Flash | Shennan Circuit (002916.SZ) Option Scheme To Ensure Growth Visibility Till 2028E CITI'S TAKE Shennan announced its Phase II Restricted Stock Incentive Plan, granting 15.16m shares (2.27% of total issued capital) to 667 key personnel at RMB114.72/share. We view this positively as it aligns key talent with shareholder interests during the critical AI upcycle. Notably, the unlocking criteria are stringent: requiring recurring net profit CAGR of ≥13% (vs. 2024) and continuous ROE improvement (to >12.8% ...

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Investment Ratings - The investment ratings for the companies discussed are all "Buy" with target prices set for VGT at Rmb407.0, WUS at Rmb98.0, and DSBJ at Rmb95.0 [9][11][7]. Core Insights - The PCB industry is experiencing structural growth driven by AI demand, with companies like VGT, WUS, and DSBJ positioning themselves to capitalize on this trend [2][3][6]. - VGT expects a return to normal production levels in 4Q25 after a transition impact in 3Q25, with significant revenue growth anticipated from its largest AI customer in 2026 [1][2]. - WUS highlights that while funds and equipment are not bottlenecks for capacity expansion, human resources may pose challenges [3]. - DSBJ is set to benefit from the AI cycle, with expectations for breakeven in its Thailand FPCB business and a turnaround in precision components by 2026 [6]. Company Summaries VGT (Victory Giant) - VGT has accelerated capacity expansion for 2026-2027, with most equipment booked and an increase in localization rates [2]. - The company anticipates meaningful contributions from CSP clients in 2026, despite small batch production in 4Q25 [2]. WUS - WUS faces fierce competition in the mid-to-low end PCB market, with AI driving structural growth [3]. - The company reported a loss of approximately Rmb40 million in its Thailand plant in 3Q25, but noted improvements in product quality and employee proficiency [3]. DSBJ (Dongshan Precision) - DSBJ is focusing on AI infrastructure opportunities through its RPCB and optical transceiver businesses, with a significant capacity expansion plan of US$1 billion [6]. - The company plans to dispose of its LED business this year and expects revenue growth from key smartphone customers [6].

Summary of Conference Call Notes Industry Overview - **Industry**: Taiwan PCB & Laminates, specifically focusing on the ABF/BT sector - **Key Companies Mentioned**: Nittobo, Ajinomoto, NYPCB, Unimicron, Kinsus, MGC, Nan Ya Plastics Core Insights and Arguments 1. **Positive Outlook for ABF/BT Sector**: - Nittobo and Ajinomoto's results indicate strong demand for T-glass and ABF, respectively, suggesting a favorable environment for the ABF/BT sector through 2026E [1][2][10] - Nittobo raised its guidance due to robust T-glass demand and ongoing supply shortages [1] 2. **Price Hikes and Capacity Expansion**: - Nittobo is negotiating price hikes of 20%-30% due to strong AI demand, with T-glass capacity expected to increase by 10%-20% in 2026 and double by 2027 [2] - New T-glass vendors, including Taiwan Glass Industry and Nanya Plastics, are expected to start production in 1Q26E [2] 3. **Robust Demand for ABF**: - Ajinomoto reported a 21% YoY increase in revenue from electronic materials, driven by AI server demand, with expectations for continued growth in the second half of FY25 [9] 4. **Investment Recommendations**: - Citi recommends buying shares of NYPCB and Unimicron in Taiwan, and MGC and Ajinomoto in Japan, based on their strong market positions and expected recovery in demand [1][10] Additional Important Insights 1. **T-glass Shortage**: - The T-glass shortage is anticipated to become more widespread, impacting the ABF/BT sector and downstream production [10] - The ongoing price increases in the sector are expected to benefit companies like NYPCB and Unimicron [10] 2. **Earnings Estimates**: - Kinsus, Nan Ya PCB, and Unimicron have varying earnings projections, with Kinsus expected to recover gradually from current challenges [19][20][28] - Unimicron is positioned to benefit from ABF tightness and potential demand recovery in the latter half of 2023 [28] 3. **Risks**: - Key risks for Kinsus include weaker smartphone demand and potential oversupply in the ABF market [21] - For NYPCB, risks include weaker-than-expected demand from key customers and severe T-glass shortages [26] - Unimicron faces risks from HDI business weakness and increased ABF supply [31] 4. **Valuation Metrics**: - Target prices for Kinsus, NYPCB, and Unimicron are set at NT$160, NT$360, and NT$220, respectively, based on DCF models reflecting their growth potential and market conditions [20][25][29] This summary encapsulates the key points from the conference call, highlighting the positive outlook for the ABF/BT sector, the implications of T-glass demand and supply dynamics, and the investment strategies recommended by Citi Research.

