Shennan Circuit Raises 4.88 Billion Yuan for AI-PCB Capacity Expansion; Citigroup Maintains Buy Rating

Overview

This report provides Citigroup’s commentary on Shennan Circuit’s announcement of a non-public offering to raise funds. Shennan Circuit announced that it will issue shares to no more than 35 institutional investors, raising a total of 4.88 billion yuan, primarily for the expansion of its AI-PCB (printed circuit boards for artificial intelligence) capacity in Wuxi. Citigroup believes that the dilution effect of this non-public offering on the company’s stock price will be limited (the newly issued shares account for approximately 2% of the enlarged total share capital), and thus maintains a “buy” rating with a target price of RMB 360. The report also analyzes the company’s healthy balance sheet, dividend commitment, and the overall trend of capacity expansion in the PCB industry driven by AI demand.

Core views

Citigroup’s core view on Shennan Circuit revolves around the upward cycle driven by AI-PCB demand. First, of the 4.88 billion yuan raised in this non-public offering, 3.6 billion yuan will be used for building new AI-PCB capacity in Wuxi (total project investment of 4.5 billion yuan), and 1.28 billion yuan will be used to replenish working capital. Citigroup estimates that the newly issued shares account for approximately 2% of the enlarged total share capital, and considers the dilution impact on the stock price to be insignificant. Second, the company’s balance sheet remains healthy, with a net debt-to-equity ratio of only 15% in 2025. Given the strong outlook for AI demand, the company needs more cash to increase working capital and fund existing projects. This non-public offering helps maintain a healthy balance sheet. Third, the company has committed to paying cash dividends at a rate of no less than 20% of net profit from 2026 to 2028, providing investors with a certain level of income guarantee. At the industry level, Citigroup points out that over the past 12 months, several major PCB companies have successfully raised funds through Hong Kong listings or dual listings, with the funds primarily used for AI-PCB capacity expansion. Leading companies including Pengding Holdings, Shenghong Technology, Huadian Shares, JianTao Group, Jingwang Electronics, and Shengyi Electronics all have capacity expansion plans. Therefore, Citigroup prefers PCB equipment manufacturers, ranking them as follows: Dazhong Laser > Dazhong CNC > Shennan Circuit.

Analysis framework

Citigroup’s analytical framework centers on the theme of ‘AI-PCB demand driving the industry’s upward cycle,’ unfolding across three levels: Company Level: Assessing the rationality of the non-public offering—funding scale and use, share dilution ratio, and impact on the balance sheet. Citigroup quantifies the dilution risk by calculating the proportion of newly issued shares (~2%) and verifies financial health by examining the net debt-to-equity ratio (15%). Valuation Level: Using forward PE valuation, targeting a PE ratio of 38x for 2027, which is two standard deviations (+2SD) above the historical average, reflecting the premium in the AI-PCB demand-driven upward cycle. Previously, the target multiple was 43x, but after the better-than-expected Q1 2026 results, it was rolled back to 38x. The target PE is 20-30% above the industry average, justified by the company’s leading position in the communications PCB sector (backed by state-owned enterprise status) and its technological leadership in AI servers, data centers, automotive ADAS, and other fields. Industry Level: By reviewing the capacity expansion plans of major competitors (Figure 1), Citigroup concludes that PCB equipment manufacturers will benefit from increased industry capital expenditure, forming a configuration recommendation of ‘equipment manufacturers outperforming manufacturers.’

Methodology notes

• Valuation MethodPE/PEG valuation

  Forward Price-to-Earnings Ratio (Forward PE) Valuation

  The PE ratio is calculated using projected earnings for the coming year rather than actual earnings over the past twelve months. In this report, Citigroup uses the projected net profit for 2027 to calculate a PE ratio of 38x, instead of current or past earnings, which better reflects the true valuation level of growth companies during their earnings release period.

