Shennan Circuits (002916.SZ): AI PCB expansion and strong memory momentum to drive IC substrate; 4Q25 NI guidance in line; Buy Shennan Circuits reported its 4Q25 preliminary NI at Rmb828m~Rmb1.0bn, with the midpoint of 4Q25 net income up 137% YoY to Rmb922m, or 7% higher than our estimate, and we attribute this to accelerated growth of BT substrate and ramp up of AI PCB business. The company is expanding AI PCB capacity in Nantong and Thailand factory, and continues to improve the production yield rate. We ...

Summary of Shennan Circuits Conference Call Company Overview - **Company Name**: Shennan Circuits Co Ltd (SCC) - **Ticker**: 002916.SZ - **Sector**: Technology, specifically in PCB (Printed Circuit Board) and IC substrate manufacturing - **Headquarters**: Shenzhen, Guangdong, China Key Industry Insights - **AI Networking and Server Growth**: SCC is positioned as a leading supplier of high layer count (HLC) PCBs for AI networking equipment, benefiting from the upward trend in AI investments in China [1][2] - **IC Substrate Demand**: The company is also a key player in the IC substrate market, which is expected to grow significantly due to China's self-reliant AI roadmap [3] Financial Performance and Forecasts - **Revenue Growth**: Revenue forecasts for FY25-27F have been increased by 0.8-5.8%, reflecting stronger demand in both IC substrate and AI PCB sectors [1][14] - **Earnings Growth**: Earnings forecasts for FY25-27F have been raised by 1.6-17%, driven by improved margins and product mix [1][14] - **Target Price**: The target price has been raised to CNY263, implying an 18% upside from the current trading price of CNY222.82 [1][5] Segment Performance - **PCB Segment**: Expected to contribute 20-30% of revenue from AI server and networking applications in FY26F, with a projected CAGR of 30% for FY25-27F [2] - **IC Substrate Segment**: Anticipated to grow at a CAGR of 21% from FY25-27F, contributing 17% of total revenue by FY27F [3] Financial Metrics - **Revenue Estimates**: - FY25F: CNY22,736 million - FY26F: CNY29,039 million - FY27F: CNY35,601 million [4] - **Net Profit Estimates**: - FY25F: CNY2,968 million - FY26F: CNY4,377 million - FY27F: CNY5,826 million [4] - **EPS Growth**: Normalized EPS is expected to grow from CNY5.79 in FY26F to CNY8.74 in FY27F, reflecting a strong growth trajectory [4] Risks and Challenges - **Capacity Constraints**: SCC is facing capacity constraints in the AI PCB market for FY25F, which could impact growth [1] - **Market Competition**: Increased competition in the PCB market and potential sanctions on telecom companies in China pose risks to achieving the target price [12][19] Valuation Methodology - The target price of CNY263 is based on a P/E ratio of 40x FY26F EPS of CNY6.56, aligned with a projected earnings CAGR of 40% for FY25-27F [1][19] Additional Insights - **Market Capitalization**: Approximately USD 21.3 billion [5] - **Dividend Yield**: Expected to increase from 0.8% in FY25F to 1.6% in FY27F [4] - **ROE Improvement**: Projected ROE to rise from 18.9% in FY25F to 26.5% in FY27F, indicating improved profitability [4] This summary encapsulates the key points from the conference call regarding Shennan Circuits, highlighting its growth potential, financial forecasts, and the challenges it faces in the current market environment.

