Product mix upgrades and new capacity reinforce the AI materials growth thesis; target price raised to RMB191.50

Overview

The report focuses on Shengyi Technology's second-quarter results, CCL pricing and product mix, PCB capacity expansion, and earnings forecasts. HSBC Qianhai Securities believes that demand for AI server materials, a rising share of high-end CCL, FR-4 price increases, and new PCB capacity will jointly support growth. It therefore substantially raises its earnings forecasts and target price while maintaining its Buy rating.

Core views

The second-quarter 2026 results reinforced the report's AI materials investment thesis. The company recorded revenue of RMB10.88 billion, up 54% YoY and 34% QoQ, and net profit of RMB2.13 billion, up 147% YoY and 84% QoQ, both above institutional and market expectations. Gross margin reached 32.6%, mainly driven by the rising revenue contribution of high-end CCL and PCB products and price adjustments. Since July 2026, the company's share price has corrected by 17%, compared with a 24% decline in the Wind PCB Index over the same period. The report attributes this relative resilience to the company's leading position in the global AI-CCL supply chain, strong order outlook, and pricing power. The core drivers of the CCL and prepreg business are the simultaneous increase in high-end market share and tight supply in the mid- and low-end segments. The report estimates that the company has secured a major share of Nvidia M8-grade materials and expects the revenue contribution and average selling prices of high-end products to continue rising. Its Thailand capacity is scheduled to ramp up in the second half of 2026, followed by further additions to high-end capacity. Meanwhile, high-end products are crowding out standard capacity, leaving the supply of modified FR-4 and conventional FR-4 tight. Against a backdrop of rising fiberglass fabric and copper foil costs, Kingboard has issued multiple price increase notices for FR-4-related products during the year. The report expects Shengyi Technology to follow industry price increases and pass higher raw-material costs on to downstream customers. Product mix upgrades and FR-4 price increases are expected to lift the gross margin of CCL and prepreg from 24% in 2025 to 30%, 31%, and 32% in 2026–2028, respectively. The PCB business growth thesis is driven by the ramp-up of high-value products, new capacity coming online, and customer diversification. The report raises its PCB revenue forecasts for 2026 and 2027 by 15% and 26%, respectively. As a major PCB supplier to AWS, Shengyi Electronics is expected to benefit from the ramp-up of Trainium3 in the second half of 2026, while growth in high-value products should also help mitigate upstream material cost pressures. Phase I of the Ji'an project has entered trial production, the Thailand plant is scheduled to follow in the second half of 2026, and the Dongguan HDI project is under construction. The new capacity is expected to support shipment growth while expanding the company's overseas and domestic ASIC/GPU platform customer base. Based on stronger CCL and PCB prospects, the report raises its total revenue forecasts for 2026 and 2027 by 25% and 51%, respectively. Of these, the CCL and prepreg revenue forecasts are raised by 31% and 67%, reflecting the possibility that FR-4 price increases will continue into the second half of 2026 and that AI server demand will improve the product mix. PCB revenue forecasts are raised by 15% and 26%, reflecting continued capital expenditure by cloud service providers and demand for high-density, high-layer-count PCBs. Consolidated gross margin forecasts for 2026 and 2027 are raised by 2.7 and 2.6 percentage points, respectively, while CCL and prepreg gross margin forecasts are raised by 4.2 and 4.4 percentage points. Meanwhile, operating expense forecasts are raised by 9% and 39%, respectively, to reflect higher R&D and selling expenses resulting from the expansion in business scale. Ultimately, the 2026 and 2027 net profit and EPS forecasts are both raised by approximately 52% and 72%, respectively. The report forecasts revenue of RMB44.989 billion, RMB64.595 billion, and RMB84.820 billion for 2026–2028, respectively; net profit of RMB7.536 billion, RMB11.095 billion, and RMB14.982 billion; and diluted EPS of RMB3.10, RMB4.57, and RMB6.17. Its net profit forecasts for 2026–2028 are 25%, 26%, and 28% above market consensus, respectively. The main divergence is that the report is more optimistic about mid- and low-end CCL supply and demand, high-end CCL share expansion, and the company's pricing power, and it expects market consensus forecasts to be gradually revised upward. Sensitivity analysis shows that CCL typically contributes approximately 60% of total revenue, making its gross margin and average selling price significant drivers of overall earnings. If the 2027 CCL gross margin is 5 percentage points above the report's current assumption and the average selling price is 5% higher, 2027 net profit would be 21% above the current forecast. This result indicates that cost pass-through, product mix, and high-end market share not only determine revenue but also amplify changes in net profit due to CCL's high revenue contribution. For valuation, the report continues to use the P/E method and takes the previous PCB upcycle from 2016 to 2021 as a reference. The projected EPS CAGR for 2026–2028 is 41%, above the 19% recorded during the middle of the 2016–2021 cycle and the previously used 35% growth rate for 2025–2027. Proportionally adjusting for growth, the report raises its target P/E from 41.0x to 47.8x, calculated by multiplying the 22x historical mid-cycle average P/E by the ratio of 41% to 19%. Applying 47.8x to the RMB4.01 forward 12-month EPS forecast yields a target price of RMB191.50, compared with the previous target of RMB83.80 based on a 2026 EPS forecast of RMB2.04. The new target price is approximately 34% above the reference share price of RMB143.21, with the table showing 33.7%. The report maintains its Buy rating and identifies Vera Rubin entering mass shipments in the fourth quarter of 2026 as a potential share-price catalyst. The report also lists three downside risks: slower-than-expected growth in PCB shipments or market share could weaken a key growth driver; profitability could be impaired if the company cannot effectively monitor raw-material prices, manage inventory, or pass through costs; and intense industry competition from existing competitors or new entrants could affect operations, financial condition, and long-term growth prospects.

