Downside risks to our target price include 1) a contraction in tester demand as HPC/AI-related test efficiency improves; 2) increasing competition leading to lower market share and margin deterioration; 3) testers, which are not currently targeted by restrictions on exports to China, becoming subject to the restrictions; 4) yen appreciation (most testers are sold in dollars).      

Upside risks include 1) greater-than-expected growth in SoC tester demand on a sustained rise in test intensity; 2) a clear rise in demand for and profitability of DRAM testers, including for HBM, and other applications; 3) expansion in the system-level test business exceeding market expectations; 4) further clarity on enhancements to shareholder returns and the importance being attached to capital efficiency; and 5) yen depreciation.              

We note that every ¥1/$ change results in a ¥1.3bn swing in annual OP, while every ¥1/€ change results in a ¥0.3bn swing. Advantest split its shares four for one on October 1, 2023.