Summary of Shennan Circuits (002916.SZ) Conference Call Company Overview - **Company**: Shennan Circuits (002916.SZ) - **Market Cap**: Rmb102.6 billion / $14.4 billion - **Target Price**: Rmb254.00, raised by approximately 70% from previous estimates - **Current Price**: Rmb199.96 - **Upside Potential**: 27.0% [1][30] Key Industry Insights - **Industry Focus**: Transition from telecom PCB to AI PCB, targeting compute and networking demands, particularly in the context of the growing market for 800G and 1.6T optical transceivers [1][22] - **Growth Drivers**: - Expansion of high-end PCB capacity in Jiangsu and Thailand factories [1][23] - Increased demand for AI PCB from AI accelerators, optical transceivers, and switches [1][22] - Strong growth in IC substrate business driven by memory chips [1][24] Financial Performance and Projections - **Earnings Growth**: Expected net income growth of 44% CAGR from 2025 to 2027 [1] - **Revenue Estimates**: - 2025: Rmb22,775 million (up 7% from previous estimates) - 2026: Rmb28,491 million (up 15%) - 2027: Rmb35,503 million (up 29%) [1][27] - **Gross Margin Improvement**: Anticipated increase in gross margin by 2.6ppts, 2.7ppts, and 3.4ppts for 2025, 2026, and 2027 respectively [1][26] Competitive Positioning - **Market Position**: Shennan has established long-term partnerships in the telecom sector, which aids its entry into the data center PCB market [4] - **Competitive Risks**: Potential competition from peers with higher exposure to AI and data centers, which could impact pricing and margins [4][37] Capacity and Production - **Capacity Expansion**: Significant ramp-up in production capacity expected from the Jiangsu Nantong factory and Thailand factory in 2026 [19][23] - **Product Mix Upgrade**: Transition towards high-layer count PCBs and optical transceivers, with a projected increase in AI PCB revenue contribution to 28%, 36%, and 41% of total PCB revenues from 2025 to 2027 [22] Investment Thesis - **Recommendation**: Maintain Buy rating based on strong growth prospects in AI PCB and IC substrate markets, supported by capacity expansion and product upgrades [1][30] - **Risks**: Slower-than-expected expansion into AI PCB, increased competition, customer concentration risks, and slower growth in server/automotive PCB and IC substrate markets [37] Conclusion - Shennan Circuits is positioned to benefit from the growing demand for AI PCBs and high-end IC substrates, with significant revenue and earnings growth projected over the next few years. The company's strategic expansion and product upgrades are expected to enhance its competitive edge in the evolving technology landscape.

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **China PCB (Printed Circuit Board) sector**, highlighting a **47% rally** in the sector over the past three months driven by increasing demand for **artificial intelligence (AI)** applications [1] - The demand for **High Layer Count (HLC) PCB** and **High Density Interconnect (HDI)** is particularly strong due to growth in **cloud service providers' (CSP)** AI capital expenditure budgets and ASIC server projects [1] Core Insights and Arguments - **Demand Dynamics**: - Strong demand from sectors such as **automotive**, **home appliances**, and **industrial applications** supports low-to-mid range order momentum, while demand for **smartphones** and **PCs** remains lukewarm, limiting growth for **Flexible Printed Circuit (FPC)** and **Substrate-Like PCB (SLP)** [1] - The **PCB production value** is expected to grow **6% in 2025E**, following a decline of **15%** in 2023 and a recovery of **7%** in 2024 [9] - The sector is anticipated to enter a mild **AI-driven upcycle**, with a **5% CAGR** from 2024 to 2029, compared to **2%** from 2018 to 2023 [9] - **Substrate Market**: - **BT (Bismaleimide-Triazine)** substrate makers in China are experiencing a dip in utilization rates, but a mild recovery is expected due to tariff-induced demand [2] - **ABF (Ajinomoto Build-up Film)** substrate demand is recovering globally, which is accelerating domestic semiconductor qualifications from local suppliers [2] - **Copper Clad Laminate (CCL)**: - Leading CCL makers in China are operating at full capacity, with a **10-15% price increase** expected in H225E due to rising raw material costs [3] - Demand for high-end CCL is driven by AI server projects and general-purpose server replacements [3] Stock Preferences and Recommendations - **Stock Ratings**: - Total EPS for the coverage is raised by **12%/14%/19%** for 2025-27E due to higher utilization and pricing from robust AI demand [4] - Price targets for companies in the sector have been increased by **47%–118%** based on higher EPS and upcycle PE multiples [4] - Preferred stocks include **Shennan** and **Shengyi Tech** due to their visibility in AI orders, while **FastPrint** has been downgraded to Neutral with a significant EPS cut due to delayed breakeven in ABF [4] Additional Insights - **Market Trends**: - The **server/data storage** segment is projected to grow at a **12% CAGR** from 2024 to 2029, becoming the largest and fastest-growing downstream application by output value [11] - The **automotive sector** is expected to see a **4% CAGR**, driven by electrification and smartification trends [11] - The **consumer electronics** segment is mixed, with near-term strength from subsidies but overall sluggish demand [9] - **Geopolitical Factors**: - Current US tariffs have limited direct exposure for PCB and CCL companies, which have a globally diversified manufacturing footprint [9] - The tariffs may expedite capacity expansion for Chinese producers in Southeast Asia due to the sector's upstream and highly pollutive nature [9] - **AI and Technology Adoption**: - The demand for AI servers is expected to significantly increase, with Nvidia projecting a **100x increase** in compute requirements for inference demand [17] - The introduction of new Nvidia GPUs is anticipated to drive down costs for AI training and inference, further boosting demand for high-end PCBs [17] Conclusion - The China PCB sector is poised for growth driven by AI demand, with specific segments like HLC PCB and HDI expected to outperform. Stock preferences reflect a bullish outlook on companies with strong AI order visibility, while geopolitical factors and market dynamics will continue to shape the landscape.