Key Takeaways:
UBS Group AG boosted its price target on Montage Technology Co. Ltd. (06809.HK) by 60% to HKD380, citing surging artificial intelligence demand for the company's chipsets.
"The revisions are mainly based on the company’s first-quarter gross margin significantly beating expectations, a stronger server CPU outlook driven by Agentic AI...and advances in PCIe Gen6 Retimer and PCIe Switch R&D," the bank's report said.
The bank raised its 2027 and 2028 revenue forecasts for Montage's memory and PCIe interconnect businesses by 14 percent and 30 percent, respectively. Correspondingly, the valuation multiple used in the bank's model was increased to a 70x blended forecast price-to-earnings ratio from 54x previously.
Montage's stock has surged 52 percent since the Lunar New Year. Despite the rally, UBS considers the valuation attractive, with a price-to-earnings growth (PEG) ratio of 1.3x based on a projected 45 percent earnings per share compound annual growth rate from 2027 to 2030.
The bullish call on Montage comes as China's technology sector sees a broad rally. The STAR 50 Index, which tracks the largest stocks on Shanghai's high-tech board, recently surged to a record high. Shares of chip developers like Hygon Information Technology Co. and Biwin Storage Technology Co. have seen double-digit percentage gains.
Montage, a key designer of memory interface chips, is seen as a primary beneficiary of China's push for technological self-sufficiency and the global AI boom. The company's Hong Kong-listed shares have tripled since their debut in February, recently overtaking battery giant Contemporary Amperex Technology Co. Ltd. (CATL) as the most expensive dual-listed stock relative to its mainland shares.
UBS's revised forecasts reflect this optimism. The bank lifted its 2027 and 2028 revenue estimates for Montage's PCIe interconnect business by 19 percent and 40 percent, respectively, to RMB2.3 billion and RMB3.7 billion.
The significant price target increase suggests UBS sees further upside, even after the stock's recent run. The new target implies an 18 percent upside from the stock's recent closing price. Investors will be watching the company's ability to execute on its R&D roadmap and capitalize on the demand from China's rapidly growing digital economy, which reached $7.1 trillion in 2021.
This article is for informational purposes only and does not constitute investment advice.
