Kingboard Laminates' first-half margins beat expectations, while tight supply and demand and ramping AI materials strengthen the second-half outlook

Overview

The report analyzes Kingboard Laminates' first-half 2026 results, second-half earnings momentum, and the supply-demand outlook for copper-clad laminates and upstream electronic materials. UBS believes that cost advantages from vertical integration, FR4 copper-clad laminate price increases, capacity expansion in AI-related fiberglass materials, and copper foil product upgrades will jointly support earnings growth. It therefore substantially raises its 2026—2028 forecasts and maintains its Buy rating.

Core views

Kingboard Laminates was established in 1988 and primarily manufactures copper-clad laminates, a foundational material for PCBs. Kingboard Holdings (148.HK) owns a 61.7% stake and purchases its copper-clad laminates for downstream PCB operations. In the first half of 2026, Kingboard Laminates' net profit reached HK$2.9 billion, up 209% year over year and 91% sequentially, in line with UBS's prior preview. Revenue was HK$14.9 billion, up 55% year over year and 38% sequentially, but 7% below UBS's forecast. The key reasons profit outperformed revenue were gross margin and expense control: gross margin was 30.7%, up 12.3 and 10.1 percentage points year over year and sequentially, respectively, and 2.1 percentage points above UBS's forecast. While revenue grew 38% sequentially, operating expenses increased by only 5%, indicating stronger-than-expected operating leverage. The company declared an interim dividend of HK$0.28 per share, corresponding to a payout ratio of approximately 30%, about 20 percentage points lower than in the first half of 2025. The core business, comprising copper-clad laminates and upstream materials, generated sales of HK$14.8 billion in the first half of 2026, up 56%/38% year over year/sequentially. Operating profit was HK$3.8 billion, with the operating margin rising to 25.9%, a significant improvement from 12.3% and 14.8% in the first and second halves of 2025, respectively. FR4 copper-clad laminates remained the main growth driver: UBS estimates that sales increased 80% year over year and gross margin was approximately 34%, versus about 21% in FY2025. This improvement was jointly driven by a 17% year-over-year increase in shipment volume and an increase of more than 50% in average selling prices, while the company's vertical integration gave it a cost advantage amid tight raw-material supply. UBS believes some investors may view first-half net profit as below expectations, but the timing of price increases means more benefits will be reflected in the second half. Price increases for conventional FR4 copper-clad laminates only began accelerating in April 2026, while AI and specialty fiberglass products are also expected to ramp more quickly in the second half. The company earned approximately HK$1.1 billion in July 2026, already equivalent to 38% of its entire first-half net profit, supporting a run rate of more than HK$1.0 billion in monthly net profit during the second half. The fiberglass cloth and fiberglass yarn business contributed approximately HK$1.0 billion in profit during the first half, including internal sales, up 280% year over year. Four specialty-yarn furnaces commenced production in the first half, while another two were brought forward from 2027 to the second half of 2026. UBS assumes that the six new furnaces comprise one Low-Dk1 furnace, three Low-Dk2 furnaces, and two Low-CTE furnaces, bringing the total number of furnaces to seven by the end of 2026. Medium-term supply constraints are central to UBS's view that the upcycle will be sustained. Management stated that electronic fiberglass cloth currently has a monthly supply-demand gap of approximately 100 million meters, mainly due to insufficient looms, and expects tight conditions to persist for at least another two years, consistent with UBS's forecast. The company has secured 50% of Toyota Industries' loom orders for the next two years, with 500 units delivered in August 2026 and another 1,200 units expected to arrive in 2027, slightly above UBS's previous estimate. A larger installed loom base should support capacity expansion for electronic fiberglass cloth and AI fiberglass cloth. UBS expects specialty fiberglass cloth shipments to rise from approximately 19 million meters in 2026 and approximately 50 million meters in 2027 to approximately 85 million meters in 2028, as the number of installed furnaces increases to 13 by the end of 2027. Product upgrades are also broadening the sources of growth. Low-Dk and Low-CTE fiberglass cloth have been certified by major copper-clad laminate manufacturers including Doosan, Shengyi Technology, EMC, and ITEQ, and are no longer limited to TUC. The products have also received MGC certification, which UBS believes may correspond to more demanding Low-CTE materials used in BT substrates, demonstrating improved capabilities in high-end products. In copper foil, sales increased by approximately 50% from January to July 2026, shipment volume rose by more than 15% year over year, and processing fees increased by 20%—60% during the year. The company stated that copper foil sales volume could rise from 100,000 tonnes in 2025 to 130,000 tonnes in 2028. HVLP3 is already in mass production, while HVLP4 remains in the certification stage. Based on a more sustained copper-clad laminate price-increase cycle, faster progress in AI fiberglass and HVLP copper foil, gross-margin expansion driven by vertical integration and an improved AI product mix, and a second-half 2026 monthly net profit run rate exceeding HK$1.0 billion, UBS raised its 2026—2028 earnings forecasts by 36%/32%/31%. Diluted EPS forecasts were increased from HK$2.12, HK$3.34, and HK$4.15 to HK$2.89, HK$4.41, and HK$5.43, respectively, above consensus forecasts of HK$2.00, HK$2.70, and HK$3.24 for the same periods. The target price was raised to HK$66.00, based on 15 times 2027 forecast earnings. The previous multiple was 17 times; the multiple was reduced because the higher 2026 earnings base lowered the forecast 2026—2029 EPS CAGR from 30% to 28%. Based on the share price of HK$35.10 on 24 August 2026, the report indicates forecast price appreciation of 88.0%, a forecast dividend yield of 8.9%, and a forecast shareholder return of 96.9%, corresponding to a forecast excess return of 88.6% relative to an assumed market return of 8.3%. UBS also notes that shifts in sentiment toward the AI theme could cause share-price volatility, but it continues to view the current level as attractive.

