深南电路（A）：光模块与ABF基板潜在上行空间，目标价上调至340元，买入

Optical transceiver and ABF substratepotential upsides: Lift PO to CNY340, Buy Reiterate Rating:BUY| PO:340.00 CNY| Price:301.36 CNY 1Q earningsweighed down by stock incentives and FXMgmt.attributed the QoQ sales decline in 1Q to slower auto pull-in, resulting in a decline 27 April 2026 in PCB and PCBA segments, while substrates maintained a decent growth. The bottomline was weighed down by higher opex for stock incentives (CNY50mn per month) andFX losses (CNY50mn); see report1Q first-take. For CCL, mgmt. noted it is easier to passthrough the cost hike for new orders, and customers now focus more on order fulfillment. Equity Strong mSAP demand led by optical transceivers Shennan noted strong optical transceiver orders recentlydue to industry supplyshortage. 1.6T started volume ramp-up in 1Q, and we expect volumes to continue togrow in the coming quarters. Currently, 800G and 1.6T together contributes 50% ofoptical transceiver sales, while 1.6T alone 10%. Given 1.6T requires higher layer count(14-18 layers MLPCB and 6-7 layers HDI) and more advanced materials (M8/M9), weexpect further revenue/margin upside as product mix continues to improve. Katherine Zhu>>Research AnalystMerrill Lynch (Hong Kong)kexin.zhu@bofa.com Guangzhou substrate facilitylikely to break even Mgmt. also believes its Guangzhou substrate facility may have the chance to break eventhis year, thanks to strong BT demand (for memory) and rising ABF orders fromdomestic GPU/CPU customers. ABF revenue was only CNY100mn in 2025, and revenuescale could reach over CNY1bn when reaching full utilization. Robert Cheng>>Research AnalystMerrill Lynch (Taiwan)robert.cheng@bofa.com Doris Kao>>Research AnalystMerrill Lynch (Taiwan)doris.kao@bofa.com Reiterate Buy,lift PO to CNY340 We fine-tune our 2026E earnings and lift our 2027-28E by 4-5% to reflect the risingcontribution from AI/memory-related PCB/substrates. We raise our PO to CNY340 (35x2H26-1H27E P/E) from CNY303 (32x). Our higher P/E of 35x (+0.5SD) reflectspotentially faster earnings expansion amid strong demand and accelerating adoption ofdomestic accelerators. We reiterate our Buy rating on Shennan Circuits. Cindy Lo>>Research AnalystMerrill Lynch (Taiwan)cindy.lo3@bofa.com This research report provides general information only. No part of this report may be usedor reproduced or quoted in any manner whatsoever in Taiwan by the press or otherpersons without the expresswritten consent of BofA Securities.>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions.BofA Securities does and seeks to do business with issuers covered in its research Fora full list of acronyms, see page 4 reports. As a result, investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision.Refer to important disclosures on page 9 to 11. Analyst Certification on page 6. PriceObjective Basis/Risk on page 6.12963796 iQprofileSMShennan Circuits (A) Company SectorElectronics Company Description Shennan Circuits Company Limited (SCC) (002916 CH) wasestablished in 1984. SCC's headquarters is in Shenzhen, andits plants are in Shenzhen, Wuxi, andNantong. Thecompany is now the leading rigid PCB firm in China. Itsproducts are widely used in communications, aerospace,industrial control, consumer electronics, automotiveelectronics, storage and other fields. SCC's clients includeHuawei, ZTE, Google, Nokia, Honeywell, GE Healthcare,Bosch, BYD, Lenovo, ASE, etc. Investment Rationale We have a Buy rating on Shennan Circuits for its leadingmarket position in China PCB industry, "3-In-One" strategyto offer one-stop-shop products/services to its customers,as well as rising exposure at US CSPs. We expect SCC poststrong earnings expansion driven by rising AI server relatedsales as well as margin expansion at IC substrates. Stock Data Price to Book Value9.9x Acronyms AI: Artificial IntelligenceABF: Ajinomoto Build-up FilmBT: Bismaleimide-TriazineCCL: Copper Clad LaminateCPU: Graphic Processing Unit GPU: Central Processing UnitmSAP: Modified Semi-Additive Process Price objective basis & risk Shennan Circuits (XAMKF) We set our PO at CNY340, based on 35x 2H26-1H27E P/E. The 35x P/E is at 0.5SDabove the historical trading average since IPO, justified by Shennan Circuit's strongearnings expansion led by AI datacenter from server/switch to memory/opticaltransceiver, and across China and US CSPs. Downside risks are: (1) slower AI datacenter capex, (2) slower market share gain at USCSPs' AI server projects, (3) more severe competition, (4) worse than expected yieldissue, and (6) intensified US/China disputes. Upside risks to our PO are: (1