Summary: Jefferies says the Japan precision equipment sector offers notable upside after recent post-quarter weakness. The firm points to improving memory market conditions and an anticipated pickup in capital investments as the primary catalysts for recovery. Its three highlighted names are KOKUSAI, Tokyo Seimitsu, and TOWA, each singled out for potential gains into fiscal year March 2027 and beyond.
Sector backdrop and Jefferies' view
Jefferies frames its sector recommendations around two central themes: an improving memory demand environment and accelerating spending on equipment. The bank expects news flows tied to memory - including sustained demand and tight supply-demand balances - to support equipment makers. Jefferies also anticipates stronger DRAM capital investment and a ramp-up in NAND investment beginning in the latter half of 2026 and extending into 2027.
1. KOKUSAI
Jefferies recommends KOKUSAI on the basis that the stock has room to recover from its decline following third-quarter results disclosure. The firm believes that, setting aside uncertainty in the external environment, favorable memory-related developments are likely to materialize. Those include robust memory demand, continued tightness between supply and demand, accelerated DRAM capex, and an earlier-than-expected acceleration of NAND investment from the second half of 2026 into 2027. Given these expectations, Jefferies sees relatively large potential for a rebound in KOKUSAI's share price.
2. Tokyo Seimitsu
Jefferies expects Tokyo Seimitsu to benefit in its fiscal year ending March 2027 from growth in high-bandwidth memory (HBM) and CoWoS probers, alongside a recovery in commodity memory. The bank points to a meaningful valuation gap that suggests significant upside potential. It does note a risk that company guidance could modestly undershoot consensus estimates, but maintains that growth should persist through FY March 2027 and over the medium term. Jefferies also anticipates the stock is likely to trend higher through the end of 2026.
3. TOWA
For TOWA, Jefferies likewise projects that FY March 2027 results will receive a lift from expansion in HBM compression equipment and a rebound in commodity memory. The firm sees sizable upside given relative valuation metrics. As with Tokyo Seimitsu, Jefferies flags the possibility that near-term guidance could come in slightly below consensus, but it expects continued growth in FY March 2027 and across the medium-term horizon.
Outlook
Across its three picks, Jefferies ties potential upside to memory market improvements and a wave of capital investment in semiconductor-related equipment. The bank highlights valuation-driven room for share-price recovery after recent post-quarter declines, while acknowledging the potential for guidance shortfalls and external uncertainty to temper near-term results.