Core Viewpoint - The article highlights the emergence of new industrial opportunities in cities like Zhuhai, driven by advancements in AI computing power and the expansion of the PCB (Printed Circuit Board) industry, particularly through significant investments like the 5 billion yuan project by Jingwang Electronics [1][3][4]. Group 1: Industry Growth and Investment - Jingwang Electronics has initiated the largest PCB industry expansion project in China this year, with a total investment of 5 billion yuan in Zhuhai, aiming to enhance its production capacity for high-end HDI boards [1][3]. - The PCB industry is experiencing a surge due to the growth of sectors such as electric vehicles, 5G, and AI, with the global PCB market expected to reach 78.6 billion USD by 2025, driven by high-end products [3][9]. - The expansion of Jingwang Electronics is expected to increase its annual output value in Zhuhai to over 10 billion yuan, contributing significantly to the local economy [1][4]. Group 2: Regional Development and Competitive Landscape - Zhuhai has over 100 PCB companies, ranking third in Guangdong in terms of output value, and is becoming a hub for high-end PCB manufacturing as companies from Shenzhen relocate there [1][6]. - The local government and enterprises share a vision for high-end manufacturing, with efforts to transition from mid-range to high-end PCB production, particularly in AI server and automotive electronics [4][10]. - The PCB industry in Zhuhai has seen significant growth, with 174 companies generating 44.4 billion yuan in output, accounting for 15.2% of China's total and 8.5% globally [6][10]. Group 3: Future Prospects and Challenges - The global PCB market is evolving, with a projected annual growth rate of 5.2% from 2024 to 2029, driven by demand in AI, data centers, and automotive electronics [9][10]. - To remain competitive, Zhuhai must enhance its high-end manufacturing capabilities and adapt to the shifting dynamics of the PCB industry, as companies increasingly look to Southeast Asia for production [10].

Summary of Key Points from J.P. Morgan's Research on PCB, CCL, and Substrates Industry Overview - The report focuses on the PCB (Printed Circuit Board), CCL (Copper Clad Laminate), and substrates markets, particularly in the context of AI applications and supply chain dynamics [1][3]. Core Insights 1. **Tight Supply Chain for PCBs**: The PCB supply chain is expected to remain tight or face shortages due to rising specifications and modest capacity additions, particularly in Southeast Asia, which is not yet equipped to produce AI PCBs [3][8]. 2. **New Entrants in AI PCB Market**: There is potential for new suppliers to enter the AI supply chain, especially for major ASIC projects that require high layer count PCBs. Current leading GPU servers utilize HDIs but may revert to multi-layer PCB designs by 2026, which could exacerbate supply tightness [3][8]. 3. **Cooling Methods for ASICs**: Shipments for major ASIC servers are expected to rise in the second half of the year. Liquid-cooled motherboards are anticipated to start shipping in Q3, while air-cooled boards will remain dominant. This dual approach may mitigate the impact of design changes on CCL/PCB suppliers [3][8]. 4. **BT Substrate Price Trends**: The utilization rate (UTR) of BT substrates has increased to 80-90%, contrasting with sluggish performance in previous years. Price hikes are likely due to rising gold prices, although widespread price increases for BT substrates have not yet been observed [3][4][8]. 5. **Impact of Midplane PCB**: The introduction of midplane PCBs in future AI GPU servers is seen as a significant opportunity for the PCB/CCL industry, potentially creating a USD 1 billion annual market. However, the high capacity required for ultra-high layer count designs poses challenges [3][8]. 6. **Capex Expansion Expectations**: PCB and CCL manufacturers are expected to announce further capital expenditure expansions in the next six months due to sustainable supply tightness. China may become a focal point for these expansions, moving away from Southeast Asia [3][8]. Additional Considerations - **Substrate Expansion Outlook**: Substrate expansions are expected to be more subdued due to uncertainties in T-glass supply and modest UTR. The growth rate for ABF supply may fall below the current expectation of 7-8% per annum as some tier-2 suppliers consider suspending or disposing of tools [3][8]. - **Market Dynamics**: The report emphasizes the structural nature of the current supply shortages, driven by increasing board design complexity and the need for advanced materials [3][8]. This summary encapsulates the critical insights and projections regarding the PCB, CCL, and substrates markets as discussed in the J.P. Morgan research report.

Investment Rating - The report maintains a "Buy" rating for Shennan Circuits with a 12-month target price of Rmb132, up from Rmb116.92, reflecting a positive outlook on the company's performance [1][15][21]. Core Insights - Shennan Circuits is expected to see a revenue growth of 19% YoY to Rmb5.2 billion in 2Q25, with net profit remaining relatively flat at -1% YoY due to a high base effect. The gross margin is projected to be 25.3%, slightly increasing QoQ due to product mix improvements [1][3]. - The growth in AI PCB is anticipated to be a significant driver for the company's revenue, with contributions expected to reach 18% and 20% of total revenue in 2025E and 2026E, respectively [12][15]. - The report highlights the optimization of BT substrate pricing, which is expected to positively impact earnings in 3Q25, driven by rising demand and higher raw material costs [7][15]. Summary by Sections Revenue and Profit Forecast - For 2Q25E, revenue is estimated at Rmb5,194 million, representing a 19% YoY increase and a 9% QoQ increase. The net income is projected at Rmb600 million, reflecting a -1% YoY change [3][14]. - The gross margin is expected to be 25.3%, with operating profit at Rmb635 million, indicating an 18% QoQ increase [3][14]. AI PCB Outlook - The demand for AI PCB is confirmed to remain strong, supported by increasing orders from domestic AI customers and steady overseas demand. Shennan's PCB utilization is reported to be close to 90% [2][12]. - AI PCB is projected to be the primary driver of incremental profits for Shennan in 2025E, with significant contributions to gross profit expected [18][15]. Market Position and Competitive Advantage - Shennan Circuits is well-positioned to benefit from the domestic AI infrastructure cycle in China, capturing demand overflow from PCB peers that primarily serve US customers [6][15]. - The company has been expanding its capacity both domestically and internationally to leverage opportunities in the overseas market [6][15].