Citi Raises Kingboard Laminates' Target Price to HK$100, Bullish on AI Fabric Profitability

Overview

Citi Securities released a research report reiterating its Buy rating for Kingboard Laminates (1888.HK) and significantly raising the target price from HK$80 to HK$100, based on research into Grace Fabric, an industry leader in AI fabrics, and supply chain analysis. The core logic of the report is that driven by demand for AI servers, prices for high-end electronic glass cloth and copper clad laminates (CCL) continue to rise, and the company's AI fabric business profitability is significantly higher than expected, which is expected to drive rapid earnings growth from 2026 to 2028.

Core views

Explosive Earnings Growth: The report forecasts the company's H1 2026 revenue to surge 80% YoY to HK$17.3 billion, with net profit skyrocketing 297% YoY to HK$3.71 billion. The main drivers are the 60-95% increase in the average selling price (ASP) of electronic glass cloth year-to-date, and over 60% increase in FR4 CCL ASP. Gross margin is expected to expand from 19.6% in 2025 to 34.6% in 2026, hitting a historical high. AI Fabrics as New Engine: Research shows that the profitability structure of AI fabrics is superior to traditional products. The proportion of AI fabrics in the company's total gross profit is expected to rapidly increase from 6.9% in 2026 to 17.4% in 2028. The company plans to build a total of 12 kilns by the end of 2026, corresponding to approximately 85 million meters of AI fabric capacity in 2027, which is expected to exceed the 33 million meter capacity of major competitor Grace Fabric, establishing industry leadership. Valuation Reshaping Logic: Given that the new AI fabric business will start contributing significant profits from H2 2026, and the earnings cycle is trending upward, institutions assign the company a 25x P/E valuation for 2027 (above the historical mean +2 standard deviations), corresponding to a target price of HK$100. Although the stock price has quintupled year-to-date, based on a 90% three-year earnings CAGR, the PEG is only 0.3x, making the valuation still attractive.

Analysis framework

The institution adopted a method combining supply chain cross-validation and valuation premium analysis. First, by researching upstream key material suppliers (Grace Fabric), they inferred Kingboard Laminates' cost structure and industry supply-demand conditions, confirming that tight loom supply will support continued price increases. Second, regarding valuation, considering the growth potential from entering the NVIDIA and ASIC chip supply chains, they used a standard deviation above the historical mean (+2SD) to determine the target P/E ratio, reflecting the valuation reshaping brought by the new business. Finally, by comparing the capacity planning and valuation levels of industry competitors (such as Grace Fabric), they demonstrated Kingboard Laminates' advantages in capacity scale and valuation attractiveness.

Methodology notes

• Valuation MethodPE/PEG valuation

  Price-to-Earnings Ratio and Price/Earnings-to-Growth Ratio

  The report uses a 25x PE for 2027 as the target valuation, combined with a 90% three-year earnings CAGR to calculate a PEG of 0.3x, judging that current valuation remains low amidst high growth, supporting the target price increase.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply Constraints Driving Price Inflation

  One of the core logics of the report is based on limited loom supply, leading to tight supply of high-end electronic glass cloth, thereby driving continuous ASP increases. This is a typical supply-constrained price increase analysis framework.

• Competition and Strategy FrameworkMoat / competitive advantage

  Capacity Scale and Customer Certification Barriers

  By comparing estimated 2027 capacity (85 million meters vs 33 million meters), it demonstrates Kingboard Laminates' scale advantage relative to competitors, as well as customer certification barriers from entering the NVIDIA supply chain, constituting its competitive advantage.

Asset mapping & comparison

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

• Kingboard Laminates (1888.HK)

  Core beneficiary, AI fabric capacity expansion and ASP increases directly drive earnings

  Strengths

  Capacity scale expected to surpass competitors by 2027, entry into NVIDIA supply chain, vertical integration cost advantages

  Weaknesses

  Traditional consumer electronics demand still accounts for a large portion, affected by macro fluctuations

  Comparison

  Preference order: KBL > Kingboard Holdings (0148.HK); KBL > Han's Laser (002008.SZ) > Shengyi Technology (600183.SS)

  Risks

  AI demand below expectations, delays in capacity expansion progress

• Grace Fabric (603256.SS)

  Research subject and industry benchmark, its capacity constraints confirm the industry supply tightness logic

  Strengths

  Leader in AI fabric industry, technologically advanced

  Weaknesses

  Capacity expansion speed slower than Kingboard Laminates

  Comparison

  2027E capacity estimated at 33 million meters, lower than Kingboard's 85 million meters; valuation at 178x PE is higher than Kingboard

  Risks

  Technology iteration risk, capital expenditure pressure

• NVIDIA Corp (NVDA.US)

  Downstream core driver, AI chip demand pulls upstream materials

  Strengths

  Monopoly position in AI computing power

Key data

• 2026E Revenue ForecastHK$37.599 billionYoY growth of 84.3%
• 2026E Net Profit ForecastHK$8.349 billionYoY growth of 234.7%
• 1H26E Net Profit PreviewHK$3.71 billionYoY growth of 297%
• 2028E AI Fabric Gross Profit Share17.4%6.9% in 2026E
• Target PriceHK$100Raised from HK$80
• 2027E Valuation Multiple25x PEHistorical mean +2 standard deviations

Impact & implications

The research report believes that with the release of demand for high-end copper clad laminates from AI servers, Kingboard Laminates is at the beginning of an earnings upcycle. The target price increase reflects the market's shift in valuation logic from a traditional cyclical stock to an AI growth stock. If AI fabric capacity is released as scheduled and yield rates meet standards, the company is likely to achieve a double-click of valuation and performance in 2027. For investors, this means the driver of the company's stock price has shifted from simple cyclical recovery to structural growth, with short-term attention on the mid-July earnings warning and the mid-August interim report release.

Risks

• Demand for upstream materials (glass cloth, copper foil) related to AI products faster/slower than expected
• China's macroeconomic growth faster/slower than expected
• Cost pressures leading to margin expansion slower than expected

What to watch

• Whether a positive earnings warning is issued in mid-July 2026
• Details of 1H26 results released in mid-August 2026
• Progress of AI fabric kiln construction and customer certification status
• Subsequent trends in electronic glass cloth and CCL ASP