AI-led PCB growth with substrate upside ahead

　　深南电路(002916)

　　SCC’s FY25 revenue grew 32% YoY to RMB23.6bn, in line with BBG consensusand 4% above our forecast. GPM improved significantly to 28.3% (0.3pptsabove BBG consensus and 1.4ppts above our estimate), up from 24.8% inFY24, driven by improved product mix, better cost efficiency and higherutilization. Net profit rose 75% YoY to RMB3.3bn, slightly below BBG consensus(-0.7%) but 8% ahead of our forecast. By quarter, 4Q revenue increased 42%YoY and 9% QoQ, while net profit grew 144% YoY but declined 1.6% QoQ. 4QGPM eased sequentially to 28.6% from 31.4% in 3Q mainly due to depreciationfrom the Nantong IV and Thailand facilities and higher raw material costs.Looking ahead, we expect SCC to continue benefiting from strong multilayerPCB demand driven by robust AI infra. capex, while its substrate businessshould gradually improve as BT supply remains tight and ABF/FC-BGA rampson rising domestic demand. Maintain BUY, with TP adjusted to RMB288.

　　PCB revenue grew 37% YoY in FY25 with GPM at 35.5%. SCC continuedto benefit from strong AI data center demand (~25% of PCB revenue), whiletelecom was ~40% of PCB revenue, with utilization maintained at around95% across most fully ramped facilities. 4Q GPM softened slightly due toramp-up costs at Nantong IV and Thailand, higher raw material prices (e.g.,gold and CCL), and a higher contribution from lower-margin PCBA (revenueup 9% YoY, GPM at 15%). Looking ahead, we expect PCB revenue toremain supported by ongoing AI infra. capex, with strong demand from datacenters, switches and optical modules sustaining high utilization, whilemargins should stabilize as new capacity ramps and product mix improves.

　　Substrate revenue grew 31% YoY in FY25 with GPM improving to22.6% (vs. 18.2% in FY24), supported by stronger BT substrate shipmentsand improving utilization amid tight industry supply and relatively stablepricing. BT demand remained robust with long order visibility, andGuangzhou BT capacity operated at relatively high utilization. Meanwhile,ABF/FC-BGA substrates remained in the early volume ramp stage (ABFrevenue was >RMB100mn in FY25), while the Guangzhou facility continuedto post losses as scale, yields and customer ramps develop. Looking ahead,we expect the substrate segment to improve gradually, supported byresilient BT demand and rising domestic compute demand for ABF/FCBGA, with segment GPM likely trending toward the mid-20% range asutilization improves.

　　Reiterate BUY, with TP adjusted to RMB288 (prev. RMB235), based on38x FY26E P/E (prev. 34x). We value the Company using a blended peeraverage of both PCB (33x 2026 P/E) and substrate players (42x 2026 P/E)as we remain bullish on SCC’s continued PCB growth and the long-termramp of its high-end substrate business.