6 February 2026 | 6:39AM HKT Equity Research Shengyi Tech (600183.SS): PCB Factory Tour: AI CCL price increase; Solid demand along with M9 migrations We hosted Shengyi Tech's management and visited its Dongguan factory during our China PCB Tour on Jan 28. Key discussions were on CCL pricing trend, raw material cost increase and demand outlook. Overall, management expect full UT rate for the whole year, with solid orders at hand. With the faster-than-expected raw material price increase, the company raised p ...

Summary of Shengyi Tech (600183.SS) Conference Call Company Overview - **Company**: Shengyi Tech - **Ticker**: 600183.SS - **Industry**: Printed Circuit Board (PCB) and Copper Clad Laminate (CCL) Key Financial Highlights - **4Q25 Net Income**: Pre-announced to be between Rmb807 million and Rmb1,007 million, with a midpoint of Rmb907 million, reflecting a **147% YoY increase** but a **11% QoQ decline** [1][5] - **Comparison to Estimates**: The midpoint is **23% lower than Goldman Sachs estimates** and **15% lower than Bloomberg consensus** due to short-term dynamics in the PCB business and a high base from 3Q25 [1][5] - **Shengyi Electronics**: Reported a QoQ decline in net income, expected to be between Rmb316 million and Rmb339 million, indicating a **39% QoQ decline** at the midpoint [1] Industry Outlook - **Positive Long-term Outlook**: Despite short-term fluctuations, the outlook for the PCB/CCL industry remains positive, driven by increasing demand for AI applications and ongoing specification upgrades [1] - **Revenue Growth Projection**: Expected revenue growth of **28% CAGR from 2026 to 2030**, supported by: 1. Ramp-up of AI infrastructure, with projected demand for **11 million, 16 million, and 21 million AI chips in 2025-2027** [1][5] 2. Specification upgrades in CCL, particularly with M9 CCL in GPU AI servers [1][5] 3. Expansion of product offerings and customer base, including both domestic and international clients [1][5] Margin and Cost Management - **Gross Margin Stability**: Concerns about rising raw material prices (copper and glass fabric) impacting margins are being addressed through: 1. Price increases passed on to clients 2. Focus on high-value applications to support margins [1][6] - **Long-term Margin Outlook**: Expected to remain stable with a gradual uptrend due to increased revenue from AI-related products, although mainstream CCLs may face margin pressure if material prices continue to rise [1][6] Earnings Revisions - **2025 Net Income Revision**: Revised down by **6%** based on 4Q25 guidance, while earnings for 2026-2028 remain largely unchanged due to a continued growth outlook [1][7] - **Earnings Estimates**: - **2025E Net Income**: Revised to Rmb3,384 million - **2026E Net Income**: Unchanged at Rmb5,510 million - **2027E Net Income**: Unchanged at Rmb8,696 million [1][8] Valuation and Price Target - **Target Price**: Maintained at **Rmb111**, based on a target P/E of **31.0x 2027E EPS** [1][10] - **P/E Multiple Justification**: Derived from the correlation between P/E and EPS growth of peers, reflecting a positive view on Shengyi Tech's product mix upgrade towards AI CCL [1][10] Risks - **Key Risks Identified**: 1. Lower-than-expected AI infrastructure investment 2. Changes in technology direction [1][17] Conclusion - **Investment Recommendation**: Maintain a **Buy rating** on Shengyi Tech, with a significant upside potential of **59.9%** based on the current price of Rmb69.40 and the target price of Rmb111.00 [1][19]

Core Viewpoint - The PCB sector is experiencing significant growth driven by AI demand, with several key investment themes identified for 2025 [1] Group 1: PCB Upgrade Trends - The commercialization of CoWoP technology is accelerating, leading to a new round of upgrades in AI PCB products, with mSAP capacity and technology becoming critical competitive thresholds for PCB manufacturers [1] - The industry is continuously optimizing the Rubin Ultra system architecture, with potential advancements in backplane solutions expected [1] Group 2: CCL Upgrade Trends - The upgrade from M8 to M9 in CCL is a confirmed trend, with increasing adoption in GPUs, ASIC servers, and 1.6T switches, leading to a rapid increase in the use of Q fabric, HVLP 3-4, and hydrocarbon resins [2] - Concerns regarding potential downgrades in PCB specifications for NV's Rubin CPX architecture have been addressed, with backup plans in place for successful mass delivery [2] Group 3: Upstream Material Price Trends - The CCL industry is currently in an upward price cycle, with significant price increases announced by major manufacturers, including a 30% increase by Japan's Resonac [3] - The average price of CCL in 2025 has risen by 20%-30%, and further price increases are anticipated in 2026, which could enhance the profitability of the entire sector [3] Group 4: Demand for Substrates - There is a growing demand for substrates, with BT substrates experiencing continuous price increases and ABF substrate demand beginning to overflow to domestic manufacturers [4] - The global AI data center's storage demand is robust, with TSMC's capital expenditure for 2026 significantly exceeding market expectations, indicating a strong growth outlook for AI chips [4] - NVIDIA's CEO has engaged with leading manufacturers to secure supply for Low-CTE glass fabric, which is a critical component in the substrate supply chain [4]

