Risk-reward improves after a deep sector correction, with traditional CCL price hikes and AI PCB demand jointly supporting earnings

Overview

The report turns more positive after a sharp correction in China’s PCB and CCL sector. UBS believes profit-taking after the earlier rally, concerns over AI capex, and deleveraging trades have depressed valuations, but the fundamentals of covered companies have not deteriorated meaningfully. Traditional CCL is supported by capacity migration toward AI-grade products, tight E-glass supply, and limited new capacity, so the upward cycle in prices and margins may last into 2027. Meanwhile, 800G and 1.6T optical modules, ASICs, Rubin specification upgrades, and future Kyber orthogonal backplanes form new growth sources for PCBs and high-end materials.

Core views

First, the market underestimates the durability of the traditional FR4 copper-clad laminate cycle, as supply is being crowded out by AI-grade products and upstream E-glass is also in shortage, with Kingboard Laminates and Shengyi Technology benefiting the most. Second, PCB growth does not rely only on Rubin specification upgrades; optical module and ASIC demand can contribute more certain revenue in the near term, and Shennan Circuits and Avary have advantages through advanced processes and customer relationships. Third, a Kyber backplane delay does not mean cancellation; the extended validation window may instead create share-gain opportunities for Shengyi Technology and Shennan Circuits. Fourth, after the sector’s valuation pullback, a mismatch has emerged between valuations and expected earnings growth, improving risk-reward for leading companies.

Analysis framework

The report combines industry chain research, capacity tracking, supply-demand estimates, product specification breakdowns, customer and supplier share assumptions, segment earnings forecasts, and P/E valuation to conduct scenario analysis on the traditional CCL cycle, AI-grade material upgrades, optical module and ASIC PCB demand, Rubin mass production timing, and optional upside from Kyber backplanes, while comparing forecasts with market consensus and the historical 5G cycle.

Methodology notes

• Industry supply and demandCapacity migration and supply-demand gap analysis

  Effective supply is constrained by capacity structure and key equipment

  By tracking the migration of traditional capacity to AI-grade CCL and specialty glass fiber cloth, the commissioning pace of new capacity, E-glass supply, and loom bottlenecks, the report assesses the durability of the traditional CCL price-hike cycle.

• Earnings forecastVolume-price and product mix analysis

  Sales volume, selling prices, market share, and the proportion of high-margin products jointly drive profits

  The report separately evaluates the impact of FR4 price hikes, AI-grade CCL penetration, optical module and ASIC PCB ramp-up, customer share changes, and capacity ramp-up on revenue, gross margin, and EPS.

• Scenario analysisKyber backplane optional upside scenario

  Projects not yet included in the base forecast are treated as upside scenarios

  The base forecast does not include profit contribution from Kyber backplanes, and the report estimates potential market size, incremental profit, and valuation upside based on the number of Feynman racks, backplane value per rack, and supplier share.

• Relative valuationP/E and earnings growth comparison

  Target P/E is considered together with earnings growth, historical cycles, and peer valuations

  The report uses forward-year P/E for target price assessment, while comparing the current cycle with the earnings CAGR and valuation levels of the 2019 to 2021 5G cycle.

Asset mapping & comparison

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

• Shengyi Technology（600183.SS）

  Top CCL pick and potential material supplier for Kyber backplanes

  Strengths

  Leading scale in traditional FR4, with capabilities in AI-grade CCL and PTFE hybrid solutions; traditional product price hikes, product mix upgrades, and potential backplane share can jointly drive profits.

  Weaknesses

  Processing, yield, and large-scale mass production of high-layer-count PTFE materials still involve technical challenges.

  Comparison

  Compared with most CCL peers, it combines earnings elasticity from traditional CCL with upgrade potential in AI-grade materials; the target price was raised from RMB97 to RMB192.

  Risks

  Traditional CCL prices peak earlier than expected, AI material validation fails, Kyber adoption is delayed, or supply share is lower than expected.

• Shennan Circuits（002916.SZ）

  Top PCB pick, mainly benefiting from optical module PCBs and potential Kyber backplanes

  Strengths

  Possesses mSAP, HDI, high-layer-count PCB, communications backplane, and package substrate technologies; the revenue potential of optical module PCBs has not yet been fully priced by the market.

  Weaknesses

  Entry into Nvidia’s backplane supply chain still depends on design finalization, validation results, and mass production execution.

  Comparison

  UBS believes its current valuation is the most attractive among covered PCB companies; the target price was raised from RMB285 to RMB473.

  Risks

  Optical module demand or revenue share falls short of expectations, customer validation is delayed, or new capacity ramp-up and yield risks materialize.

• Kingboard Laminates（1888.HK）

  Major beneficiary of the traditional CCL price-hike cycle

  Strengths

  Global leading traditional CCL scale, and vertical integration in upstream glass fiber cloth, copper foil, and resin strengthen bargaining power and cost control, leaving significant room for margin expansion.

  Weaknesses

  AI-grade CCL penetration is still relatively in an improvement phase, and near-term earnings rely heavily on the traditional FR4 price cycle.

  Comparison

  Initiated coverage with a Buy rating and a target price of HKD58, based on 17x 2027 forecast P/E.

  Risks

  FR4 price hikes last for a shorter period than expected, upstream costs rise, or AI-grade product introduction is slower than expected.

• Avary Holding Shenzhen（002938.SZ）

  Beneficiary of optical modules, ASICs, and Rubin compute tray PCBs

  Strengths

  Has high-end HDI and mSAP manufacturing capabilities, customer relationships, and expansion conditions, and is expected to gain Rubin compute tray share.

  Weaknesses

  Growth realization depends on smooth ramp-up of new capacity and increased share of high-end products.

