Semiconductor Production Equipment_ Confirm OW on Back-end Makers, Upgrade SCREEN (OW), Downgrade Tokyo Electron (EW) in New SPE Preference Order

Summary of Semiconductor Production Equipment Conference Call Industry Overview - The conference call focused on the Semiconductor Production Equipment (SPE) industry in Japan, particularly the market dynamics affecting front-end and back-end equipment manufacturers [1][4][7]. Key Companies Discussed - Ulvac (6728.T): Downgraded price target from ¥9,600 to ¥7,700 due to slowing demand for power semiconductor equipment [4][19]. - Lasertec (6920.T): Price target reduced from ¥20,600 to ¥16,400 amid lower demand forecasts [4][19]. - Tokyo Electron (8035.T): Downgraded from Overweight to Equal-weight due to increased market risks [4][19]. - SCREEN Holdings (7735.T): Upgraded from Equal-weight to Overweight, with expectations of solid earnings growth [4][12]. Market Dynamics - WFE Market Outlook: Slightly raised outlook for the Wafer Fabrication Equipment (WFE) market, expecting a contraction of 3% YoY to $99 billion in 2025, followed by a 4$103 billion in 2026 [9][10]. - China Market Uncertainty: Significant decline in sales to China expected, with a forecasted 30% YoY fall in sales for the year [8][10]. Companies are adjusting their forecasts based on varying expectations for the Chinese market [8][10]. - Capex Trends: Investment appetite is weakening for power devices and mask shop tools, with DRAM makers showing increased interest in EUV exposure tools [3][7]. Financial Adjustments - Earnings Forecasts: Earnings forecasts for Ulvac and Lasertec have been trimmed due to lower demand expectations [3][7]. - Production Cuts: Anticipated production cuts for most front-end equipment, with unclear timing for market recovery [7][10]. Investment Recommendations - Preferred Stocks: Disco and Advantest are recommended as strong back-end demand continues, with both companies operating at full capacity [13][14]. - Valuation Adjustments: The industry is viewed as attractive due to lower valuations, with price target upside for most stocks [14][19]. Risks and Opportunities - Risks: The potential for a harsh downturn in the Chinese market due to US restrictions poses a significant risk to recovery projections [10][13]. - Opportunities: Recovery in electronic device demand and investments in AI-related technologies are seen as potential growth drivers [42][46]. Conclusion - The Semiconductor Production Equipment industry is facing mixed signals, with some companies showing resilience while others are adjusting to a challenging market environment. The focus remains on navigating uncertainties, particularly in the Chinese market, while capitalizing on emerging opportunities in advanced technologies.