Analysis framework

The report first uses second-quarter revenue, net profit, and gross margin to validate demand for AI materials and product mix upgrades. It then separately analyzes CCL market share, average selling prices, supply-demand conditions, and cost pass-through, as well as PCB product ramp-up, capacity construction, and customer expansion. It subsequently maps these operating assumptions into revenue, gross margin, expenses, and net profit forecasts and compares them with market consensus. Finally, it tests earnings sensitivity through an analysis of CCL gross margin and average selling prices, then derives the target valuation and target price using the historical P/E multiple from a PCB upcycle and relative EPS growth rates.

Methodology notes

• Valuation methodologyPE/PEG valuation

  Adjusting the target P/E based on the historical cycle and EPS growth

  The report uses the 22x average P/E from the 2016–2021 PCB upcycle as a benchmark and adjusts the target P/E to 47.8x based on the ratio of the current 41% EPS CAGR to the historical 19% growth rate. It then multiplies this by forward 12-month EPS of RMB4.01 to derive the target price.

• Industry/sector analysis frameworkSupply-demand framework

  Analysis of tight CCL supply-demand conditions and cost pass-through

  By considering high-end products crowding out standard capacity, tight supply of mid- and low-end FR-4, rising fiberglass fabric and copper foil prices, and peers' price increases, the report concludes that the company can pass costs on to downstream customers and improve gross margin.

• Industry/sector analysis frameworkVolume-price decomposition

  Decomposition of shipments, average selling prices, and product mix

  The report decomposes growth into expanding CCL and PCB shipments, FR-4 price increases, higher average selling prices for high-end products, and an improved revenue mix to explain the simultaneous upward revisions to revenue and gross margin forecasts.

• Company fundamentals and financial framework

  Sensitivity analysis of CCL gross margin and average selling price

  The report tests the impact of changes in key assumptions on 2027 earnings: if CCL gross margin rises by 5 percentage points and the average selling price increases by 5%, net profit would be 21% above the current forecast.

Asset mapping & comparison

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

• Shengyi Technology (600183.SS)

  The report views it as a key beneficiary of AI infrastructure expansion, high-end CCL demand, and the ramp-up of high-value PCBs.

