UBS Bullish on PCB/CCL: Excessive Pullback, Driven by AI and Price Hikes

Overview

UBS published an in-depth commentary on the China PCB and Copper Clad Laminate (CCL) industry, noting that after rising 100-200% in the first half of the year, the sector's 25-30% pullback since July appears excessive. The report argues that current valuations are attractive (25x forward PE) and supported by fundamentals due to growing AI capex, the continuation of the traditional CCL price hike cycle, and new demands from optical modules/ASICs/Kyber backplanes. The report significantly revised up earnings forecasts and target prices for key targets, adjusted some ratings, and recommends investors focus on structurally undervalued growth opportunities.

Core views

The sustainability of the traditional CCL price hike cycle is underestimated by the market. The report points out that although FR4 CCL prices have surpassed previous cycle peaks, supply constraints in traditional segments caused by capacity crowding out for AI-grade CCL, coupled with tight upstream E-glass supply, mean the supply-demand gap will persist until 2027. UBS conservatively forecasts FR4 CCL prices to reach RMB 365/sheet in H1 2027. Kingboard Laminates (KBL) and Shengyi Technology (SYT), as global leaders, will be the primary beneficiaries of this price hike cycle due to scale advantages, vertical integration, and bargaining power, with gross margins expected to expand significantly. Furthermore, as leading manufacturers shift capacity towards high-end AI products, industry concentration will increase, potentially squeezing out smaller players who cannot secure raw materials. New AI-related demands provide a mid-to-long-term growth engine for PCB/CCL manufacturers. Beyond specification upgrades for Nvidia's Rubin platform, 800G/1.6T optical module PCBs and ASIC accelerators are seen as near-term key profit drivers. UBS forecasts non-Nvidia accelerator shipments to grow YoY by 49% and 98% in 2026/27, far outpacing GPUs. Shennan Circuits and Avary Holding, leveraging their accumulation in high-end manufacturing processes like mSAP and HDI, as well as customer certification advantages, are poised to gain share in optical modules and ASICs. Specifically, Shennan Circuits' revenue share from optical module PCBs is expected to reach 25% in 2027, driving PCB business growth of 38%/48% in 2026/27. Although delayed, Kyber orthogonal backplanes offer greater potential value. Addressing market concerns about Kyber backplane delays, the report confirms the technology route is not cancelled but is expected to launch alongside the 2028 Feynman architecture. Technically, PTFE hybrid solutions, praised for superior performance and validation, are gradually replacing Q-glass as the mainstream choice. UBS calculates the Kyber backplane PCB market size could reach RMB 31.8 billion by 2029. If Shengyi Technology and Shennan Circuits secure a 20%-50% supply share, their earnings CAGR from 2026-29 could rise from baseline figures of 38%/39% to 44%/47%, corresponding to potential valuation upside of 59%/50%. Current stock prices do not yet reflect this option value. Mass production rhythm of the Rubin platform and supply chain landscape are becoming clearer. Rubin is expected to begin ramp-up in Q4 2026, with the main bottleneck being HBM4 supply rather than PCB manufacturing. Regarding supplier landscape, Victory Giant Technology (VGT) is expected to maintain approximately 50% overall share during the Rubin mass production phase; Avary Holding is expected to enter the Rubin compute tray supply chain; Shengyi Technology has passed Rubin Ultra certification and is likely to receive more incremental allocation. On the CCL material side, Rubin requires comprehensive upgrades in M9/Low-Dk2 and HVLP4 copper foil demand, doubling single-machine CCL consumption compared to Blackwell, further benefiting leading manufacturers with high-end material mass production capabilities.

Analysis framework

The report adopts a 'Cycle + Growth' dual-drive analytical framework. In terms of cycles, it analyzes the sustainability of traditional CCL price hikes beyond market expectations by examining upstream E-glass equipment bottlenecks (Toyota Iron), structural capacity shifts (AI crowding out traditional), and inventory levels. In terms of growth, it quantifies the new TAM brought by optical module PCBs, ASICs, and Kyber backplanes by breaking down Nvidia and non-Nvidia AI chip roadmaps, optical module iteration rhythms, and backplane technology evolution. Simultaneously, it performs individual stock Alpha screening and earnings forecast revisions based on each company's process capabilities (e.g., mSAP, PTFE processing), customer certification progress, and capacity planning.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Supply-side Structural Crowding-out Analysis

  The report does not just look at total capacity but emphasizes the 'crowding-out effect' of AI-grade CCL capacity expansion on traditional FR4 capacity, as well as rigid bottlenecks created by upstream specialized equipment (Toyota Iron). This helps judge that the length and intensity of the traditional product price hike cycle are more enduring than simply looking at demand recovery.

• Industry/Industrial Analysis FrameworkPenetration Rate S-Curve

  AI Hardware Technology Iteration and TAM Calculation

  By tracking the technology roadmaps of Nvidia and ASIC chips (such as Rubin, Kyber, Feynman), the report predicts penetration nodes for new materials (PTFE, Low-Dk2) and new forms (orthogonal backplanes), thereby quantifying future incremental market sizes 2-3 years in advance, rather than relying solely on current orders.

• Competition and Strategy FrameworkMoat / competitive advantage

  High-end Manufacturing Process Barriers and Customer Certification

  In the AI PCB field, the report views specific process capabilities such as mSAP, HDI, and high-multilayer PTFE processing as core moats. Combined with multi-year customer certification windows, it explains why only a few leading manufacturers can undertake high-value orders, rather than all PCB manufacturers benefiting.

