Author | Freddie
Data Support | GogoData
This year, within the global AI industry chain, not only have the core giants won overwhelmingly, and second- to fourth-tier supporting manufacturers feasted on the benefits, but even some companies whose businesses seem completely unrelated have been wildly hyped.
In the Japanese and Korean stock markets, a group of long-established manufacturing firms have seen their share price gains outpace many AI concept stocks.
TOTO, famous for its sanitary ware, hit a five-year stock price high, rising 145% over the past year.
What's driving this revaluation is not its century-old core business of toilets.
It's its nearly four-decade-long venture into semiconductor precision ceramics.
01 Positioning in the AI Track
TOTO's ceramic business began in 1984. The company established a new materials development department, attempting to migrate decades of high-temperature sintering techniques accumulated from firing toilets towards industrial precision ceramics. In 1990, it started co-developing etching chamber components with American semiconductor equipment giant Lam Research, stepping into the semiconductor supply chain.
But for the next thirty years, this segment remained extremely low-profile. High technical difficulty, low yield rates, and low capacity utilization—semiconductor ceramics long dragged down the group's profitability. Just five years ago, its operating margin was only 9%.
The real inflection point came in 2020. A new factory in Oita Prefecture introduced fully automated production lines and AI quality inspection systems, significantly boosting yields. Subsequently, as AI demand exploded in late 2022, NAND manufacturers frantically expanded production, and orders for electrostatic chucks surged in.
The combination of these two variables completely transformed the ceramic business's face.
In FY2025, semiconductor ceramics sales reached 67.4 billion yen, up 34% year-on-year. Operating profit was 28.9 billion yen, up 42%, with a 43% margin. Its century-old sanitary ware business only managed a 5% margin. While the ceramic business accounted for just 9% of total revenue, it contributed 54% of operating profit.
TOTO's identity in the capital market was once stable—a building materials stock, a sanitary ware stock. Its P/E ratio historically hovered between 18x and 20x. It briefly touched 39.5x at the peak of the 2021 semiconductor cycle frenzy but fell back to 18.8x by late 2024.
The market wasn't ready to price a toilet company as a semiconductor equipment component manufacturer. But four catalysts in 2026 broke this perception:
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January 22: Goldman Sachs upgraded TOTO from "Neutral" directly to "Buy," raising the target price from 4,800 yen to 6,100 yen. The stock rose 11% that day.
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February 17: Activist investor Palliser Capital published an open letter, calling TOTO "the most undervalued AI beneficiary in the market," estimating intrinsic value over 8,800 yen.
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April 30: Annual report release—EPS of 71.16 yen, 79% above market expectations. The stock jumped 18%, the biggest single-day gain in five years.
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June 3: Management announced an 80 billion yen investment plan over five years to expand semiconductor ceramic capacity. The proportion of capex dedicated to semiconductors jumped from 11% to over half. The stock rose another 11%.
After these four successive catalysts, the stock price skyrocketed. But a major divergence from market perception had already emerged.
Is TOTO a "sanitary ware company with a semiconductor business on the side," or a "semiconductor equipment component company with a sanitary ware business on the side"? This corresponds to vastly different valuation multiples.
This judgment is difficult because TOTO's position within the semiconductor chain is extraordinarily unique.
As chips become more advanced, the manufacturing environment becomes harsher. EUV lithography must be done in a vacuum, with temperature fluctuations not exceeding micron-level between steps. Traditional mechanical clamps simply can't withstand it—only ceramic electrostatic chucks can simultaneously meet four conditions: withstand temperatures over a thousand degrees Celsius, resist strong corrosive plasma, provide ultra-high insulation, and not outgas in a vacuum environment.
As 3D NAND stacks from 200 layers to 500, each additional layer requires an extra low-temperature etching step, each needing an electrostatic chuck. As chips shift from monolithic dies to chiplet packaging, thermal density soars, making ceramics the only solution again.
Pushing this logic to its conclusion yields a counterintuitive insight: The more the chip industry pursues "advanced" technology, the deeper its reliance on traditional material and process expertise becomes.
So the question arises: Why can TOTO capture this demand wave?
Competitors can make alumina ceramic parts, but maintaining high purity, uniform grain structure, and precise dimensions during large-scale sintering—the entire set of know-how is mastered only by TOTO. From 1995 to 2026, it filed the most global patent applications for electrostatic chucks. Since starting co-development of chamber components with Lam Research in 1990, they have been bound for over 35 years, with Lam awarding TOTO its Supplier Excellence Award for two consecutive years.
In terms of capacity, TOTO's Kyushu factory is at full capacity, with a new firing workshop in Fukuoka expected to come online in 2027. The 80 billion yen investment plan announced this June far exceeded market expectations.
