Tokyo Electron reported FY1Q27(CY2Q26)revenue of JPY732.4bn(+33.3%YoY),marking aquarterly record high but falling short of Bloomberg consensus by 3.0%.Operating profit was JPY211.4bn(+46.1%YoY),largely in line with Bloomberg consensus,and attributable net profit(NP)was JPY164.3bn(+39.5%YoY),beating Bloomberg consensus by 4.3%.We believe the core change lies not in the quarterly figures,but in the company's narrative regarding market size and its own profitability.Tokyo Electron raised its estimate for CY27 global WFE market size by awide margin,and management confirmed an operating profit target of JPY1tn for FY27.We lift our FY27/FY28/FY29 earnings forecasts and derive our target price at JPY68,800.Maintain BUY.

FY1Q27 revenue:QoQ growth mainly driven by Field Solutions
In 1QFY27,revenue grew by 2.9%QoQ albeit with mixed segmental performance.Revenue from new SPE equipment was JPY531.3bn(-1.6%QoQ),while revenue from Field Solutions was JPY188.0bn(+15.5%QoQ,+33.1%YoY),hitting aquarterly record high.We estimate this segment's QoQ revenue increase at about JPY25.2bn,outpacing the company's topline rise of about JPY20.6bn.In 1QFY27,GPM was 46.8%,1.3pp above the 45.5%guidance for 1HFY27 provided by the company in April.

Raise CY27 global WFE market forecast to above USD190bn
Tokyo Electron reiterates its estimate for CY26 global WFE market size of over USD150bn,and raises its CY27 forecast from USD150-170bn in April to over USD190bn,implying an increase of around 27%from the lower end of the previous range.In global major semiconductor equipment segments,Tokyo Electron is the first manufacturer to provide aforecast for CY27 market size in 3Q26 QTD.Management stated that this figure serves as afloor,and the use of"over"primarily considers whether supply-side capacity can support this demand scale.Management also noted they are not surprised by market forecasts of around USD200bn.

FY27 operating profit guidance of JPY1tn
Tokyo Electron revised up its 1HFY27 revenue/operating profit guidance by 3.2/6.3%to JPY1,620/458bn.New SPE equipment revenue guidance was lifted from JPY1,200bn to JPY1,240bn(+45.9%YoY),with the 2QFY27 revenue guidance for new equipment of JPY708.7bn representing aQoQ rise of 33.4%.Management projected FY27 operating profit of JPY1tn,and we estimate FY27 operating profit margin at 29.9%.

Earnings forecasts and valuation
Based on the better-than-expected 1HFY27 guidance and strong demand for NAND/DRAM/logic products fueled by agentic AI,we revise up our FY27/FY28/FY29 revenue forecasts by 5.2/10.7/19.6%to about JPY3.4/4.1/4.7tn(+38.1/+21.4/+14.7%YoY)and raise attributable NP forecasts by 12.8/26.3/32.2%to JPY781.0/1,060.6/1,243.2bn(+36.0/+35.8/+17.2%YoY).We value the stock at 40.6x FY27E PE,above its peers'average of 34.7x on Factset consensus to reflect its leading market shares in core equipment categories such as coaters/developers/etching machines.We apply ahigher premium based on the company's upgraded CY27 global WFE market forecast to over USD190bn,a target of lifting GPM to 50%within two years,and the expectation that price adjustments could start to contribute meaningfully to earnings increments in 4QFY27.Our target price is JPY68,800.Maintain BUY.

Risks:macroeconomic fluctuation,geopolitical uncertainties,semiconductor downcycles,demand growth in AI and other end-markets falling shy of our expectations.