Morgan Stanley Slashes Yageo Price Target to NT$1,465 as Stock Halved from Peak

Yageo, a prominent passive component manufacturer, is experiencing significant stock market volatility, with its share price plummeting by over 40% from its recent high. This sharp decline has captured market attention, especially as the company prepares for its investor conference next Wednesday.

Morgan Stanley, while maintaining a "buy" rating on Yageo, has revised its price target downward from NT$1,515 to NT$1,465. This adjustment makes it the first foreign institution to lower its target price for the company. The brokerage's report indicates that demand for AI applications is squeezing supply in the mid-to-low-end segment, while tantalum capacitor prices continue to rise, and capacity utilization is increasing.

The upcoming investor conference will be a key event for Yageo. Investors will be looking for insights into the company's pricing strategies, its outlook for the mid-to-low-end MLCC (Multi-Layer Ceramic Capacitor) capacity crunch expected next year, and how its current situation compares to previous market cycles. Morgan Stanley anticipates that despite rising prices, Yageo's profit margins may not see substantial improvement in June.

Looking ahead to the third quarter, Morgan Stanley forecasts moderate revenue growth for Yageo, with slight increases in gross and operating profit margins. The firm projects a 30-40% rise in average selling prices in the second half of the year, leading to an estimated 8% sequential revenue increase to NT$47.6 billion. Gross margin is expected to reach 40.3%, and operating profit margin 28.9%, with earnings per share at NT$5.49.

Morgan Stanley has also lowered its earnings per share (EPS) forecasts for the next three years by 2-3%, projecting NT$20.1, NT$34.2, and NT$46.8 for 2026, 2027, and 2028, respectively. Based on the 2028 EPS and a price-to-earnings ratio of 31, the target price is set at NT$1,465. In an optimistic scenario, where demand outpaces expectations and enhances Yageo's pricing power in high-end and standard products, the target price could reach NT$2,075. Conversely, a pessimistic outlook, driven by weakening non-AI demand in the second half and increased competition, could see the target price fall to NT$685.