J.P. Morgan: Chunghwa Precision Test Tech: AI testing demand lifts revenue as capacity constraints and new projects weigh on near-term gross margin

What were the highlights and shortcomings of the third-quarter results?

Chunghwa Precision Test Tech’s third-quarter revenue reached NT$1.905 billion, up 16% quarter on quarter and 53% year on year, a quarterly record. Revenue was 1% above J.P. Morgan’s forecast but 3% below market consensus.
Gross margin was 57.3%, 1.9 percentage points above J.P. Morgan’s forecast and also above market consensus. Management attributed the beat to greater scale, increased shipments of total solutions for AI applications, and cost controls. Net profit was NT$551 million, in line with the bank’s forecast but 5% below market consensus.
In the total-solutions probe card business, high-performance computing and AI applications surpassed mobile phone applications for the first time in the third quarter, indicating a shift in the composition of demand.

J.P. Morgan expects shipments of TPU-related burn-in test boards and system-level test boards to drive fourth-quarter revenue up 23% quarter on quarter to NT$2.35 billion; the increase could be greater if supply constraints ease.
Newly entered burn-in and system-level testing projects will put short-term pressure on gross margin. The bank forecasts a fourth-quarter gross margin of 54.3%, below the third quarter’s 57.3% but in line with its previous forecast.

Management said growth in 2027 should be no lower than in 2026, driven by rising demand for total-solutions probe cards. J.P. Morgan estimates revenue growth of about 51% in 2026 and forecasts revenue of NT$12.095 billion in 2027, up 66.8% year on year.
The bank believes the company excels at producing high-pin-count, high-layer-count test interface PCBs. As AI accelerator test interfaces become more complex, this capability can help it expand its probe card, system-level testing and burn-in test board businesses. Its strengths in probe PCBs also create opportunities to sell probes to more customers.
J.P. Morgan forecasts adjusted earnings per share of NT$115.97 in 2027, up 82.8% year on year. Although it expects full-year gross margin to fall from 56.3% in 2026 to 54.2%, operating margin is still expected to rise from 33.7% to 37.2%.

J.P. Morgan notes that insufficient resources and capacity prevent the company from serving all its existing customers and projects: a US competitor secured a greater share of probe PCBs for a major GPU customer’s next-generation GPU engineering samples, and the company may also lose share in a US cloud service provider’s 2027 AI accelerator system-level test board project.
The company plans to expand the capacity of its two existing plants over the next three years to the equivalent of six plants. The bank expects that, if new capacity is in place before mid-2027, the company can regain share in the mass production of Rubin Ultra probe PCBs. Slower-than-expected expansion or share losses in key high-performance computing projects are downside risks to its rating and target price.
J.P. Morgan maintained its Overweight rating and December 2027 price target of NT$4,900, based on 30 times forecast 2028 earnings per share. The bank assigned the highest multiple in its coverage universe because it sees potential for earnings upgrades from the company’s probe PCB strengths.