SCC(SZ:002916) Goldman Sachs·2025-05-27 02:50Investment Rating - The report maintains a "Buy" rating for Shennan Circuits, with a 12-month target price of Rmb152, indicating a potential upside of 40% from the current price of Rmb108.6 [10][13]. Core Insights - Shennan Circuits is positioned as a key beneficiary of China's domestic AI infrastructure investments, expecting robust revenue and net profit growth as local equipment vendors increase their server and networking shipments [10]. - The overall PCB capacity utilization rate is reported at over 90%, with AI-related capacity running at full production due to strong demand from AI servers and networking [3][10]. - The company is facing rising raw material costs, particularly for gold and copper-related materials, but management plans to pass some of these costs onto customers due to high demand [2][3]. Summary by Sections Raw Material Costs - Gold-related raw materials prices are increasing, driven by rising gold prices, while copper-related materials also face high cost pressures [2]. - Gold-related materials account for less than 10% of total procurement at Shennan, allowing some flexibility in cost absorption [2]. PCB Outlook - The demand for PCBs is robust, particularly from local AI applications, including AI accelerators and high-speed optical transceivers [3]. - Management anticipates an improving gross margin outlook into Q2 and Q3 of 2025 due to a favorable product mix driven by AI demand [3]. ABF Business Status - The Guangzhou ABF plant incurred a pre-tax loss of Rmb550 million in 2024, but management expects losses to narrow in 2025 with improved cost control and revenue growth [4][7]. - Monthly depreciation costs at the Guangzhou ABF plant are projected to remain below Rmb30 million, with current costs at Rmb25 million [7]. Financial Projections - Revenue projections show a growth trajectory from Rmb17.9 billion in 2024 to Rmb26.7 billion by 2027, with net income expected to rise from Rmb1.9 billion to Rmb4 billion in the same period [8][10]. - The gross margin is expected to improve from 24.8% in 2024 to 27.2% by 2027, reflecting better operational efficiency and product mix [8].