• Valuation Method

  Above-Mean Standard Deviation (+2SD) Pricing

  The target valuation is anchored at a specific standard deviation above the historical mean (here, +2SD), rather than simply using the historical mean. This approach expresses analysts’ judgment that the industry is in an upward cycle and the company enjoys a structural premium—a dynamic tool for managing valuation ranges.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Logic of Equipment Manufacturers Benefiting from Capacity Expansion Cycles

  When downstream sectors of the industrial chain (PCB manufacturers) enter a large-scale capital expenditure cycle, upstream equipment manufacturers tend to benefit first and with greater certainty. By reviewing the expansion plans of various PCB companies (capital expenditure, new capacity), Citigroup concludes that demand for equipment will significantly increase, thus favoring equipment manufacturers.

Asset mapping & comparison

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

• Shennan Circuit (002916.SZ)

  Directly analyzed asset, one of the core beneficiaries of AI-PCB

  Strengths

  Leading position in the communications PCB sector, backed by state-owned enterprise status; technological leadership in AI servers, data centers, and automotive ADAS; BT substrates and AI servers together contribute about 75% of revenue

  Weaknesses

  Current stock price (RMB 379.5) is already above the target price (RMB 360), limiting short-term upside potential; expected total returns are negative

  Comparison

  Citigroup’s preference ranking: Dazhong Laser > Dazhong CNC > Shennan Circuit; equipment manufacturers benefit more reliably during capacity expansion cycles

  Risks

  Slower-than-expected growth in overseas AI server demand; weak demand for automobiles and ADAS systems; lower-than-expected profitability of the Wuxi BT substrate plant; higher-than-expected increases in copper clad laminate costs

• Dazhong Laser (002008.SZ) / Dazhong CNC (3200.HK)

  Citigroup’s preferred PCB equipment manufacturers, benefiting from industry capacity expansion

  Strengths

  Direct beneficiaries of the PCB expansion wave, with high certainty in equipment demand

  Comparison

  In the PCB industry chain, equipment manufacturers benefit more directly and earlier than PCB manufacturers

Key data

• Total Fundraising Amount4.88 billion yuanNon-public offering to no more than 35 institutional investors
• Investment Amount for Wuxi AI-PCB Project4.5 billion yuan (3.6 billion yuan raised)For constructing new AI-PCB capacity
• Replenishment of Working Capital1.28 billion yuanTo optimize financial structure
• Proportion of Newly Issued Shares~2%Of the enlarged total share capital, with limited dilution impact
• Net Debt-to-Equity Ratio in 202515%Healthy balance sheet
• Target PriceRMB 360Based on an expected PE ratio of 38x for 2027 (+2SD)
• Compound Annual Growth Rate of EPS from 2026 to 202832%Core assumption supporting the high valuation
• Revenue Share from AI Servers + BT Substrates~75%Shennan Circuit’s core revenue source
• Cash Dividend Commitment≥20%Cash dividend ratio of net profit from 2026 to 2028
• Current Stock Price (June 12)RMB 379.5Slightly above the target price, with an expected stock return of -0.1%

Impact & implications

Citigroup believes that Shennan Circuit’s non-public offering will help the company maintain a healthy balance sheet during the peak demand period for AI-PCB, providing funding support for capacity expansion. From an industry perspective, the active capacity expansion plans of several major PCB companies indicate that the AI-PCB sector is in a high-growth cycle. However, this also means that equipment manufacturers may benefit earlier and more reliably than PCB manufacturers. For Shennan Circuit itself, the early achievement of breakeven for the Guangzhou FC-BGA Phase I factory in 2026 is a positive signal. Nevertheless, the current stock price is already close to or slightly above the target price, leaving limited room for short-term upside.

Risks

• Slower-than-expected growth in overseas AI server demand
• Weaker-than-expected demand for automobiles and ADAS systems
• Lower-than-expected profitability of the Wuxi BT substrate plant
• Higher-than-expected increases in copper clad laminate costs

What to watch

• Progress of the Wuxi AI-PCB expansion project
• Breakeven performance of the Guangzhou FC-BGA factory in 2026
• Trends in overseas AI server demand
• Expansion pace of major competitors (Pengding, Huadian, Shenghong, etc.)