  Comparison

  Rating upgraded from Neutral to Buy, target price raised from RMB55 to RMB130, with expected earnings CAGR of 42% from 2026 to 2029.

  Risks

  Capacity construction or ramp-up is delayed, customer share falls short of expectations, or optical module and ASIC demand fluctuates.

• Shenzhen FastPrint Circuit（002436.SZ）

  Potential beneficiary of optical module PCBs and package substrates

  Strengths

  If AI-grade or optical module PCBs and ABF package substrates begin to make substantive contributions, earnings could still have upside.

  Weaknesses

  Current valuation is relatively high, and related new businesses have not yet formed sufficient profit contribution at scale.

  Comparison

  Maintains a Neutral rating and RMB37 target price, with lower priority than Shennan Circuits and Avary.

  Risks

  High valuation compression, delayed mass-production contribution from new businesses, or package substrate demand or profitability falling short of expectations.

Key data

• Recent sector correction25% to 30%The decline since July; UBS believes profit-taking, concerns over AI capex, and deleveraging trades are the main reasons.
• Earnings growth of covered companies46% EPS CAGR from 2026 to 2028Above the Wind consensus of 35%.
• Current valuationAbout 25x UBS forecast next-twelve-month P/EThe report believes this is attractive relative to earnings growth.
• Capex growth of the top five hyperscale cloud vendors84% growth in 2026 and 45% growth in 2027Used to support the assessment of demand for AI servers, networking equipment, and related PCBs and materials.
• Nvidia GPU shipment growth17% growth in 2026 and 36% growth in 2027Forecast by the UBS technology team.
• Non-Nvidia accelerator shipment growth49% growth in 2026 and 98% growth in 2027ASIC-related demand growth is expected to be higher than Nvidia GPU growth.
• Traditional FR4 copper-clad laminate price forecastRMB365 per sheet in the first half of 2027The previous cycle peak was about RMB220 per sheet, and the current price has already exceeded that level.
• Electronic glass fiber cloth supply-demand gapExpected to exceed 10% by 2027Effective capacity is affected by loom equipment bottlenecks and capacity shifts toward AI and specialty glass fiber cloth.
• Change in global CCL capacity structureAbout 30% of capacity has shifted to high-speed or AI-grade CCLCompared with the previous cycle in 2021, effective supply of traditional CCL has been significantly squeezed.
• Shennan optical module PCB potentialCould reach 25% of total revenue in 2027Expected to drive PCB business growth of 38% and 48% year-on-year in 2026 and 2027, respectively.
• Kyber backplane potential market sizeRMB1.2 billion in 2028, RMB31.8 billion in 2029, and RMB48.0 billion in 2030Estimated based on Feynman rack ramp-up and backplane value per rack.
• Kyber upside scenarioThe 2026 to 2029 earnings CAGRs of Shengyi Technology and Shennan Circuits could rise to 44% and 47%The base forecasts are 38% and 39%, respectively, and do not yet include backplane profit contribution.
• Rubin copper-clad laminate demandAbout 1 million sheets per month at full capacityHigher than 400,000 to 500,000 sheets per month for GB300 at full capacity; HBM4 supply could become a bottleneck.

Impact & implications

This opportunity shows clear structural divergence. Upstream CCL leaders can benefit simultaneously from traditional product price hikes, AI-grade product upgrades, and rising industry concentration, while high-end PCB manufacturers benefit from optical modules, ASICs, Rubin specification upgrades, and potential Kyber backplane share. Slow expansion of traditional CCL supply means price increases may last longer than in historical cycles, while AI project delays mostly change the timing of revenue recognition and do not necessarily impair long-term demand. After the sector correction, upward earnings revisions and valuation recovery may jointly drive returns, but companies lacking high-end process capabilities or already carrying high valuations are less attractive.

Risks

• AI infrastructure capex or accelerator shipments fall short of expectations, weakening demand for high-end PCBs and CCL.
• Rubin mass production, Feynman, and Kyber backplane introduction are further delayed, or the final design cancels the orthogonal backplane.
• Validation fails for material solutions such as PTFE hybrid and M10 plus Low-Dk2, or mass production yield or costs cannot meet customer requirements.
• New supply of traditional FR4 copper-clad laminates comes online faster than expected, or weaker end demand causes the price cycle to peak early.
• Cost increases for E-glass, copper, and other raw materials exceed product price hikes, suppressing gross margin improvement.
• Competitor capacity expansion and diversified customer sourcing cause covered companies’ supply shares to be lower than expected.
• Ramp-up of high-end PCB and AI-grade CCL capacity is not smooth, or shortages of equipment or key materials delay revenue recognition.
• Sector valuations remain in a relatively high range, and a decline in market risk appetite may limit valuation recovery.

What to watch

• Monthly price increases, orders, and inventory changes for traditional FR4 copper-clad laminates and E-glass.
• Whether new traditional CCL capacity remains limited before 2027, and the pace of capacity migration toward AI-grade products.
• Rubin’s mass production pace in the fourth quarter of 2026, HBM4 supply, and allocation ratios among suppliers.
• Kyber backplane design finalization in the fourth quarter of 2026, and validation results for PTFE hybrid and M10 plus Low-Dk2 solutions.
• Whether Shengyi Technology’s PTFE CCL yield can continue to improve from about 40% to 50%.
• Shennan Circuits’ optical module PCB revenue share, mSAP mass production progress, and potential Nvidia supplier qualification.
• Avary’s new capacity ramp-up and Rubin compute tray PCB share.
• Capex trends of the top five hyperscale cloud vendors and shipment trends of non-Nvidia ASIC accelerators.
• Progress in upgrading 800G and 1.6T optical module PCBs from traditional subtractive processes to mSAP.
• Whether differences between covered companies’ earnings forecasts, target prices, and market consensus narrow.