian 8-inch wafer plant weighed on Globalwafers’ third-quarter revenue, which fell 2% quarter on quarter to NT$14.871 billion, about 8% below both Citi’s forecast and the market consensus. Management said revenue could have risen more than 12% quarter on quarter without the fire.
Higher depreciation and the impact of the fire brought the third-quarter gross margin down to 20%, a decline of 0.7 percentage points quarter on quarter and 3.2 and 1.4 percentage points below Citi’s forecast and the market consensus, respectively.
Third-quarter net profit was NT$1.501 billion, down 60% quarter on quarter and below Citi’s forecast by 38% and the market consensus by 25%. Citi believes the decline in non-operating income may be related to the mark-to-market revaluation of investments.

Management said rebuilding the Italian production line will take time and expects fourth-quarter 2026 revenue growth of less than 12% year on year. Some legacy long-term contracts have yet to expire, also limiting room for price increases in the quarter.
Citi expects fourth-quarter revenue to rise 4% quarter on quarter and 7% year on year, with gross margin recovering by 1.8 percentage points quarter on quarter to 21.8%. However, the bank has cut its fourth-quarter net profit forecast by 41% to NT$1.548 billion.
Excluding newly ramping capacity, the 12-inch production lines are fully utilized, while the 8-inch and 6-inch lines are near full utilization; utilization remains high even as the damaged production line still needs time to recover.

Management sees improving customer demand and expects supply to be tighter in 2027 than in 2026, with average selling prices also improving after long-term contracts are renewed. Citi believes the ramp-up of new capacity and price adjustments could provide upside in the first quarter of 2027.
The company believes capital expenditure peaked in 2026 and will next prioritize raising capacity utilization, removing bottlenecks and securing more demand. Further large-scale capacity expansion depends on conditions including customer commitments, government subsidies and prices.
Citi forecasts 2027 revenue of NT$74.324 billion, up 24.8% year on year, and expects gross margin to rise to 27.9% from its 2026 forecast of 20.8%. This improvement remains constrained by rising depreciation and energy costs, weaker-than-expected demand and capacity expansion by peers.

Because the recovery is slowing, Citi has cut its net profit forecasts for 2026, 2027 and 2028 by 19%, 20% and 9%, respectively. The 2027 forecast has been lowered to NT$12.359 billion.
Citi maintained its Buy rating and lowered its target price from NT$1100 to NT$920. Its valuation remains based on 28 times forecast earnings per share for the second half of 2027 through the first half of 2028; the bank expects sales and earnings to recover in 2027.