Raise China Jushi PT to Rmb48; the core thesis is AI-driven electronic fabric strength and capacity leadership

Overview

This report focuses on China Jushi's exposure to the upcycle in AI-driven electronic fabric and glass fiber demand. Morgan Stanley believes the company is one of the key materials beneficiaries of AI infrastructure buildout. Improving demand for high-end electronic glass fiber and electronic fabric, a healthy industry supply-demand balance, and the company's new capacity and cost management capabilities together enhance earnings visibility, supporting a higher price target and a reiterated Overweight rating.

Core views

The core views are as follows: First, AI servers, high-speed switches, and advanced PCBs are driving demand for high-end electronic glass fiber and electronic fabric, while the industry’s shift in capacity toward higher-end specifications is also reducing supply of standard products and supporting pricing. Second, China Jushi's new electronic yarn and electronic fabric project, together with the 100kt of electronic yarn capacity that came onstream in 2026, strengthens its capacity leadership in both AI and non-AI glass fiber products. Third, the company’s roughly 5,000 looms plus an additional order for 3,900 looms, along with scale and cost management capabilities, should help it gain share and pricing power while industry expansion is constrained by loom supply and the cost of precious-metal equipment. Fourth, upgrades to earnings forecasts and a larger contribution from high-end electronic fabric support valuation re-rating.

Analysis framework

The report evaluates the target price by updating the earnings model, raising assumptions for volume and pricing, incorporating the contribution from new high-end electronic fabric capacity, and combining a residual income model, risk-reward scenarios, and peer valuation comparisons. The key focus areas include 2026 capacity additions, electronic fabric and roving prices, the impact of AI-related demand on supply-demand dynamics, capital expenditures, and long-term growth assumptions.

Methodology notes

• Valuation methodsResidual income model

  Residual income valuation

  The Rmb48 target price comes from the base-case residual income model, using assumptions such as WACC of 7.9%, cost of equity of 8.0%, beta of 0.91, risk-free rate of 1.6%, equity risk premium of 7%, and terminal growth of 4%.

• scenario_analysisRisk Reward

  Risk-reward scenario analysis

  The report presents bear, base, and bull cases corresponding to Rmb23, Rmb48, and Rmb68, respectively, to capture valuation sensitivity under different assumptions for demand, supply release, and pricing outlook.

• earnings_modelMorgan Stanley ModelWare

  Earnings forecast model update

  The report notes that, unless otherwise stated, metrics are based on the Morgan Stanley ModelWare framework and the model update incorporates FY25 actual earnings and 2026-2028 assumptions for volume, pricing, and capital expenditure.

Asset mapping & comparison

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

• China Jushi (600176.SS)

  Beneficiary in the AI infrastructure materials chain

  Strengths

  Electronic yarn and electronic fabric expansion, roughly 5,000 looms plus an additional 3,900 orders, scale and cost advantages, and progress toward certification of AI-related high-end products.

  Weaknesses

  Earnings are sensitive to electronic fabric and glass fiber prices, capacity ramp-up, and the sustainability of downstream demand; 2026 capex rises to Rmb5.0bn.

  Comparison

  The report says the company trades at about 23x 2026E PE, below peers at 40x-180x; in the consensus rating mix, Overweight accounts for 85% and Equal-weight for 15%.

  Risks

  Weaker-than-expected demand, faster-than-expected capacity releases, a slowdown in global demand, rising raw material prices, and industry oversupply.

• High-end electronic fabric / electronic glass fiber

  Key products driven by demand from AI servers, high-speed switches, and advanced PCBs

  Strengths

  AI-related demand is growing faster than industry supply additions, supporting price and volume, and high-end specifications account for more than 60% of output from the new project.

  Weaknesses

  Tight supply-demand conditions could attract more industry capacity additions, and the durability of pricing depends on the pace of new supply releases.

  Comparison

  Standard 7628 electronic fabric prices are up about 55% year to date, from around Rmb4.4/m to Rmb6.8/m.

  Risks

  AI demand falls short of expectations, downstream PCB and server investment slows, and industry supply recovers quickly.

