Rising Memory Demand Will Shape Semiconductor Packaging Markets

Key Takeaways

• Expanding capacity in advanced display and memory products positions ChipMOS to benefit from strong sector demand and capture share in emerging automotive and smart device markets.
  
• Strategic price increases and disciplined investment in automation and quality enhance profitability, operational efficiency, and consistent shareholder returns during industry cycles.
  
• Margin compression, reliance on declining legacy segments, customer concentration risks, memory market volatility, and cautious investments threaten long-term competitiveness and earnings stability.

Catalysts

Engages in the research and development, manufacture, and sale of integrated circuits, and related assembly and testing services in Taiwan, Japan, the People’s Republic of China, Singapore, and internationally.

• Solid momentum and volume growth in memory products (particularly DRAM and NAND Flash) driven by demand from data centers, AI-enhanced devices, and communications infrastructure is expected to continue benefiting ChipMOS as supply/demand imbalances in DDR4 and strong demand for DDR5 products persist, supporting revenue growth and improved utilization rates.
  
• OSAT price increases for memory products (5-18%) implemented in Q3 aim to offset rising material costs (notably gold and substrates) and are expected to help expand profitability and net margins in the near term, with future pricing power reflecting a healthy demand backdrop for advanced semiconductor packaging.
  
• Ongoing strategic capital allocation prioritizes expanding capacity and product mix into higher-growth, higher-margin areas such as advanced DDIC for OLED/AMOLED and automotive displays, which positions the company to capture market share from the increasing adoption of smart devices and automotive electronics, supporting longer-term revenue and earnings growth.
  
• Conservative CapEx discipline and investments focused on automation, quality improvement, and operational efficiency are designed to enhance cost controls and maintain a strong balance sheet, contributing to margin resilience and the potential for higher free cash flow over time.
  
• Sustained capital returns via stable dividend payouts and share repurchases, underpinned by robust retained earnings and a strong balance sheet, further support shareholder value and earnings per share, even during cyclical downturns, and may be underappreciated by the market.

ChipMOS TECHNOLOGIES Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ChipMOS TECHNOLOGIES's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 13.2% in 3 years time.
• Analysts expect earnings to reach NT$3.2 billion (and earnings per share of NT$4.39) by about September 2028, up from NT$174.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, down from 105.7x today. This future PE is lower than the current PE for the US Semiconductor industry at 31.1x.
• Analysts expect the number of shares outstanding to decline by 2.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.29%, as per the Simply Wall St company report.

ChipMOS TECHNOLOGIES Future Earnings Per Share Growth

Risks

• Persistent margin pressure from rising input costs (including gold price increases of over 30% year-on-year, higher electricity tariffs, and increased material costs), coupled with pricing declines in display driver ICs and currency headwinds (NTD appreciation), are compressing gross margins and significantly eroding profitability, as evidenced by the nearly 7.4 ppt annual gross margin decline; this trend poses a long-term threat to both earnings and net margins.
  
• Continued reliance on mature or declining product segments-such as DDIC, gold bumping, and LCD driver ICs-accounts for roughly 44.7% of revenues, but these segments experienced double-digit sequential and annual revenue declines, indicating shrinking demand and accelerating legacy technology obsolescence that risk reducing future revenues and compressing net margins.
  
• Customer/end-market cyclicality and concentration risks are pronounced: automotive/industrial and TV panel revenues declined sequentially (down 1% and 13.8% respectively), while smartphone and consumer demand remain highly sensitive to global economic weakness, exposing overall company revenue and profitability to deeper cyclical downturns.
  
• Despite positive growth in memory and flash (memory products accounted for 45.3% of Q2 revenue with sequential and annual growth), this reliance increases exposure to volatile, cyclical memory markets and intensifying competition, which could lead to volatile swings in revenue and significant margin pressure in downturns.
  
• The company's conservative capital expenditure strategy-while bolstering short-term balance sheet strength-may limit its ability to accelerate R&D investment, capture opportunities in advanced packaging/test for AI, EV, and next-gen display, and maintain technological competitiveness in the face of rapid industry evolution, thereby potentially constraining long-term revenue and earnings growth.

Valuation

• The analysts have a consensus price target of NT$36.0 for ChipMOS TECHNOLOGIES based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$24.5 billion, earnings will come to NT$3.2 billion, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 11.3%.
• Given the current share price of NT$26.1, the analyst price target of NT$36.0 is 27.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.