MPI Corporation: 1Q26 Earnings Beat, Positive Outlook for 2Q

Core Conclusion

MPI Corporation (6223.TWO) reported 1Q26 EPS of NT$12.96, 34% above Morgan Stanley estimate and 24% above consensus, driven by a sharp gross margin expansion of 5.7ppts QoQ to 59.4% and operating margin improvement of 7.4ppts to 32.4%. Management guided 2Q26 revenue growth of at least 20% QoQ, led by DDIC (CPC) and ASIC demand. We maintain Overweight with a NT$5,800 price target, implying 44x/24x 2027e/2028e P/E, but the current price of NT$5,720 offers only ~1.4% upside, suggesting limited near-term entry potential for new positions.

What the Market Underprices

The market largely focuses on the earnings beat in isolation, but two sustainable trends are underappreciated. First, gross margin improvement to 59.4% (+5.7ppt QoQ) came from better product mix and favorable FX — both likely to persist as high-margin ASIC and DDIC test solutions ramp. Second, 2Q26 guidance of at least 20% QoQ revenue growth points to accelerating end-market demand, particularly from AI-related ASIC procurement and display driver IC (DDIC) replacement cycles. Consensus revenue estimates for 2Q26 likely need upward revision, implying further earnings upside.

Evidence Chain

Earnings Beat Magnitude – 1Q26 EPS NT$12.96 vs MSe NT$9.67 (+34%) and Street NT$10.45 (+24%). Revenue came in at +3% QoQ (+39% YoY), slightly below MSe (-6%) but above company guidance of flat QoQ, indicating operational leverage on a revenue base that still exceeded internal planning.

Margin Expansion Drivers – Gross margin 59.4% exceeded MSe 54.9% by 4.5ppt and Street 55.8% by 3.6ppt. Operating margin 32.4% beat MSe 26.3% by 6.1ppt and Street 29.2% by 3.2ppt. The gap between OpM and GM improvement (7.4ppt vs 5.7ppt) reflects disciplined cost control, giving confidence that margin improvement is not solely gross-driven.

2Q Guidance and Growth Drivers – Management explicitly called out DDIC (CPC) and ASIC as the key growth drivers for at least 20% sequential revenue growth. This implies revenue of approximately NT$4.2-4.5bn assuming 1Q26 revenue of ~NT$3.5bn, well above current consensus estimates.

Earnings Trajectory – EPS is forecast to grow from NT$32.77 (2025) to NT$64.08 (2026e, +96% YoY), NT$133.18 (2027e, +108% YoY), and NT$240.17 (2028e, +80% YoY). P/E multiples compress from 89x (2026e) to 24x (2028e) as earnings compound at >80% CAGR.

Key Divergences and Risks

Upside Risks – Stronger-than-expected AI demand could further boost ASIC and CPO test equipment orders. Market share gains in smartphone AP, memory, and CPU segments could exceed base case. CPO insertion test development success would open a new revenue stream. The upcoming earnings call on May 15th will focus on CPO insertion test, Zebrafish TPU market share, and smartphone AP/memory/CPU share gains — any positive surprise could push the stock higher.

Downside Risks – Slower AI demand would directly impact ASIC test orders, the primary growth driver. Competitors may close the technology gap in probe cards or CPO testing, limiting MPI’s market share expansion. CPO insertion test development faces technical hurdles; delayed adoption would remove a key optionality. Near-term, at 89x 2026e P/E, any earnings miss or guidance disappointment would trigger multiple compression.

Valuation or Trade Implication

Price target of NT$5,800 is derived from a residual income model with 9.78% cost of equity (risk-free 2.0%, equity risk premium 6.0%), 75% payout ratio, 15% medium-term growth, and 4% terminal growth. At the current price of NT$5,720, implied P/E multiples are 44x 2027e and 24x 2028e, which are justifiable given the >80% EPS CAGR through 2028. For existing holders, the strong 2Q guidance supports holding; for new positions, the 1.4% upside to target price and 89x 2026e P/E warrant patience for a better entry post-August earnings.

Appendix Data Summary (optional)

Note: Revenue figures approximated based on beat vs. guidance of flat QoQ. Full quarterly financials will be released on May 15 earnings call.