Core Viewpoint - The PCB sector is experiencing significant performance growth driven by AI demand, with several key investment themes identified for 2023 [1][2]. Investment Themes - **PCB Upgrade Trend**: The commercialization of CoWoP technology is accelerating, leading to a new round of upgrades in AI PCB products. mSAP capacity, equipment, and technical capabilities will become higher competitive thresholds for PCB manufacturers, presenting investment opportunities across the mSAP supply chain [1][2]. - **CCL Upgrade from M8 to M9**: The transition from M8 to M9 CCL is a definitive trend, with an increasing number of GPUs, ASIC servers, and 1.6T switches adopting M9 CCL. The usage of Q fabric, HVLP 3-4, and hydrocarbon resins will continue to rise rapidly [1][2]. - **Upstream Material Price Increases**: The price of upstream materials is still in an upward cycle, which is expected to further improve profitability [1][3]. - **Rising Demand for Substrates**: Demand for BT substrates is increasing, with continuous price hikes, while ABF substrate demand is beginning to overflow to domestic manufacturers [1][4]. Market Performance - The PCB sector's performance has exceeded market expectations, particularly in the upstream materials and equipment segments, driven by global AI PCB capacity expansion. Companies like Jin'an Guoji and Huazheng New Materials in the CCL segment, and Dazhu CNC and Chipbase in the equipment segment, have shown significant excess returns [2]. Price Trends - The CCL industry average price has increased by 20%-30% in 2025, with expectations for further price hikes in 2026 potentially exceeding those of 2025 due to supply-demand dynamics and raw material price trends [3]. Demand Dynamics - The global AI data center's storage demand is robust, with TSMC's capital expenditure for 2026 projected at $52-56 billion, significantly above market expectations. This indicates a strong upward trend in storage chip demand, leading to continuous price increases for BT substrates and the overflow of ABF substrate demand to domestic suppliers [4].

Group 1 - The core viewpoint of the article highlights that Chipbond Microelectronics is focusing on the development of M9CCL, which is characterized as an ultra-low loss, ultra-high frequency high-speed substrate [2] - The application of M9 materials is expected to enhance the processing difficulty and value of high-end PCBs, indicating a shift towards more advanced manufacturing techniques [2] - The company is committed to closely monitoring market demand changes and actively promoting technological innovation to provide more efficient and reliable solutions for global customers [2]

Group 1: PCB Material Solutions - The report from Nomura summarizes various PCB materials used by major companies like nVidia, AWS, Google, and Meta, detailing their respective generations, structures, and suppliers [1] - nVidia's H100 and B200 generations utilize M7 and M8+M4 CCL materials, with suppliers including EMC and Unimicron [1] - AWS's Trainium 2 and Google’s TPU v6p are also highlighted, with specific CCL materials and suppliers listed, indicating a trend towards advanced PCB structures [1] Group 2: Comparison of M8 and M9 - M9 CCL offers significant improvements over M8, including a lower loss factor (Df) of ≤0.0007 compared to M8's 0.001, representing a 30% reduction [7][8] - The dielectric constant (Dk) for M9 is also lower at 2.6-2.8, compared to M8's 2.8-3.1, indicating a 10% decrease [8] - M9 supports higher bandwidth capabilities, enabling 2.4T+ switches and servers, which is a 50% increase in bandwidth compared to M8 [8] Group 3: Impact on Upstream Equipment - The transition to M9 necessitates upgrades in CO2 drilling technology due to the higher melting point of Q-Glass, requiring new equipment development [9] - The wear on drilling needles has increased significantly, with a single needle now only able to drill 100-200 holes for M9, compared to 500 for M8 and 1000 for M7 [9] - The cost of new ultra-fast laser drilling equipment is estimated to exceed 5 million, indicating a substantial investment requirement for manufacturers [9]