Nomura: King Yuan Electronics’ fourth-quarter gross margin below expectations; target price cut but Buy maintained

Third-quarter results met expectations, so why is the fourth quarter coming under pressure?

Revenue in the third quarter of 2026 was 12.142 billion New Taiwan dollars, up 9.0% quarter over quarter, in line with Bloomberg consensus and 0.7% above Nomura’s forecast; gross margin was 37.6%, just 0.1 percentage points above Nomura’s forecast. Results were broadly in line with expectations; the change was that the company’s fourth-quarter gross-margin guidance was below Nomura’s previous view.
Nomura’s model puts fourth-quarter gross margin at 36.5%, below the third-quarter actual of 37.6%; its revenue forecast still calls for quarter-over-quarter growth of 8.1%. The bank attributes the margin pressure to low capacity utilization, slower-than-expected product-mix upgrades, and increased personnel costs and depreciation from capacity expansion.

Nomura forecasts revenue of 69.319 billion New Taiwan dollars in 2027, down 5.7% from its previous forecast but still up 48.7% year over year, close to the Bloomberg consensus of 69.557 billion cited in its report. By comparison, its 2027 earnings-per-share forecast was cut by 17.8% to 12.74 New Taiwan dollars, 10.3% below Bloomberg consensus; its gross-margin forecast fell from the previous 42.0% to 40.0%.
This means the main downward revision is to margins, not the disappearance of revenue growth. Nomura says the earnings forecast adjustments mainly reflect lower profitability and factor in stock dividends; meanwhile, it sees shipments from the new XPU projects rising despite a more challenging-than-expected ramp-up, and little change in the project pipeline from other customers. It therefore still expects revenue growth of about 50% in 2027.

Nomura cut its target price from 390 to 280 New Taiwan dollars and maintained its Buy rating. Its valuation basis was reduced from 25 times 2027 forecast earnings per share to 22 times, citing a broader industry valuation decline and a more neutral risk-reward profile. Based on the closing price of 228.50 New Taiwan dollars listed in the report, the target price implies upside of about 22.5%; 22 times is still at the high end of King Yuan Electronics’ historical valuation range.
The call is supported by the long-term trend of rising test content as chip complexity increases, as well as new projects ramping up. The main constraint is the company’s high revenue dependence on its largest customer, with margins affected by that customer’s ramp-up progress. Nomura’s listed downside risks also include weaker AI or smartphone demand, intensifying competition in back-end testing, and AI commercialization falling short of expectations.