  Strengths

  A leading position in the global AI-CCL supply chain, rising market share in high-end materials, strong pricing and cost pass-through capabilities, and expanding high-end PCB capacity and customer coverage through projects in Ji'an, Thailand, and Dongguan.

  Weaknesses

  Raw materials account for a high proportion of production costs, making profitability relatively sensitive to CCL gross margin, average selling prices, inventory management, and cost pass-through.

  Comparison

  Since July 2026, the share price has corrected by 17%, less than the 24% decline in the Wind PCB Index. The report believes its order outlook and pricing power are stronger than those of peers.

  Risks

  Slower-than-expected growth in PCB shipments or market share, inability to respond effectively to changes in material costs, and intensifying industry competition.

Key data

• Second-quarter 2026 revenueRMB10.88 billionUp 54% YoY and 34% QoQ, above institutional and market expectations.
• Second-quarter 2026 net profitRMB2.13 billionUp 147% YoY and 84% QoQ, above institutional and market expectations.
• Second-quarter 2026 gross margin32.6%Driven by the rising contribution of high-end CCL/PCB and price adjustments.
• CCL and prepreg gross margin forecast30%/31%/32% for 2026–2028Above 24% in 2025, reflecting product mix upgrades and FR-4 price increases.
• 2026–2027 total revenue forecast revisions+25%/+51%Driven by simultaneous upward revisions to CCL and prepreg and PCB forecasts.
• 2026–2027 CCL and prepreg revenue forecast revisions+31%/+67%Based on continued FR-4 price increases and an improved product mix driven by AI server demand.
• 2026–2027 PCB revenue forecast revisions+15%/+26%Reflecting demand for high-density, high-layer-count AI server PCBs and new capacity.
• 2026–2027 EPS forecast revisions+51.8%/+71.9%The table data indicate increases of approximately 52% and 72%, with new forecasts of RMB3.10 and RMB4.57, respectively.
• 2028 forecastsRevenue of RMB84.820 billion; net profit of RMB14.982 billion; EPS of RMB6.17This report introduces 2028 forecasts for the first time.
• Relative to market consensus2026–2028 net profit 25%/26%/28% higherThe institution is more optimistic about CCL supply and demand, pricing power, and gains in high-end market share.
• Earnings sensitivity2027 net profit 21% above the current forecastAssumes CCL gross margin is 5 percentage points higher and the average selling price is 5% higher; CCL typically accounts for approximately 60% of total revenue.
• EPS CAGR41% for 2026–2028The previous 2025–2027 forecast was 35%, compared with 19% during the middle of the historical 2016–2021 cycle.
• Target valuation47.8x target P/EPreviously 41.0x; adjusted using the 22x historical average and the 41%/19% growth-rate ratio.
• Target price and upsideRMB191.50; +33.7%The previous target price was RMB83.80, and the reference share price is RMB143.21.

Impact & implications

The report believes that the company's earnings drivers are expanding from pure demand growth to a combination of gains in high-end market share, higher average selling prices, cost pass-through, and capacity ramp-up. If FR-4 supply remains tight, AI server materials demand materializes, and new factories ramp up as scheduled, simultaneous revenue growth in CCL and PCB could also lift gross margins, allowing earnings to grow faster than revenue. This is the primary basis for the report's above-consensus forecasts and substantially higher target valuation.

Risks

• Slower-than-expected growth in PCB shipments or market share would negatively affect the report's earnings forecasts.
• If the company fails to effectively monitor raw-material prices, manage inventory, or pass costs on to downstream customers, profitability could be impaired.
• Industry competition is intense. If the company cannot effectively respond to existing competitors or new entrants, its operations, financial condition, and growth prospects could be materially affected.

What to watch

• Monitor whether Vera Rubin enters mass shipments as expected in the fourth quarter of 2026, which the report identifies as a potential share-price catalyst.