Analysis framework

UBS first compares first-half revenue, margins, and expenses on a year-over-year and sequential basis and against its own forecasts. It then breaks down the core business into FR4 copper-clad laminates, fiberglass cloth and fiberglass yarn, and copper foil, distinguishing the contributions from shipment volume, pricing, product mix, and cost advantages. It subsequently uses information from the results briefing regarding the supply-demand gap, loom orders, furnace commissioning, and customer certifications to project capacity and sales-volume trajectories from the second half of 2026 through 2028. Finally, it incorporates these assumptions into its earnings model, raises its EPS forecasts, and determines the 12-month target price using forecast 2027 P/E.

Methodology notes

• Valuation methodologyP/E and PEG valuation

  Target-price valuation based on forecast P/E

  The report applies a 15 times 2027 forecast P/E multiple to derive a target price of HK$66.00. It previously used 17 times, but the higher earnings base slightly reduced the forecast growth rate.

• Industry/sector analysis frameworkSupply-demand framework

  Analysis of the electronic fiberglass cloth supply-demand gap and loom constraints

  Using the monthly supply-demand gap of approximately 100 million meters, loom orders, and furnace commissioning plans, UBS concludes that tight upstream-material supply will persist for at least two years and uses this to assess the price-increase cycle and capacity-delivery capability.

• Industry/sector analysis frameworkVolume-price decomposition

  Decomposition of shipment volume, average selling prices, and processing fees

  The report separately examines the 17% increase in FR4 copper-clad laminate shipments and the more than 50% increase in selling prices, as well as the more than 15% increase in copper foil shipments and the 20%—60% increase in processing fees, to explain changes in revenue and gross margin.

• Industry/sector analysis frameworkUpstream-midstream-downstream value-chain transmission

  Vertical integration and transmission through the PCB value chain

  The report links tight upstream fiberglass and copper foil supply with copper-clad laminate price increases and downstream PCB demand, and believes the company's vertical integration can reduce costs, improve supply assurance, and raise margins.

Asset mapping & comparison

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

• Kingboard Laminates (1888.HK)

  The core company covered in the report and the primary beneficiary of price increases and capacity expansion in FR4 copper-clad laminates, electronic fiberglass materials, and copper foil.

  Strengths

  It has vertically integrated cost advantages, a large installed loom base, a growing number of specialty-yarn furnaces, and completed certification of high-end fiberglass products at several major copper-clad laminate manufacturers.

  Weaknesses

  The interim payout ratio declined to approximately 30%, about 20 percentage points lower than in the first half of 2025; some new products remain in the capacity-ramp or customer-certification stage.

  Comparison

  UBS names it a top pick; its estimated first-half gross margin for FR4 copper-clad laminates was approximately 34%, above approximately 21% in FY2025.

