JCET 1Q26 Earnings Call Takeaways: Revenue Missed Estimates but Utilization Improved; Advanced Packaging and CPO on Track

Core Thesis

JCET’s 1Q26 results revealed a revenue miss of 5% vs. our estimate (Rmb9.2bn, -10% Q/Q, -2% Y/Y), but utilization rebounded above 80% and management expects steady improvement through the rest of 2026. The key investment narrative hinges on two vectors: (1) the inflection in utilization driving margin recovery, and (2) the ramp of 2.5D advanced packaging and CPO (co-packaged optics) as revenue catalysts over the next 2–3 years. However, 2026 capex of Rmb10bn (+59% YoY) and continued losses at JME (narrowing) create near-term earnings drag. We maintain Equal-weight with a Rmb48.50 PT based on residual income (8.6% cost of equity, 12.5% intermediate growth, 4% terminal growth). The risk/reward is balanced.

What the Market May Be Underestimating

The market may be underestimating the pace of utilization recovery and the revenue potential from 2.5D advanced packaging and CPO. Utilization was above 80% in 1Q26 — already above the trough seen in 2025 (mid-70s). Each 5ppt improvement in utilization adds roughly Rmb1.5–2bn to gross profit based on current fixed cost structure. Meanwhile, JME (JCET Microelectronics, the advanced packaging subsidiary) narrowed its net loss in 2H25, suggesting that the 2.5D capacity ramp is reaching break-even thresholds faster than our initial model assumed.

On CPO, JCET has demonstrated heterogeneous integration capability — stacking EIC on PIC and integrating switch/compute ASICs onto the same substrate — and some products have already passed customer qualification. The addressable market for CPO in AI data centers could generate meaningful revenue by 2028. But near-term visibility is low; the company expects “a few billion” (Rmb) in advanced packaging revenues over the next 2–3 years, which implies a relatively modest contribution to total revenue (currently Rmb35–40bn annually).

Evidence Chain

Revenue miss but utilization improvement. 1Q26 revenue = Rmb9.2bn, 5% below our estimate of Rmb9.7bn but in line with consensus. Gross margin fell 0.7ppt to 14.5%. Net income of Rmb290mn was 33% below our estimate but 10% above consensus, suggesting some cost controls or one-offs. Crucially, utilization was above 80% in 1Q26. This is significant because JCET’s large fixed cost base means that incremental utilization directly drops to margin. Our breakeven utilization is roughly 75%; above 80% implies positive operating leverage.

Advanced packaging narrowing losses. JME’s net loss narrowed in 2H25. The company continues to ramp 2.5D advanced packaging capacity and expects a few billion RMB in revenues in the next 2–3 years. This is a validation that the technology is gaining traction, albeit at a slower pace than some peers (e.g., TSMC’s CoWoS). The “few billion” target is small relative to JCET’s total revenue base but could be highly accretive if margins in advanced packaging are materially higher than traditional packaging (we estimate 25%+ gross margins vs. traditional 12–15%).

CPO qualification achieved. JCET’s heterogeneous integration capability for CPO has passed customer qualification for some products. This positions JCET as one of the few non-TSMC foundry options for optical I/O integration, which is critical for next-generation AI switches and computing. However, revenue is unlikely before 2028/2029 given the early stage of CPO deployment.

Capital expenditure surge. 2026 capex budget of Rmb10bn (+59% YoY from Rmb6.3bn in 2025) and 1Q26 capex of Rmb2.5bn (+63% YoY) indicate heavy spending on advanced packaging equipment and capacity. This is necessary to compete but depresses free cash flow in the near term. JCET’s leverage (EV/EBITDA = 9.4x) remains manageable, but depreciation will rise as capacity comes online.

Key Disagreement and Risks

Bull case: Utilization continues to recover to 85%+ by year-end, driving gross margin toward 17–18%. Advanced packaging and CPO revenues accelerate faster than expected, lifting P/E multiple. JCET benefits from China’s local AI chip packaging demand.

Bear case: Utilization recovery stalls due to weaker demand in communications/consumer electronics (which represent ~70% of revenue). Capex overshoot leads to depreciation headwind that offsets operating leverage. Advanced packaging and CPO revenues disappoint or face competition from TSMC and other OSATs. Customer qualification of 2.5D/3D may be slower than expected.

Specific risks to downside:

• Worse-than-expected demand for communications, computing, and consumer electronics.
• Providing 2.5D/3D advanced packaging later than expected.
• Slower-than-expected share gains.

Specific risks to upside:

• Better-than-expected demand for communications, computing, and consumer electronics.
• Providing 2.5D/3D advanced packaging sooner than expected.
• Faster-than-expected share gains.

Valuation and Trading Implication

Current price Rmb44.36, PT Rmb48.50 implies 9% upside. Based on residual income model with 8.6% cost of equity, 12.5% intermediate growth, 4% terminal growth. FY26e consensus EPS Rmb1.50 (our estimate Rmb1.35) implies P/E of 29.6x vs. historic average 35x. FY27e EPS Rmb2.24 (consensus) gives P/E 19.8x. We believe the stock is fairly valued given the execution risk around advanced packaging ramp and capex cycle. The 9% upside to PT does not provide a compelling entry at Equal-weight.

Key catalysts to watch: (1) sequential utilization commentary at next earnings call, (2) JME profitability timeline, (3) CPO revenue announcements, (4) quarterly capex spend relative to budget. Until utilization recovery is more visible in reported earnings, we stay on the sidelines.

Appendix: Key Financial Data