AP Memory: 1Q26 Beat; Three Growth Engines Propel 60%+ EPS Growth in 2027-28

Core Thesis

AP Memory delivered a 1Q26 EPS of NT$4.15, 19% above consensus, driven by IoTRAM (ApSRAM) and S-SiCap (IPD) revenue. The company now expects three long-term growth engines—IoTRAM, S-SiCap, and VHM (WoW packaging)—to each contribute one-third of revenue. With new products entering mass production and design-in pipelines broadening, 2027 and 2028 EPS growth is estimated to exceed 60% annually. We maintain Overweight with a NT$1,555 target price.

What the Market May Be Underpricing

The current 88x 2026e P/E sits more than one standard deviation above the historical average of 27x. This multiple appears stretched but fails to reflect two key dynamics: (1) the ramp of S-SiCap and WoW will push new-business revenue share to 74% by 2028, fundamentally changing the earnings composition; and (2) 2027–28 EPS growth of 60%+ per year compresses the 2027e P/E to 45x and 2028e P/E to 17x, levels that are below the historical average for a company with accelerating margins.

Evidence Chain

1. 1Q26 earnings exceeded expectations across all lines.
Revenue reached NT$2,100mn (+115% YoY, +12% QoQ), in line with estimates. EPS of NT$4.15 beat the consensus of NT$3.49 by 19%. Gross margin of 46.2% was 1.6ppt below model due to a lower VHM product mix, but operating margin of 28.0% was only 0.6ppt below. The non-operating line benefited from FX gains and interest income.
Investment implication: The beat confirms that IoTRAM demand is robust and S-SiCap is ramping faster than expected. The temporary GM miss is mix-driven, not structural.

2. S-SiCap (IPD) is already 27% of 1Q revenue; LSC mass production in 2Q.
The new landside capacitor (LSC) product, a higher-value IPD, is scheduled for volume production in 2Q26. IPC products drove most of the S-SiCap revenue in 1Q. Management also expects the VHM (WoW) product line to contribute significant revenue from edge AI and server use cases over the next two years.
Investment implication: By 2028, we estimate 74% of total revenue will come from these two newer businesses, structurally lifting margins as WoW packaging carries higher ASP.

3. EPS compound 60%+ in 2027 and 2028.
Our revised EPS estimates for 2026/27/28 are NT$17.65, NT$34.34, and NT$60.74, up 9%/26%/39% from prior. The acceleration is driven by: (a) multiple ApSRAM design-wins moving to mass production (wearable, display, MCU); (b) S-SiCap volume growth from IPC and LSC; and (c) VHM revenue starting in earnest.
Investment implication: The earnings trajectory implies a 2028e P/E of 17x, below the historical average, suggesting the current multiple is an entry point for future growth.

Key Risks

• Consumer technology demand (especially IoT) could weaken, delaying IoT-related design-ins.
• S-SiCap (IPD) and WoW packaging development may face technical or yield hurdles, delaying mass production.
• Competition from foundries, memory manufacturers, GPU vendors, or other design houses could compress pricing.
• PSMC capacity migration will temporarily affect IPC production, potentially weighing on near-term S-SiCap revenue.

Valuation & Trading Implications

Our NT$1,555 target is derived from a residual income model assuming: cost of equity 9.2% (Rf 2.0%, ERP 6%, beta 1.2), payout ratio 67%, intermediate growth rate 16% (raised from 14.3% to reflect ApSRAM and VHM progress), and terminal growth 3.0%.

• Bull case: NT$1,830 (104x 2026e P/E) – faster WoW and IPD monetization with gross margin above 60%.
• Bear case: NT$620 (35x 2026e P/S) – slow adoption of new businesses, with PSRAM facing margin compression.

At current price of NT$1,055, the base case implies 47% upside. Investors should size positions with an understanding that near-term multiple compression risk is offset by high earnings growth visibility.

Appendix: Key Financial Data