VPEC (2455.TW) Semicon Taiwan Chairman visit Optical networking strong demand with better InP substrate supply; Buy

Equity Research 7 September 2026 | 10:04PM HKT

VPEC (2455.TW): Semicon Taiwan: Chairman visit: Optical networking strong demand with better InP substrate supply; Buy

We hosted VPEC’s Chairman and CFO on Sep 3 during Semicon Taiwan. Management Verena Jeng | remains positive on their optoelectronics business, riding on the AI infrastructure Goldman Sachs (Asia) L.L.C.

cycle, specification upgrades, VPEC’s customers’ penetration, and product Allen Chang | expansion. We remain positive on VPEC and the company’s strong Jul and Aug Goldman Sachs (Asia) L.L.C. revenues reaffirm the strong AI data center optical networking demand and InP substrate supply improvement. Maintain Buy with a 12m TP of NT$793 (implied 69x Yifan Hu | Goldman Sachs (Asia) L.L.C. 2027E P/E vs. +61% NI YoY in 2027-28E). Read more: VPEC TP raise; Global Optical Module TAM updates.

Key takeaways 1. InP substrate supply: Management mentioned that supply is getting better and will continue to support the company’s revenue growth in coming months. The company will continue to apply for export permission and expand suppliers (up to four or more InP substrate suppliers), along with more customers to carry InP substrates for them to process, supporting their efforts to narrow down the gap vs. demand.

2. MOCVD supply: Due to strong demand, management mentioned that the lead time for MOCVD has been lengthened from 6 months in late 2025 to 8-12 months now. The company has 62 MOCVD currently, and is installing five MOCVD now, which should contribute capacity in Jan 2027. In 3Q27, another 2 MOCVD are due to start operations, leading to 69 MOCVD in total. The company is also planning a third factory, which will be close to their existing production sites, in order to expand capacity further to better capture strong demand. Management highlighted that MOCVD can be shared across different epiwafers, including transferring some capacity from smartphones (e.g. GaAs epiwafer for PA) to AI data centers.

3. EML base epiwafers: Management stated that progress of this new business is on track across product qualification and capacity preparation. The base epiwafer is for 100G and 200G, and the company expects 2 to 3 customers (all from Asia) to enter mass production in 2027E (currently the company has 5 customers in engagement). Management retains their strategy focused on epiwafers, as avoiding competing with customers and extending to downstream (EML) would reduce GM. Management highlighted their high yield rate on base epiwafers, and said that each customer’s designs for EML epiwafers are also different, raising the entry barrier, along with VPEC’s long experience in epiwafers and capacity that attracts customers.

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4. CW laser customers: Management said there are 1-2 customers in mass production in 2026E, with another 2 customers from the US due to enter mass production in 2027E. The new customers’ InP epiwafers are for 100mW and higher CW lasers. In terms of CPO, management stated that 300mW / 400mW are not easy to make given thermal issues, and thus customers are now working on 100mW and PA, which can be used in NPO. VPEC provides InP epiwafers for both 100mW and PA, with customers continuing to develop 300mW / 400mW (CPO) solutions.

Price Target Risks and Methodology - VPEC Valuation: We adopt a discounted P/E method and apply a 22.2x target P/E on VPEC’s 2029E EPS, discounting back to 2027E at a COE of 10.5% (beta 1.7x, risk free rate 1.6% and market risk premium at 5.1%), to derive our 12m TP of NT$793. Our target P/E is based on a 0.4x PEG&M ratio derived from the average level of peers in the photonics supply chain.

Key risk: Slower-than-expected SiPh…