• Glass fiber roving

  Part of the company's traditional glass fiber business and capacity expansion

  Strengths

  The company expects an additional 200kt of roving capacity in 2026, supported by improving demand from wind power and product-mix adjustments in the industry.

  Weaknesses

  Compared with AI-related high-end electronic fabric, traditional roving is more exposed to cyclical demand and industry supply dynamics.

  Comparison

  The report expects 2026 average roving prices of Rmb4,900/ton, with roving output rising 6% year on year to 3.4mnt.

  Risks

  Downstream demand such as wind power falls short, industry oversupply persists, and raw material costs rise.

Key data

• Target priceRmb48.00Raised from the prior target price; the base-case target comes from the residual income model.
• Current priceRmb37.62Reference price used in the risk-reward chart to calculate upside and downside.
• Implied upside+27.59%Calculated based on the Rmb48 target price versus the current price of Rmb37.62.
• Bull caseRmb68.00Reflects tighter supply, stronger demand recovery, and a better-than-expected pricing outlook.
• Bear caseRmb23.00Reflects weaker-than-expected demand and supply releases during the AI upcycle arriving faster than expected and narrowing the supply-demand gap.
• New expansion project50kt electronic yarn; 320mn meters electronic fabricMore than 60% of output will be thin, ultra-thin, and extra-thin products for AI-related applications, with completion expected in about 1.5 years.
• 2026 new capacity200kt roving; 100kt electronic yarnPlanned to come onstream during 2026, with the model accounting for ramp-up timing.
• 2026 volume forecast3.4mnt roving; 1.2bn meters electronic fabricYear-on-year growth of 6% and 13%, respectively.
• 2026 price assumptionsRmb4,900/ton for roving; Rmb6.5/m for electronic fabricSupported by wind power demand, product-mix changes, and tighter electronic fabric supply.
• 7628 electronic fabric price changeabout +55% YTD, from Rmb4.4/m to Rmb6.8/mReflects tighter supply of standard electronic fabric and demand from AI-related high-end products.
• 2026 capexRmb5.0bnInvestment related to high-end electronic fabric capacity expansion.
• EPS forecast revision2026-2028e +27%/+16%/+25%Relative to prior forecasts, the revision mainly reflects higher volume and price contribution from high-end electronic fabric.

Impact & implications

If the report's view is realized, China Jushi could achieve higher volume, stronger pricing, and higher margins in the AI infrastructure materials chain, while its capacity leadership, loom resources, and cost control capabilities may raise industry barriers to entry and slow competitors' expansion. On valuation, the company’s roughly 23x 2026E PE is below the 40x-180x peer range cited in the report, and sustained AI-related demand could drive re-rating.

Risks

• Demand falls short of expectations, especially if demand from AI servers, high-speed switches, advanced PCBs, or other downstream industries is weaker than expected.
• Capacity is released faster than expected, causing the supply-demand gap created by the AI upcycle to close more quickly.
• A slowdown in global demand weighs on glass fiber and electronic fabric sales.
• Rising raw material prices, especially higher precious-metal prices, increase glass fiber production equipment costs and industry capex.
• Industry oversupply pressures prices and margins.
• New capacity construction, commissioning, or ramp-up progresses more slowly than management expects.

What to watch

• Construction progress of the new 50kt electronic yarn and 320 million meter electronic fabric project, and whether the target of completion in about 1.5 years is met.
• The ramp-up of the 100kt electronic yarn capacity that was already put into production in 2026, and the planned additional 200kt roving capacity.
• Whether prices for 7628 electronic fabric and high-end LDK and LCT products continue rising or remain elevated.
• Whether demand growth for AI servers, high-speed switches, and advanced PCBs continues to outpace new supply additions in the industry.
• Progress in certification of AI-related products such as Low DK Gen 1 & 2, low CTE, and Q-glass.
• Changes in loom supply, precious-metal equipment costs, and competitors' expansion plans.
• Whether the 2026-2028 EPS upgrades are realized through actual volume, pricing, and margin performance.