Hon Precision: Sole CPO Insertion 4E Supplier with 70% EPS CAGR; Accumulate on Weakness

Core Conclusion

Hon Precision’s sole-supplier position in CPO Insertion 4E final-test handling and 60-70% share in ASIC SLT handlers underpin a 70% EPS CAGR (2025e–2028e). The market undervalues the multi-year expansion of CPO test revenue—particularly the 2027 transition to optical-electrical simultaneous testing—and the pricing power inherent in its monopoly-like Insertion 4E role. At 26x 2027e P/E, the stock offers attractive risk-reward for long-term investors.

What the Market Is Underestimating

1. Transition to higher-value optical-electrical testing. Current consensus focuses on pure electrical testing for scale-out switches (2025–2026). Starting 2027, Hon Precision will conduct combined optical-electrical testing for scale-up switches—a more complex, higher-price-per-unit service. This extends the CPO revenue cycle and raises per-unit value.
2. Sole-supplier pricing power in Insertion 4E. No competitor currently supplies the Insertion 4E handler. This implies volume visibility and margin protection not reflected in near-term multiples.
3. Capacity expansion visibility. At least 40% Y/Y capacity addition in 2026 provides a transparent growth floor, with further upside to be detailed on the May 12 earnings call.

Evidence Chain

• Sole supplier for Insertion 4E CPO FT handler. Checks confirm Hon Precision is the exclusive handler supplier for Insertion 4E testing, covering CPO packages (ASIC+OE). Pure electrical testing for scale-out switches runs 2025–2026; optical-electrical simultaneous testing for scale-up switches begins 2027 (Exhibit 1). Scale-up switches represent a higher-complexity product category.
• Dominant ASIC SLT share (60–70%). Hon Precision supplies handlers for Google TPU and next-generation Trainium accelerators. SLT testing is high-volume and high-recurring, tied to leading AI ASIC programs.
• EPS growth trajectory. Consensus estimates: NT$76.26 (2025e), NT$116.17 (2026e), NT$193.10 (2027e), NT$308.30 (2028e). This equates to a ~70% CAGR from 2025e to 2028e.
• Capacity expansion of ≥40% Y/Y in 2026. Further detail expected on May 12 earnings call, which is a key catalyst.
• No direct competition with Chroma. Chroma handles Insertion 4O (optical-only testing), a separate test insertion step. Hon Precision’s Insertion 4E role remains uncontested near-term.

Key Risks

1. Slower AI demand. Lower-than-expected AI infrastructure buildout could reduce CPO testing volume and delay adoption of scale-up switches.
2. Peer encroachment. Competitors (e.g., Chroma) could develop Insertion 4E capabilities over time, eroding sole-supplier status.
3. CPO technology delays. If optical-electrical testing development slips beyond 2027, the higher-value revenue stream is postponed, reducing near-term growth visibility.

Valuation and Trading Implication

At 26x 2027e P/E, Hon Precision trades at a substantial discount to its 70% three-year EPS CAGR. The residual income–based price target of NT$5,000 implies 43x/26x/16x 2026e/2027e/2028e P/E. We recommend accumulating on any weakness. Key catalysts: the May 12 earnings call (capacity and CPO update) and the 4Q26 start of Insertion 4E FT handler shipments, which should solidify revenue visibility into 2027.

Appendix Data Summary

Test insertion timeline: Pure electrical testing for scale-out CPO switches (Spectrum+Quantum) runs 2025–2026. Optical-electrical simultaneous testing for scale-up switches begins 2027e. Capacity expansion ≥40% Y/Y in 2026.