But what makes competitors despair is not capacity, but time. Qualifying a new supplier for electrostatic chucks takes at least five years. Even if a competitor invests heavily in building a factory now, from starting certification to shipping qualified products would take until at least five years from now.
The market hype around TOTO continues, and the valuation anchor's shift from building materials to semiconductor equipment components is far from complete.
02 Beyond TOTO
TOTO is not an isolated case. The same logic is playing out across different industries.
Nittobo, a 128-year-old Japanese textile company making glass fiber. Its stock price rose 325% last year.
The driver of this surge is a material called T-glass, a low-thermal-expansion glass fiber fabric. As AI chip substrate areas grow larger and layers stack higher, requirements for the thermal expansion coefficient of substrate materials tighten dramatically—ordinary electronic-grade fabrics can no longer meet advanced packaging demands, making T-glass the only choice.
Nittobo controls about 90% of the global T-glass supply, with capacity booked through 2027. The supply gap for high-end products exceeds 40%, directly triggering two rounds of price hikes—a 20% increase in August 2025 and another 20%-30% increase in April 2026. The pricing pressure has traveled up the supply chain, with Apple bypassing multiple channels to directly secure Nittobo's capacity.
The same identity mismatch is happening with another, more famous Japanese company.
Ajinomoto, the world's largest MSG producer, leveraging its amino acid chemistry expertise, developed an insulating film called ABF in the late 1990s, used for interlayer insulation in chip packaging substrates.
Source: Ajinomoto Website
For over two decades, ABF has been the industry's default standard, holding an 80% to 95% global share. As AI chip advanced packaging substrates stack from 8 layers to 16, each additional layer requires another layer of ABF film. This business accounts for only 6% of Ajinomoto's group revenue but contributes 30% of profits, with margins exceeding 50%.
The soaring cases of Nittobo and Ajinomoto point to the same conclusion: In the AI supply chain, the most lucrative positions aren't necessarily at the technological frontier. Those seemingly mundane yet critical choke points with limited and slow-to-respond capacity can also be incredibly lucrative.
The same logic is playing out in the A-share market, but with a different narrative—domestic substitution combined with a time window opened by supply-demand gaps.
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Precision Ceramics
China's localization rate for high-end electrostatic chucks is less than 1%, with 12-inch products almost entirely reliant on imports. Sinoma Advanced Materials (Zhongci Dianzi) is the most advanced domestic player—its electrostatic chucks have passed on-tool verification by a leading domestic equipment maker and entered batch supply; AlN thin-film substrates have also begun customer deliveries.
In Q1 2026, the company's revenue grew 79% year-on-year, with net profit attributable to shareholders up 57%. Its 52-week stock price rose from 45 yuan to 176 yuan, a near threefold increase. Followed by Coma Technology and Pioneer Precision, but they still need time before achieving large-scale shipments.
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Electronic Fabric
High-end electronic fabric prices have cumulatively risen 250% to 300% since early 2024, with even higher increases for some extreme specifications. Honghe Technology is a global leader in ultra-thin fabric (16μm and below), with a ~26% market share, having passed NVIDIA and TSMC certification. Q1 2026 net profit reached 140 million yuan, up 354% year-on-year.
Feilihua Quartz is the only domestic company capable of mass-producing quartz fabric, also certified by NVIDIA—quartz fabric prices range from 200 to 400 yuan per meter, with gross margins exceeding 60%. According to Huatai Securities, the market size for specialty low-dielectric electronic fabrics (Low-Dk and quartz fabric) is projected to surge from 3.9 billion yuan in 2025 to 29.2 billion yuan in 2027, a CAGR of 173.3%. This material has become one of the fastest-growing segments in AI hardware.
The core tension in the A-share mapping lies in: the supply-demand gap provides a time window, while substitution speed determines upside. The real test is—whether capacity can be released on schedule and yield rates can match those of Japanese competitors.
03 Conclusion
Industry classification inertia is extremely strong. A company that has made toilets for a century won't automatically be reclassified as a tech stock just because its semiconductor business contributes over half its profits. The same goes for textile mills, MSG producers, and consumer goods companies—their traditional labels don't fall off automatically.
But changes in profit structure won't wait for market perception to catch up. The only difference is whether the market adjusts gradually amidst hesitation or makes a one-time leap when the logic becomes clear enough.
The structural trend of cross-industry migration is irreversible. AI's precision requirements for chips will only increase, and dependence on traditional material and process expertise will only deepen. But the pace must be sober—logic realization takes time, and stock prices often run ahead of the logic. (End)
