深南电路2Q业绩超预期，计算产品高增长、基板/mSAP扩产提供上行空间，买入评级

mSAP expansion for further upside; BuyReiterateRating:BUYIPO:405.00CNYIPrice:365.10CNY 2Q beat; earnings at high end of guidance QoQ,+61%YoY),beatingBofAe/consensusby23%/9%.Revenueof CNY8.7bn (+32%QoQ,+53%YoY)was16%/14%aheadofBofAe/consensus,whileGM improved3.2ppt QoQ toaquarterly record of 32.4%.Operating income of CNY1.8bn (+64%QoQ,+108%YoY)thereforebeatBofAe/consensusby37%/32%ImprovingrevenuemixsupportsearningsexpansionManagement noted that PCB and substrate bothdelivered strongQoQ revenuegrowth, KeyChanges outpacing the corporate average.Computing-related products (server/switch/optical transceiver/memory/power) accounted for 50% of total revenue, driving strong marginexpansion. To meet robust demand, Shennan is adding capacity, particularly forsubstrate and mSAP, to support domestic chipset and global optical transceiver demand,respectively.For substrate,Shennan is undertaking the second phase of expansion at itsGuangzhoufactory (CNY2bn investment), with ramp-up expected tobegin by4Q26.Foroptical transceivers, Shennan has 4-5 production lines in 2026 (1.8mn units per line) andis targeting new capacity of 1-2x its current scale to support rising orders.RaiseestimatesandliftPOtoCNY4O5;reiterateBuy Merrill Lynch (Hong Kong)kexin.zhu@bofa.comRobert Cheng >>Research AnalystMerrill Lynch (Taiwan) robert.cheng@bofa.comDoris Kao >>Research Analyst We lift our2026E-28E earnings by6-12% to reflect the strong results andpositiveoutlook (seeExhibit 2).After a valuation base rollover,we raise our PO to CNY405 (35x 2027E P/E)from CNY340 (35x2H26-1H27E P/E).We reiterate Buy,given Shennan'sdiversified portfolio and customer mix, as well as potential upside from the take-off ofdomestic chipset.Estimates (Dec) (CNY)2024A2025A2026E2027E2028E Merill Lynch (Taiwan)doris.kao@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 express written 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 For abbreviations, see page 4 responsibility for the information herein in particular jurisdictions. BofA Securities does and seeks to do business with issuers covered in its researchreports. 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.Objective Basis/Risk on page 6.13013002 iQprofile s" Shennan1 Circuits (A)Key Income Statement Data (Dec)2024A2025A Electronics Shennan Circuits Company Limited (SCC) (002916 CH) was established in 1984. SCC's headquarters is in Shenzhen,andits plants are in Shenzhen, Wuxi, and Nantong. 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. We have a Buy rating on Shennan Circuits for its leading market position in China PCBindustry,'3-ln-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 Al server relatedsales as well as margin expansion at IC substrates Stock Data Price to Book Value11.6x Key Metrics Earnings estimate changes, 2026-28E (CNY mn) Exhibit 5: We model 35% earnings CAGR in 2026E-28EShennan Circuits' quarterly income statement, 2025E-28E Abbreviations Al: Artificial IntelligenceABF: Ajinomoto Build-up FilmBT: Bismaleimide-TriazineCCL: Copper Clad LaminateCPU: Graphic Processing Unit mSAP: Modified Semi-Additive Process Shennan Circuits (XAMKF) We set our PO at CNY405, based on 35x 2027E P/E.The 35x P/E is at 0.5SD above the historical trading average since IPO, justified by Shennan Circuit's strong earningsexpansion led by Al datacenter from server/switch to memory/optical transceiver, andacross China and US CSPs. CSPs' Al server projects, (3) more severe competition, (4) worse than expected yieldissue, and (6) intensified US/China disputes US CSPs' Al server projects, (3) eased competition, (4) better than expected yieldimprovement, and (6) eased US/China disputes AnalystCertificationI, Katherine Zhu, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I alsocertify that no part of my compensation was, is, or will be, directly or indirectly, relatedto the specific recommendations or view expressed in this research report. Special Disclosures Information on securities which are list