JX Advanced Metals: Validating the focus strategy

We initiate coverage of JX Advanced Metals, whose key growth driver is semiconductor materials, with a Neutral rating and a price target of ¥3,700. We expect OP for the Focus Businesses (40% of FY3/26 OP)—which comprise semiconductor materials, including semiconductor sputtering targets and InP substrates, and ICT materials, including titanium copper and rolled copper foil—to grow at a high CAGR of 30% over the next three years. However, consensus already factors in this high growth. In addition, as we expect valuation gains in the Base Businesses (60% of OP), whose main source of earnings is mining interests, to fall away next fiscal year, we can hardly expect strong growth in overall OP. Over the medium to long term, growth in InP substrates, a potential "golden egg," could drive earnings upside, but we are not yet convinced that high production yields can be sustained from FY3/29 onward. We forecast OP for the Focus Businesses at ¥105bn, ¥134bn, and ¥171bn in FY3/27–29, respectively