  Risks

  Earnings forecasts could come under pressure if conventional FR4 price increases, the ramp-up of specialty and AI fiberglass, customer certifications, or AI infrastructure capital expenditure fall short of expectations.

Key data

• First-half 2026 net profitHK$2.9 billionUp 209% year over year and 91% sequentially
• First-half 2026 revenueHK$14.9 billionUp 55% year over year and 38% sequentially, 7% below UBS's forecast
• First-half 2026 gross margin30.7%Up 12.3/10.1 percentage points year over year/sequentially and 2.1 percentage points above UBS's forecast
• Core-business operating margin25.9%12.3% and 14.8% in the first and second halves of 2025, respectively
• FR4 copper-clad laminate operating trendsShipments +17%, average selling prices up more than 50%UBS estimates that sales in this business rose 80% year over year and gross margin was approximately 34%, versus approximately 21% in FY2025
• Fiberglass cloth and fiberglass yarn profitApproximately HK$1.0 billionUp 280% year over year in the first half of 2026, including internal sales
• July 2026 profitApproximately HK$1.1 billionEquivalent to 38% of first-half 2026 net profit
• Specialty fiberglass cloth shipment forecasts2026E approximately 19 million meters; 2027E approximately 50 million meters; 2028E approximately 85 million metersInstalled furnaces are expected to reach 13 by the end of 2027
• Copper foil businessJanuary—July 2026 sales approximately +50%Shipments rose by more than 15% year over year, processing fees increased by 20%—60% during the year, and sales volume could rise from 100,000 tonnes in 2025 to 130,000 tonnes in 2028
• 2026—2028 EPS forecastsHK$2.89, HK$4.41, HK$5.43Raised by 36%, 32%, and 31%, respectively; consensus forecasts for the same periods are HK$2.00, HK$2.70, and HK$3.24
• 2026—2028 revenue forecastsHK$41.474 billion, HK$65.953 billion, HK$73.700 billionUBS forecasts
• 2026—2028 net profit forecastsHK$9.193 billion, HK$14.014 billion, HK$17.260 billionUBS forecasts
• Valuation basis15 times 2027E P/EPreviously 17 times; the 2026—2029 EPS CAGR was revised from 30% to 28%
• Forecast shareholder return96.9%Comprising forecast price appreciation of 88.0% and a forecast dividend yield of 8.9%; forecast excess return of 88.6%

Impact & implications

The report believes that FR4 copper-clad laminate price increases will be more fully reflected in the second half of 2026, while AI-related fiberglass materials, HVLP copper foil, and new furnaces will provide incremental medium-term growth, and loom shortages will constrain industry supply expansion. Together with the advantages of vertical integration, these factors should sustain monthly profit and elevated gross margins, supporting UBS's substantial upgrades to its 2026—2028 earnings forecasts and its HK$66.00 target price.

Risks

• Price increases for conventional FR4 copper-clad laminates may be slower than expected.
• Capacity ramp-up and customer certification for specialty and AI fiberglass products may be slower than expected.
• If competitors expand capacity faster than expected, the tight supply of conventional FR4 copper-clad laminates may ease.
• Growth in AI infrastructure capital expenditure may be weaker than expected.
• The pace of AI adoption globally and in China may be slower than expected.
• Capital expenditure by hyperscale cloud service providers on data centers and servers may be weaker than expected.
• Higher-than-expected tariffs may affect demand for consumer electronics and automobiles.
• Environmental regulation in China may tighten unexpectedly.

What to watch

• Whether conventional FR4 copper-clad laminate prices continue to increase monthly over the next three months, an explicitly identified positive catalyst in the report.
• Whether monthly net profit can remain above HK$1.0 billion in the second half of 2026.
• Whether the two specialty-yarn furnaces brought forward to the second half of 2026 can ramp as planned and successfully complete customer certification.
• Whether the 1,200 looms scheduled to arrive in 2027 and the 13 furnaces expected by year-end can support the specialty fiberglass cloth shipment targets.
• Whether the monthly supply-demand gap of approximately 100 million meters for electronic fiberglass cloth persists for at least two years as expected.
• Progress in HVLP4 copper foil certification and the ramp-up of high-end fiberglass materials at major customers.