Nittobo (3110 JP) -- The King of Electronic Fiber Glass

Let me introduce one of my favorite stocks in Japan: Nittobo.

We know that whether it's a CPU or a GPU chip, these high-computational power chips first need to be placed on a substrate, which is then mounted on a PCB. Both the substrates and PCBs are constructed from a core layer and several built-up layers. The core layer, known as CCL, uses fiberglass as the base material, which is impregnated with epoxy resin and treated by drying, then coated with ultra-thin copper foil on one or both sides, and manufactured through a special hot pressing process.

One of the core requirements for substrates and PCBs under high-computational chips is to reduce signal loss during high-speed transmission. Therefore, the quality of fiberglass in these boards is crucial. The general electronic-grade fiberglass is known as E Glass. However, for ultra-low loss CCLs used in AI servers, such as M6 to M7 level, a higher grade NE Glass fiberglass is required. For even higher requirements, such as in 800G switches, the M8 level super ultra-low loss CCLs need the highest grade NER glass fiberglass. The price of NE Glass is approximately 6x that of the lower grade E Glass, and NER Glass costs about 2.5x that of NE Glass.

There are many companies worldwide that can provide E Glass fiberglass, such as China's Taishan Fiberglass and China Jushi; however, only a few companies in Japan and Taiwan (such as Asahi Kasei, Unitika, and Taiwan Glass) can provide NE Glass fiberglass. Although these companies can manufacture NE Glass fiberglass, they must purchase the raw material NE Glass fiberglass yarn (from which the fabric is woven) from just two other companies.

Only two companies in the world can produce NE Glass fiberglass yarn that meets the M6 to M7 levels: Nittobo in Japan and AGY in the USA, with Nittobo holding over 80% of the global market share. AGY primarily focuses on industrial and aerospace sectors and does not expand capacity in electronic-grade fiberglass yarn. Furthermore, Nittobo is the only company worldwide that can produce NER Glass fiberglass yarn that meets M8 levels. Therefore, Nittobo being called the king of electronic-grade fiberglass is quite fitting.

Currently, Nittobo's NE Glass is used in NVDA's HGX modules in the UBB boards, and the higher-grade NER Glass is required for the 800G switches connecting AI servers. Since mid-last year, Nittobo has seen an explosive growth in demand for its NE Glass, even leading to tight supply situations.

But Nittobo's potential goes beyond this. Currently, about 40% of the company's electronic-grade fiberglass sales are NE Glass, with another 30% being T Glass, and the remaining 30% lower-grade E Glass. Sales of NE Glass are expected to continue growing with NVDA's AI server sales. Besides high-speed transmission NE Glass, Nittobo holds a global monopoly in T Glass (100% market share), which was specifically designed for ABF substrates, thus Nittobo faces no competition in the ABF sector. With the recovery in general server and PC demand this year, the 30% of Nittobo's sales from T Glass is also expected to grow. For the remaining 30% of the ordinary-grade E Glass, Nittobo coordinated with its Japanese counterpart Asahi Kasei to raise prices and thus improve its profit margins.

Since the second half of last year, Nittobo has revised its financial guidance upwards twice, resulting in the stock price more than doubling from its low. I remain very optimistic about the company's growth potential and believe that Nittobo will continue to revise its financial guidance upward this year, with the stock price potentially breaking past its previous historical high.