Goldman Sachs raises Shennan Circuits' target price to RMB 394, bullish on AI PCB capacity expansion

Overview

This report announces a rating and target price adjustment for Shennan Circuits (002916.SZ). Goldman Sachs believes that sustained growth in artificial intelligence (AI) demand will enable the company to upgrade its product mix and enhance profitability through expanded high-end multilayer printed circuit board (MLPCB) capacity. Accordingly, analysts have raised earnings forecasts for 2026 and 2027 and increased the target P/E multiple from 26x to 33x, resulting in a significant upward revision of the 12-month target price from RMB 290 to RMB 394, while maintaining a 'Buy' rating.

Core views

Capacity expansion aligns with AI wave: Shennan Circuits announced a new capital expenditure plan to invest up to RMB 4.6 billion in Wuxi for high-end MLPCB capacity expansion to meet growing AI demand, with a construction period of approximately 12 months. Goldman Sachs expects the company’s capex in 2026 and 2027 to reach RMB 6.0 billion and RMB 4.5 billion respectively (RMB 3.8 billion in 2025). This proactive capacity expansion strategy will drive the company’s product portfolio toward higher-value segments. Comprehensive earnings upgrades: Based on the company’s Q4 2025 and Q1 2026 performance, Goldman Sachs raised its 2026 and 2027 net profit forecasts by 4% and 10% respectively and introduced a 2028 earnings forecast for the first time. Revenue growth is primarily driven by: (1) accelerated ramp-up of AI PCB capacity and strong data center customer demand; and (2) expansion of the total addressable market (TAM) for optical modules boosting optical module PCB revenue. On margins, as the product mix shifts toward higher-margin 800G/1.6T/3.2T products and benefits from economies of scale and yield improvements, both gross and operating margins are expected to improve. Upgraded valuation logic: Goldman Sachs raised the target P/E multiple from 26x to 33x (based on 2027E EPS). This adjustment reflects expectations of rapid EPS growth in 2027–2028 and benchmarking against peers’ 2027 trading P/E multiples relative to the sum of their 2027–2028 EPS growth rates and operating margins (i.e., PEG&M ratio). Combined with revised earnings forecasts and a higher target multiple, the 12-month target price is now RMB 394.

Analysis framework

Goldman Sachs’ analysis follows a logical chain of 'capacity-driven → earnings realization → valuation re-rating.' First, the firm tracks the company’s capex plans to confirm its supply-side expansion capability in the AI PCB segment. Second, it assesses downstream demand trends from data centers and optical modules to deconstruct revenue drivers and quantify the contribution of product mix upgrades to margins, thereby refining the earnings model. Finally, using relative valuation, it benchmarks peer valuations against growth and margin profiles (PEG&M framework) to determine an appropriate target P/E multiple and derive the target price.

Methodology notes

• Valuation MethodPE/PEG valuation

  PEG&M Ratio Valuation

  When determining the target P/E, the report considers not only traditional P/E but also earnings per share (EPS) growth (G) and operating margin (M), i.e., the PEG&M framework. This approach more accurately prices high-growth companies with improving margins, avoiding potential mispricing from relying solely on P/E.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Capacity Expansion vs. Demand Matching Analysis

  The report emphasizes analyzing the alignment between the company’s supply-side initiatives (new Wuxi capacity, capex) and demand-side trends (AI servers, optical modules). In high-tech manufacturing, the ability to timely expand high-end capacity to capture explosive downstream demand is central to assessing medium-term growth potential.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Scale Effects and Yield Improvements Driving Margins

  The report notes that as revenue scales up and production yields improve, fixed costs are spread over a larger base, driving up gross and operating margins. This represents classic operating leverage, implying profit growth will outpace revenue growth.

Asset mapping & comparison

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

• Shennan Circuits (002916.SS)

  Primary beneficiary: Directly benefits from rising demand for high-end MLPCBs driven by AI servers and optical modules, with smooth capacity ramp-up.

  Strengths

  Technology leadership in high-end MLPCBs, strong relationships with major data center customers, and continuous product mix optimization driving margin improvement.

  Weaknesses

  High capex may pressure near-term free cash flow; relatively high customer concentration.

  Comparison

  Compared to peers, it holds competitive advantages in capacity deployment and yield control for AI-related high-end PCBs.

  Risks

  AI demand falls short of expectations; intensified industry competition triggers price wars.

Key data

• 12-Month Target PriceRMB 394Significantly raised from previous RMB 290
• Target P/E (2027E)33xRaised from previously implied 26x
• 2026 Net Profit Forecast Adjustment+4%Upward revision
• 2027 Net Profit Forecast Adjustment+10%Upward revision
• Wuxi Capacity Expansion Capex≤RMB 4.6 billionFor high-end MLPCB, ~12-month construction period
• 2026/2027E Capex ForecastRMB 6.0B / RMB 4.5BSignificantly above RMB 3.8B in 2025

Impact & implications

The report argues that Shennan Circuits’ aggressive capacity expansion in AI PCBs will solidify its leadership in the high-end market, and the shift toward high-speed, advanced boards like 800G/1.6T will significantly enhance profitability. For investors, this signals the company’s transformation from a cyclical PCB manufacturer into a core supplier of high-growth AI computing infrastructure, potentially leading to a re-rating of its valuation framework.

Risks

• AI PCB capacity expansion slower than expected
• More intense-than-expected industry competition leading to ASP erosion and margin pressure
• Customer concentration risk
• Slower-than-expected growth in server/automotive PCB and IC substrate businesses

What to watch

• Construction progress of Wuxi new capacity and post-ramp yield trajectory
• Penetration rate of 800G/1.6T high-end products among data center customers
• Revenue mix evolution of optical module PCB business
• Impact of raw material price volatility on gross margins