Summary of Conference Call on Taiwan PCB & Laminates Industry Industry Overview - The focus is on the ABF (Ajinomoto Build-up Film) and BT (Bismaleimide Triazine) sectors, which are currently experiencing an upcycle driven by AI demand and T-glass shortages [2][3][12]. Key Points ABF and BT Sector Dynamics - **ABF Consumption and Pricing**: There is an expected increase in ABF consumption driven by AI chips, with a projected growth of +75% year-over-year in 2026E. This is supported by ABF specification migration and CoWoS (Chip-on-Wafer-on-Substrate) capacity ramp-up [4][29]. - **Price Hikes**: Anticipated price hikes for ABF starting in 4Q25E due to T-glass shortages and rising material costs. BT prices are also expected to rise, influenced by memory demand and copper/gold price increases [3][41][42]. T-glass Shortage - **Impact on ABF/BT Sector**: T-glass shortages are expected to intensify in 2H25, affecting both ABF and BT sectors. New suppliers from Taiwan, such as Taiwan Glass Industry and Nan Ya Plastics, are expected to join the supply chain, but significant relief is not anticipated until 2H26E [3][17][25]. - **Supply Chain Challenges**: Current T-glass suppliers are unable to meet demand, leading to tight supply conditions for BT substrates. This situation is exacerbated by rising AI demand, which is consuming T-glass resources [17][24]. Company-Specific Insights - **Investment Recommendations**: - NYPCB has been upgraded to "Buy" with a target price raised to NT$360 from NT$175, driven by demand for high-speed switches and potential ASIC project wins [5][6]. - Unimicron is also favored, with a target price increase to NT$220 from NT$165, supported by improving yields in compute boards [5][6]. - Kinsus remains a "Buy" with a target price raised to NT$160 from NT$115, benefiting from BT price hikes and potential orders from tier-1 ABF players [5][6]. Financial Projections - **Earnings Estimates**: - Kinsus: EPS projected to increase from 3.69 to 5.98 in the next fiscal year. - Nan Ya PCB: EPS expected to rise from 1.89 to 2.30. - Unimicron: EPS forecasted to grow from 2.09 to 3.11 [6][9]. Risks and Considerations - **Market Risks**: Potential FX headwinds could dampen profitability in 2H25E. The balance of supply and demand for ABF is uncertain, with several conditions needing to be met for improvement in 2H26E [5][44]. - **Supply Chain Vulnerabilities**: Companies like AMD and AWS may face challenges if T-glass shortages persist, as they have lower bargaining power compared to larger players like Nvidia and Broadcom [53][56]. Conclusion - The ABF and BT sectors are poised for growth driven by AI demand and T-glass shortages, with significant price hikes expected. Companies like NYPCB, Unimicron, and Kinsus are well-positioned to benefit from these trends, although risks related to supply chain dynamics and market conditions remain [2][5][12].

Summary of Shennan Circuit (002916.SZ) Conference Call Company Overview - **Company**: Shennan Circuit - **Industry**: PCB (Printed Circuit Board) manufacturing - **Market Position**: Leading PCB supplier in China, focusing on telecom and aeronautics sectors, with a "3-in-1" model encompassing PCB, PCB assembly, and IC substrate packaging [20][21] Key Financial Highlights - **Revenue Growth**: - 9M25 revenue increased by 28.4% year-over-year (YoY) to RMB 16.754 billion, with 3Q25 growth at 33.3% compared to 25.6% in 1H25 [1] - **Net Profit**: - Attributable net profit surged 56.3% YoY to RMB 2.326 billion, with 3Q25 growth accelerating to 92.9% compared to 37.8% in 1H25 [1] - **Earnings Estimates**: - 2025-27 earnings estimates raised by 13-15%, target price increased to RMB 281 from RMB 230 based on a 48x PE for 2026E [1][22] 4Q25 Outlook - **Revenue Forecast**: Expected 4Q25 revenue growth of 33% YoY to RMB 6.427 billion, similar to 3Q growth [3] - **Net Profit Forecast**: Anticipated net profit growth of 115% to RMB 838 million, driven by a low base in 4Q24 [3] Capacity Expansion Plans - **New Plants**: - Thai plant to start in mid-2025, targeting annual revenue of RMB 1.3 billion - Nantong Phase 4 for AI-PCB to commence in 4Q25, with projected annual revenue of RMB 1.5 billion [4] - **Capital Expenditure**: High capex of around RMB 3 billion per annum planned to support AI infrastructure growth [4] Margin and Cost Insights - **Gross Margin**: - 3Q25 gross margin improved to 31.4%, with net margin rising to 15.3% [11] - **Material Cost Inflation**: - Major CCL players increased ASP by RMB 5-10 per sheet in October due to a ~10% rise in copper costs [12] Segment Performance - **PCB and Substrate Segments**: - PCB segment gross margin reached a record high of 36% in 3Q25, with AI-PCB margins estimated at over 40% [10] - Substrate gross margin improved significantly to ~20% in 3Q25 from 15% in 1H25 [10] Investment Strategy - **Recommendation**: Buy rating maintained, with a preference for Shengyi Tech over Shennan due to higher operating leverage in the CCL industry [1][21] - **Market Exposure**: Over 80% revenue exposure to PCB-related businesses, with strong growth potential in AI servers and automotive sectors [21] Risks - **Downside Risks**: - Slower-than-expected growth in AI server demand, weaker automotive demand, and higher laminate cost inflation could impact performance [23] Conclusion - Shennan Circuit is positioned for significant growth driven by its strong market position in the PCB sector, ongoing capacity expansions, and favorable industry dynamics, despite potential risks from market fluctuations and cost pressures [1][21][23]

19 September 2025 | 4:35PM IST India Technology: Hardware - Consumer Electronics: PCB Tech Conference Takeaways: Long growth run-way but various challenges We attended the PCB Tech conference which took place within Electronica India 2025, South Asia's leading trade fair for electronics components, systems and solutions. 4 key takeaways from the conference: 1) The Indian PCB industry is on a clear growth trajectory, fueled by a large domestic market and proactive government initiatives to impose Anti Dumpin ...

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].