Shennan Circuit plans to raise Rmb4.88bn to expand Wuxi AI-PCB capacity; Citi maintains Buy

Overview

This report reviews Shennan Circuit's plan to raise Rmb4.88bn through issuing new shares to no more than 35 institutional investors, for Wuxi AI-PCB capacity expansion and replenishing working capital. Citi believes the issuance size is relatively small versus total share capital, with insignificant potential dilution and share price drag, and maintains its Buy rating on Shennan Circuit.

Core views

The core views include: first, the main use of the fundraising is to expand AI-PCB capacity, matching demand related to AI servers, data centers, and BT substrates; second, the company’s 2025 net debt ratio is 15%, and the balance sheet remains relatively healthy, with the private placement helping maintain financial stability amid increased capital expenditure and working capital investment; third, the company committed to cash dividends of no less than 20% of earnings during 2026-28, improving visibility of shareholder returns; fourth, major regional PCB companies are accelerating capacity expansion, and Citi believes the PCB equipment chain will benefit more directly, hence its preference for Han’s Laser > Han’s CNC > Shennan.

Analysis framework

The report analyzes the fundraising use, share dilution, balance sheet, dividend commitments, AI-PCB industry expansion trends, and forward PE valuation, and compares Shennan Circuit relatively with regional PCB industry chain companies and PCB equipment companies.

Methodology notes

• Valuation methodForward P/E valuation

  2027E PE of 38x, 2 standard deviations above the mean

  Citi bases its RMB360 target price on 38x 2027E PE, believing the upcycle in AI-PCB, 32% EPS CAGR over the three years to 2028E, leadership in telecom PCB, and technology advantages support a 20-30% valuation premium relative to the sector.

• Event impact assessmentAnalysis of private placement dilution and use of funds

  New shares account for about 2% of enlarged share capital

  The report judges the share price drag to be insignificant based on the fundraising size, issuance pricing mechanism, and proportion of new share capital, while emphasizing that the funds will be used for AI-PCB capacity expansion and working capital.

• Industry comparisonComparison of regional PCB capacity expansion

  The boost from PCB capacity expansion to the equipment chain

  The report observes the expansion plans of major PCB companies such as Victory Giant, Wus, Avary, and Kingboard, and believes that more PCB capacity construction will benefit equipment companies such as Han’s Laser and Han’s CNC.

Asset mapping & comparison

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

• Shennan Circuit (002916.SZ)

  Subject company of the report; Citi maintains a Buy rating

  Strengths

  AI servers and BT substrates contribute about 75% of sales; leadership in telecom PCB, SOE background, and technological advantages in AI servers, telecom, data centers, and automotive ADAS support a valuation premium.

  Weaknesses

  Capacity expansion requires continued capital expenditure and working capital, and the ramp-up of new capacity and profitability of some new plants still need to be delivered.

  Comparison

  In Citi’s industry chain preference ranking, it is below Han’s Laser and Han’s CNC, as the latter two benefit more directly from PCB expansion-related equipment demand.

  Risks

  Overseas AI server demand weaker than expected, automotive and ADAS demand weaker than expected, profits from the new Wuxi BT substrate plant below expectations, and copper-clad laminate cost inflation above expectations.

• Han’s Laser (002008.SZ)

  Beneficiary target in the PCB equipment chain; ranked above Shennan Circuit in Citi’s preference

  Strengths

  Capacity expansion by major regional PCB companies increases equipment demand, and the report believes it will benefit from more PCB capacity construction.

  Weaknesses

  The report does not elaborate on its specific financial forecasts and valuation details.

  Comparison

  Citi’s preference ranking is Han’s Laser > Han’s CNC > Shennan.

  Risks

  The pace of PCB capacity expansion, equipment order execution, and the industry capital expenditure cycle may affect the degree of benefit.

• Han’s CNC Technology (3200.HK)

  Beneficiary target in the PCB equipment chain; ranked above Shennan Circuit but below Han’s Laser in Citi’s preference

  Strengths

  More regional PCB capacity construction is expected to drive related equipment demand.

  Weaknesses

  The report does not provide details of its standalone valuation and earnings forecasts.

  Comparison

  Citi’s preference ranking is Han’s Laser > Han’s CNC > Shennan.

  Risks

  The release of equipment demand may be affected by PCB customer expansion progress and the industry cycle.

Key data

• Total fundraising amountRmb4.88bnFunds raised through issuance of new shares.
• Proposed raised funds invested in the Wuxi AI-PCB projectRmb3.60bnTotal project investment required is Rmb4.5bn.
• Working capital replenishmentRmb1.28bnUsed to support working capital needs.
• Issuance targets and lock-up periodNo more than 35 institutional investors; 6-month lock-up periodA six-month lock-up period begins immediately after issuance.
• Issuance pricing mechanismNo less than 80% of the average closing price over the past 20 trading daysThe report uses this to assess potential share dilution.
• Estimated proportion of new share capitalAbout 2%Citi believes the drag on the share price will not be significant.
• 2025 net debt ratio15%The report believes the balance sheet remains healthy.
• Cash dividend commitmentNo less than 20% of earnings during 2026-28Lower bound of cash dividends committed by the company during the period.
• Target priceRMB360Based on 2027E 38x PE.
• Valuation multiple2027E PE 38x2 standard deviations above the mean, about a 20-30% premium to the sector average.
• EPS growth assumption32% EPS CAGR over the three years to 2028EUsed to support valuation under the AI-PCB upcycle.
• Sales contribution from AI servers and BT substratesAbout 75%The report says the two together contribute about 75% of the company’s total sales.

Impact & implications

In the short term, this private placement may bring limited dilution, but the use of funds is focused on AI-PCB capacity expansion and working capital, leading Citi to judge that the drag on the share price will be limited. In the medium term, applications such as AI servers, data centers, EVs, and ADAS are driving an upcycle in the PCB industry. As a proxy target in the telecom PCB and AI server-related supply chain, Shennan Circuit is well positioned to benefit; however, from the perspective of industry chain elasticity, Citi believes PCB equipment companies will benefit more directly from the regional expansion cycle.

Risks

• Overseas AI server demand and expansion by other leading players are slower than expected.
• Automotive and ADAS system demand is weaker than expected.
• Profits from the new Wuxi BT substrate plant are below expectations.
• Copper-clad laminate cost inflation is higher than expected.

What to watch

• Pricing of the new share issuance, confirmation of issuance targets, and potential supply impact after the 6-month lock-up period.
• Construction progress, capacity ramp-up, and order validation of the Wuxi AI-PCB project with total investment of Rmb4.5bn.
• Whether demand for AI servers, data centers, and BT substrates remains strong.
• Changes in the company’s working capital usage, capital expenditures, and net debt ratio.
• Execution of the commitment to cash dividends of no less than 20% during 2026-28.
• The pace of capacity expansion among regional PCB leaders such as Victory Giant, Wus, Avary, and Kingboard, and the resulting order pull for the PCB equipment chain.
• Whether Guangzhou FC-BGA Ph1 can reach break-even in 2026 as expected in the report.