Shennan Circuits 1Q26: Demand for BT substrates and AI-related PCBs offsets seasonal pressure in automotive PCBs

Overview

This report is UBS's review of Shennan Circuits' 1Q26 results. The company reported 1Q26 revenue of Rmb6.596bn, 6% below UBS forecasts and broadly in line with Reuters; net profit was Rmb850mn, 10% below UBS forecasts and 13% below Reuters. Although revenue was affected by the Chinese New Year holiday, power outages at some plants, and seasonally weaker automotive PCBs, demand for BT substrates and AI-related communications and data center PCBs supported mix improvement, lifting gross margin QoQ to 29.2%.

Core views

The core view is that the shortfall in near-term profit versus expectations mainly came from non-operating or expense-related factors, including Rmb50mn of FX losses, Rmb160mn of credit and asset impairment, and around Rmb100mn of equity incentive expenses; at the operating level, gross margin and AI-related demand were more resilient. Communications PCB revenue mix rose to 42-43%, and data center exceeded 25%, both driven by AI demand; automotive PCB mix declined by 1ppt QoQ. Management expects strong BT demand, while demand growth for ABF from domestic customers is also becoming more evident, and losses at the Guangzhou Guangxin plant are expected to narrow or reach breakeven.

Analysis framework

The report mainly uses earnings decomposition, segment demand tracking, management call information, capacity expansion assessment, and a PE valuation framework. UBS compares actual 1Q26 revenue, gross profit, pretax profit, net profit, and EPS with its original forecasts and Reuters consensus, and then assesses subsequent earnings and valuation based on gross margin, expense ratio, capex, capacity ramp-up, and optical module PCB technology trends.

Methodology notes

• Valuation methodsPE methodology

  P/E valuation

  UBS disclosed that it uses the PE method to value Shennan Circuits. The target price and rating are in UR status, and the current 12-month target price is Rmb285.

• Return definitionForecast Stock Return

  Forecast stock return

  UBS defines FSR as the expected share price appreciation over the next 12 months plus dividend yield; in this report, forecast price appreciation is -5.4%, forecast dividend yield is 1.0%, and forecast stock return is -4.4%.

• Short-term quantitative assessmentQuantitative Research Review

  Short-term factor questionnaire assessment

  UBS quantitatively records analysts' responses to questions about industry structure, regulatory environment, fundamental trends, and EPS revision risk over the next six months; this report shows an industry structure score of 5, a regulatory environment score of 3, and a fundamental trend score of 4 over the past 3-6 months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shennan Circuits 002916.SZ

  Covered name

  Strengths

  The world's fourth-largest PCB manufacturer; communications, data center, BT substrate, and optical module PCBs are supported by AI demand; gross margin improved QoQ; new Wuxi capacity may boost AI PCB output value and market share.

  Weaknesses

  1Q26 revenue was below UBS forecasts, and net profit was below both UBS and Reuters expectations; automotive PCB was seasonally weak; FX losses, impairment, and equity incentives weighed on profit; capex increased significantly.

  Comparison

  1Q26 revenue was in line with Reuters but 6% below UBS forecasts; net profit was 10% below UBS forecasts and 13% below Reuters; for 2026E EPS, UBS is at Rmb7.50 versus Consensus at Rmb7.42.

  Risks

  Slower-than-expected 5G deployment, slower-than-expected recovery in non-communications and data communications demand, customer pricing pressure and intensified competition, and further tightening of U.S. investment restrictions on stocks with state-owned backgrounds.

• BT substrate

  Positive business driver

  Strengths

  A higher mix of high-margin products drove 1Q26 gross margin improvement; strong memory demand supports narrower losses or breakeven at the Guangzhou Guangxin plant.

  Weaknesses

  Requires continued capacity ramp-up and realization of customer demand.

  Comparison

  Compared with 4Q25, the sales mix of high-margin BT substrates increased in 1Q26.

  Risks

  Raw material cost pressure, customer qualification, and demand volatility.

• Automotive PCB

  Short-term drag factor

  Strengths

  The company still has exposure to automotive end applications.

  Weaknesses

  Automotive PCB was seasonally weak in 1Q26, with revenue mix down 1ppt QoQ.

  Comparison

  Weaker than AI-related communications and data center PCB.

  Risks

  Seasonality in automotive demand, customer order timing, and pricing pressure.

Key data

• 1Q26 revenueRmb6.596bnUp 37.9% YoY and down 4.3% QoQ, 6% below UBS forecasts and broadly in line with Reuters.
• 1Q26 net profitRmb850mnUp 73.0% YoY and down 10.5% QoQ, 10% below UBS forecasts and 13% below Reuters.
• 1Q26 gross margin29.2%Up 0.6ppt QoQ, above UBS's forecast of 28.9%.
• Wuxi expansion investmentRmb4.6bnFor HDI and high-layer PCB capacity expansion, with a 12-month construction period and mass production expected in H127.
• Potential AI PCB output valueRmb4-5bnUBS estimates the new Wuxi capacity may contribute this amount after full ramp-up, which is likely to be fully achieved in 2029.
• 1Q26 capexRmb2.0bnUp 200% year over year.
• Communications PCB mix42-43%Above 4Q25's 40%, driven by AI-related demand.
• Data center PCB mix>25%Also driven by AI-related demand.
• Target price and current priceRmb285.00 / Rmb301.36The target price is under UR status; the current price is as of April 24, 2026.
• 2026E EPSRmb7.50UBS forecast; Consensus in the table is Rmb7.42.

Impact & implications

The report's investment implication is cautiously optimistic: on the business side, stronger demand for AI-related communications, data centers, BT substrates, and optical module PCBs helps improve Shennan Circuits' product mix and market share; on the financial side, near-term profit is affected by FX, impairment, equity incentives, and high capex, while the stock price has already risen rapidly, leaving the target price below the current price and forecast returns negative. UR status means the rating or target price may be adjusted in the near term based on the earnings forecast review.

Risks

• 5G deployment in China and overseas is slower than expected.
• Recovery in non-communications and data communications demand is slower than expected.
• Customer pricing pressure is stronger than expected, and industry competition intensifies.
• Progress in qualifying new IC substrate customers is slower than expected.
• Raw material cost pressure persists in 2026.
• The U.S. further restricts investment in stocks with state-owned backgrounds.
• High capex and new capacity ramp-up may bring pressure on cash flow and depreciation.

What to watch

• UBS's UR review outcome for earnings forecasts, rating, and target price.
• Whether demand growth for 1.6T optical module PCBs becomes more evident starting in Q2 2026.
• Whether 800G and 1.6T continue to account for more than 50% of optical module PCB revenue mix.
• Construction progress of Wuxi HDI and high-layer PCB capacity expansion and the H127 mass production milestone.
• Whether the Guangzhou Guangxin BT and ABF substrate plant achieves narrower losses or breakeven.
• Whether raw material cost pressure can be passed through via ASP adjustments for new products.
• Changes in the revenue mix of communications, data center, and automotive PCBs.