Gudeng Precision: Beneficiary of Strong TSMC Capex and EUV Pull-In; OW

Core Conclusion

Maintain Overweight, raise price target to NT$648 (15% upside from NT$564). Gudeng Precision (3680.TWO) is a direct beneficiary of TSMC’s historic three-year capex of US$200bn (2026-28) and aggressive pull-in of EUV scanners, driving 30-40% Y/Y growth for its EUV pod business in 2027-28. Recovery of China FOUP sales, carrying higher margins than TSMC, partially offsets depreciation and utility cost headwinds. The stock trades at ~20x 2027e P/E, below -1SD of its historical average since 2020, offering an attractive entry for a structural growth story.

What the Market Underestimates

Consensus 2028 EPS of ~NT$29 is ~24% below our estimate of NT$38. Two key mispriced drivers: (1) TSMC’s EUV scanner pull-ins for 2027-28 are more aggressive than modeled, directly accelerating Gudeng’s EUV pod revenue (0.96 correlation with ASML EUV installed base); (2) China FOUP business recovers faster than expected, with margins ~5 points above TSMC-level, lifting overall margin trajectory.

Evidence Chain

1. TSMC’s capex surge and EUV pull-in directly boost Gudeng’s EUV pod demand

• TSMC 3-year capex (2026-28) estimated at US$55bn/70bn/75bn, per MS Foundry Floorplan report (Apr 2026) and industry checks showing EUV scanner pull-ins for 2027-28.
• Gudeng’s reticle carrier revenue shows 0.96 correlation with ASML’s EUV installed base (2017-25). Annual EUV scanner installed base is accelerating structurally (ASML analyst notes 80+ EUV capacity likely just an opening guide).
• Bottom-up TSMC 3nm/2nm utilization rate likely exceeds 100% in coming years, requiring more capacity and thus more EUV pods. Gudeng holds ~85% global market share in EUV pods.

2. China FOUP recovery is underway and margin-accretive

• Gudeng targets China revenue of NT$2bn in 2026 (20-30% of total), up from ~20% in 1Q26. FOUP margins from Chinese customers are higher than TSMC’s, helping offset depreciation and summer utility cost headwinds in 2H26.
• Quality issues that dragged 2025 results are being resolved; repair expenses expected to end by 2Q-3Q26.

Key Risks

• Slower-than-expected advanced node capacity expansion by TSMC or other fabs reduces EUV pod demand.
• Loss of market share to global peers (e.g., Entegris) or from R&D delays in China localization.
• Weakening semiconductor demand leads to oversupply and capex cuts, lowering Gudeng’s revenue growth below 15% CAGR.

Valuation and Trade Implications

Price target NT$648 derived from residual income model (CoE 8%, terminal growth 3%, intermediate growth 13%, raised from 12% due to EUV pull-in). Implies 24x 2027e P/E, below -1SD of historical average (25x). Stock offers 15% upside. 2026-28 EPS CAGR of 42% (NT$19.44→38.00) supports re-rating. Key catalysts: 2Q26 revenue rebound ~20% Q/Q (record high), and 2027-28 EUV pod delivery acceleration. Bull case NT$810 (29x 2027e). Bear case NT$325 (12x 2027e).

Appendix (Data Compression)