Asset mapping & comparison

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

• Shengyi Technology (600183.SH)

  Top pick, benefiting from traditional CCL price hikes and AI CCL/Kyber backplane material upgrades

  Strengths

  Global CCL leader, leading PTFE hybrid formulation, Rubin Ultra certified, strong vertical integration

  Comparison

  Earlier layout in AI CCL and specialty materials compared to Kingboard Laminates; still has expansion willingness in traditional CCL compared to overseas EMC/Doosan

  Risks

  Changes in Kyber backplane technical solutions,不及预期 transmission of raw material cost increases

• Shennan Circuits (002916.SZ)

  Top pick, core beneficiary of optical module PCBs and ASIC PCBs, potential Kyber backplane supplier

  Strengths

  Leading mSAP/HDI processes domestically, rich experience in communication backplanes, domestic leader in BT/ABF substrates

  Comparison

  More complete product line and additional elasticity from substrate business compared to Guanghe Technology; stronger advantage in high-multilayer and high-frequency material processing compared to Victory Giant Technology

  Risks

  Fluctuation in optical module demand, slower-than-expected Kyber backplane certification progress

• Kingboard Laminates (1888.HK)

  Initiated coverage with Buy, one of the biggest beneficiaries of traditional CCL price hikes

  Strengths

  One of the world's largest CCL manufacturers, fully self-supplying upstream glass fiber/copper foil/resin, excellent cost control

  Weaknesses

  Lower penetration rate of AI-grade CCL relative to Shengyi, needs time to catch up

  Comparison

  Higher degree of vertical integration than Shengyi Technology, but slightly behind in high-end AI material R&D progress

  Risks

  Slower-than-expected recovery in traditional demand, slower AI transformation speed than competitors

• Avary Holding (002938.SZ)

  Rating upgraded to Buy, benefiting from Rubin compute tray introduction and optical module/AI PCB volume growth

  Strengths

  Solid consumer electronics base, aggressive AI PCB capacity expansion, mature HDI/mSAP capabilities

  Comparison

  Higher proportion of consumer electronics business provides a safety cushion compared to Shennan Circuits; larger marginal changes from new customer introductions compared to Victory Giant Technology

  Risks

  Weak consumer electronics demand, lower-than-expected yield rates during AI capacity ramp-up

• Guanghe Technology (001389.SZ)

  Maintained Neutral, high valuation, waiting for substantive contributions from AI/optical modules and ABF substrates

  Strengths

  Competitive in the server PCB niche

  Weaknesses

  Current valuation has over-discounted many growth expectations, AI and substrate businesses have not yet formed economies of scale

  Comparison

  Gap in certainty and volume in high-end AI PCBs and substrates compared to Shennan/Avary

  Risks

  Delayed AI order implementation, valuation correction risk

Key data

• Covered Companies 2026-28E EPS CAGR46%UBS forecast, significantly higher than Wind market consensus of 35%
• FR4 CCL Target Price (2027E H1)RMB 365/sheetConservative forecast; current prices already exceed previous cycle peaks
• Top 5 Cloud Providers Capex Growth Rate+84% / +45%YoY growth forecast for 2026E / 2027E
• Non-Nvidia Accelerator Shipments Growth+49% / +98%YoY growth for 2026E / 2027E, faster than Nvidia GPU's 17%/36%
• Kyber Backplane PCB TAM (2029E)RMB 31.8 billionBased on Feynman architecture rack shipment calculations
• Shennan Circuits Optical Module PCB Revenue Share (2027E)25%Expected significant increase, driving high PCB business growth
• Shengyi Technology/Shennan Circuits Earnings CAGR Revision Potential44% / 47%If Kyber backplane share is secured, further increasing from baseline 38%/39%

Impact & implications

The report believes the market's pessimistic sentiment towards the PCB/CCL sector is overpriced, ignoring the profit elasticity from traditional business price hikes and the long-term option value of AI new businesses. For Shengyi Technology and Kingboard Laminates, it means profitability will continue to recover during the traditional CCL price hike cycle, and the increasing proportion of AI materials will open a second growth curve. For Shennan Circuits and Avary Holding, it indicates that their positioning advantages in optical modules, ASICs, and future backplanes will translate into tangible earnings increments. Overall, sector valuations are expected to re-rate from the current 25x PE to higher levels, especially for leading enterprises with high-end manufacturing capabilities and upstream resource integration advantages.

Risks

• Slowing AI capex growth or cloud providers cutting orders
• Further changes in Kyber backplane technical solutions or further delays in mass production timing
• Obstruction in traditional CCL price transmission or unexpected weakening of downstream demand
• Intensified shortages of upstream raw materials (E-glass, copper foil) leading to production interruptions
• Geopolitical factors causing supply chain decoupling or export restrictions

What to watch

• Mass production timeline and technical specification locking for Nvidia Rubin and Kyber backplanes
• Monthly FR4 CCL and E-glass price trends and trading volumes
• 800G/1.6T optical module shipments and changes in PCB supplier shares
• Capacity ramp-up progress and yield performance of each company's AI-grade CCL/PCBs
• Quarterly capex guidance and actual execution by Top 5 cloud providers