Shengyi Electronics: ASIC Customer Upgrades Drive Growth, Maintain Buy

Overview

Nomura released its review of Shengyi Electronics' 2026 interim report, maintaining a 'Buy' rating and a CNY 159 target price. The research report believes that the company's H1 performance met expectations, with high double-digit growth in revenue and profits, and significant improvement in gross margins. The core drivers come from the continued volume ramp-up of key ASIC customer new products (Trainium 3) in H2 2026, as well as the company's active capacity expansion in AI PCB and high-end HDI fields. Although rising raw material prices caused a slight sequential decline in Q2 gross margin, the long-term growth logic remains unchanged, and current valuations are attractive.

Core views

Performance and Profitability: Shengyi Electronics' H1 2026 revenue increased 53.5% YoY to RMB 5.78 billion, with Q2 single-quarter revenue at RMB 3.37 billion, up 54.1% YoY and 39.9% sequentially, meeting institutional expectations. H1 net profit surged 109.4% YoY to RMB 1.11 billion, falling within the midpoint of the company's guidance. In terms of profitability, H1 gross margin improved 3.9 percentage points YoY to 34.3%, mainly benefiting from an increased proportion of high-value-added products; although Q2 gross margin declined slightly by 1.5 percentage points sequentially to 33.7% due to rising raw material prices, it still increased by 2.9 percentage points YoY, maintaining robust overall盈利 quality. Core Growth Drivers and Customer Dynamics: The report emphasizes that the company will continue to benefit from the ramp-up of new products from key ASIC customers (i.e., Trainium 3), a process expected to continue in H2 2026. The volume ramp-up of these new products not only directly drives revenue growth but also further supports the increase in average selling price (ASP) and profit margins through product mix optimization. This indicates that the company's position in the high-end AI computing hardware supply chain is solid, and its binding relationship with major customers is translating into substantial performance increments. Capacity Expansion and CapEx: To seize opportunities in the high-end PCB market, the company significantly increased capital investment in H1 2026, with CapEx increasing 111% YoY to RMB 1.27 billion. Specific projects include: the ramp-up of Phase I of the Dongcheng Intelligent Computing Center High-Layer PCB project and the advancement of Phase II construction; the commissioning of Phase I of the Ji'an Smart Manufacturing AI Computing PCB project and ongoing construction of Phase II; the Thailand production base entering equipment installation and debugging stages; and the formal commencement of the Dongguan AI Computing HDI base with plans for mSAP processes. This high-intensity capital expenditure, while leading to negative free cash flow in the short term, validates the company's strategic determination for proactive expansion in the AI PCB track, laying the foundation for subsequent market share gains. Valuation Logic and Investment Returns: Based on confidence in future growth, Nomura maintains a CNY 159 target price, derived from 35x 2027 fiscal year forward earnings per share (EPS RMB 4.55), aligning with the company's historical PE median and the 37% compound annual growth rate (CAGR) of earnings for FY2026-2028. As of the closing price of RMB 115.99 on August 14, the stock trades at approximately 25.5x FY27F PE, implying an upside of approximately 37%. Institutions believe that current valuations have not yet fully reflected the mid-to-long-term value brought by ASIC customer upgrades and new capacity releases.

Analysis framework

The research report adopts an analytical framework of 'Performance Verification + Catalyst Forward-Looking + Capacity Matching'. First, it confirms revenue growth, gross margin trends, and cash flow status through interim report data to verify fundamental resilience; second, it focuses on the product iteration cycle of core large customers (ASIC/Trainium 3) to judge the certainty of simultaneous volume and price increases in H2; third, it combines Prismark industry forecasts with the expansion progress of the company's four major bases to assess whether the supply side can accommodate demand growth; finally, it uses PEG and historical PE medians as anchors for valuation pricing, ensuring that the target price balances growth and safety margin.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative valuation method based on forward PE and compound earnings growth rate

  The research report uses 35x FY27F PE as the benchmark for the target price and explicitly benchmarks against the company's historical PE median and FY26-28F 37% earnings CAGR. This method is suitable for high-growth tech stocks, considering both absolute valuation multiples and verifying the match between valuation and growth through PEG logic, avoiding misjudgments from simply looking at PE levels.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Analytical logic of demand transmission from downstream chip customer product iterations to upstream PCB suppliers

  The research report takes the ramp-up of ASIC customer Trainium 3 new products as the core variable, deriving the pull effect on ASP and profit margins for upstream PCB manufacturers. This reflects the transmission rule in the hardware industry chain where 'chips define hardware specifications', helping investors understand why the product rhythm of a single customer can determine the profit elasticity of suppliers.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Distinguishing operating cash flow from free cash flow to judge corporate real造血 capability and expansion stage

  The research report points out that while the company's operating cash flow grew strongly (+112%), free cash flow turned negative due to surging CapEx (+111%). This divergence is normal during the expansion phase of high-growth manufacturing. When analyzing, FCF should not be simply viewed as a negative signal but should be judged in combination with CapEx投向 (such as AI PCB capacity) to determine if it is a strategic investment.

Asset mapping & comparison

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

• Shengyi Electronics (688183.SS)

  Core beneficiary: Volume ramp-up of ASIC customer new products and high-end capacity expansion directly drive performance.

  Strengths

  Deeply bound to top-tier ASIC customers; Leading layout of AI PCB/HDI capacity; Continuous improvement in gross margin; Strong operating cash flow.

  Weaknesses

  Rising raw material prices put pressure on Q2 gross margin sequentially; High-intensity CapEx leads to negative short-term FCF.

  Risks

  Downstream 5G/AI server demand falls short of expectations; Intensified competition in high-end PCBs damages profit margins; Raw material costs rise unexpectedly.

Key data

• H1 2026 RevenueRMB 5.78 billionIncreased 53.5% YoY, in line with expectations
• H1 2026 Net ProfitRMB 1.11 billionIncreased 109.4% YoY, at the midpoint of guidance
• H1 2026 Gross Margin34.3%Increased 3.9 percentage points YoY
• H1 2026 CapExRMB 1.27 billionIncreased 111% YoY, used for AI PCB capacity expansion
• FY27F EPSRMB 4.55Basis for target price valuation
• FY26-28F Earnings CAGR37%Support for valuation rationality

Impact & implications

The research report believes that Shengyi Electronics is in a dual-hit window of 'customer upgrade + capacity release'. The continuous volume ramp-up of ASIC customer Trainium 3 means that the company has not only obtained order volume growth but also achieved qualitative changes in product structure, which will effectively hedge against the pressure of rising raw material costs. Meanwhile, the simultaneous expansion of four major bases demonstrates management's high conviction in AI PCB demand. Although free cash flow is sacrificed in the short term, it lays the foundation for market share and profit scale in 2027 and beyond. For investors, the current 25.5x forward PE still offers good value relative to the 37% compound growth rate, and the stock price is expected to gradually approach the target price as performance is realized.

Risks

• PCB demand in downstream fields such as 5G servers and automotive electronics is lower than expected.
• Intensified competition in the high-end PCB market puts pressure on gross margins.
• The magnitude of raw material cost increases exceeds expectations.

What to watch

• Actual ramp-up progress and shipment volumes of ASIC customer Trainium 3 products in H2 2026.
• Commissioning and yield ramp-up status of the four new bases in Dongcheng, Ji'an, Thailand, and Dongguan.
• Trends in raw material prices and the company's ability to pass on costs.
• Quarterly trend changes in ASP and gross margin for high-end PCB/HDI products.