CMSC: AIPCB enters the peak season for cargo transportation, optimistic about the rebound and sustainability of the PCB sector.

CMSC released a research report stating that the PCB sector experienced a rebound in August, with the market paying close attention to the industry's fundamentals and the evolution of industrial technologies. At the beginning of August, the valuation levels of major PCB and CCL targets were found to be within a highly configurable range based on historical experience. The industry fundamentals remain strong, with short-term quarterly performance possessing potential for positive surprises. Additionally, the new structural changes and the application prospects of new technologies provide room for upward revisions in long-term performance. Following the rebound in early August, the valuations of core PCB and CCL targets have seen some upward movement. Looking ahead, the overall outlook for this round of rebound remains optimistic. Key points from CMSC are as follows: Short-term fundamentals show potential for positive surprises Entering the second week of August, the PCB industry chain will gradually disclose mid-year performance and hold performance conferences. Given the current downstream sentiment in the industry, particularly in the computing power segment, North American AI servers (such as NV's Rubin, Google's, and AWS's new ASIC architectures) are in the peak season for new product orders, with new high-end production capacity gradually reaching full utilization, creating flexible profit space for Q3-Q4. Furthermore, the ongoing inflation logic in the non-AI PCB field during Q3 is expected to enhance gross margins, indicating room for profit revisions. Therefore, the firm believes that the performance realization of the PCB industry chain in Q3-Q4 still has discrepancies compared to market expectations. New technologies and architectures are expected to drive upward revisions in long-term growth potential for the PCB sector Currently, information tracked by the firm from the industry chain shows: 1) New changes in the Rubin Ultra architecture: The layout of the OberonRack for VRUNVL576 has been adjusted from 10+9+8 to 9+18+9, with the number of NVLink Switch trays doubling from 9 to 18, while the height of each switch tray has been compressed from 1.5U to 0.75U; the scalable version (NPO) Switch Tray's NVLink Switch ASIC has increased from 2 to 4 units. The integration and design complexity have significantly increased, leading to potential upgrades of related CCL materials to M9 level or PTFE solutions, and an increase in the number of layers for PCB boards is also anticipated. 2) The application scenarios for mSAP are expected to expand: This year, with the large-scale production of 1.6T optical modules, the PCB design scheme adopted is a 6-stage mSAPSLP, leading to extreme tension in mSAP capacity supply in the PCB industry. Looking towards 2027, HW's computing boards UHDI, Rubin's SOCAMM memory cards, and triple power vertical power supply boards will also adopt mSAP processes, with future CoWoP packaging technologies expected to widely use mSAP techniques. This indicates a trend of AI-related PCBs upgrading from Tenting to mSAP, and this semi-conductorization upgrade is expected to enhance the overall value of PCBs in AI system equipment. 3) Other new technologies: a) Ceramic substrate technology: Considering the significant increase in power consumption per GPU, the cooling demands for PCB boards are also rising, making the inclusion of ceramic substrate technology in computing boards necessary and feasible, which has garnered attention from the industry and market; the development progress in the industry chain has been relatively smooth, and it is expected to be a viable option next year. b) Embedded PCB technology: With continued integration, passive components and power devices are expected to be embedded within PCBs, leading to significant increases in both process complexity and value. Thus, the firm believes that the PCB industry chain still holds considerable potential for foreseeable technological iterative upgrades, and the sector is likely to experience a "Davis double hit." Investment recommendations In summary, 1) On the CCL side, key recommendations include Shengyi Technology, which is expected to make unexpected progress in AI computing power (S8/S9/S10/S11, PTFE), and attention should be paid to Nanya New Material Technology and Zhejiang Wazam New Materials. 2) On the PCB side:mSAPShenzhen Kinwong Electronic, Avary Holding, and the trio with upward logic of "AI computing board + mSAP + carrier board" Shennan Circuits, while also monitoring Victory Giant Technology, Wus Printed Circuit, Shengyi Electronics, Shenzhen Fastprint Circuit Tech, Guangdong Kingshine Electronic Technology (Ceramic Substrate HDI), SHENZHEN JOVE ENTERPRISE LIMITED (triple power supply board), DELTON, Founder Technology Group, etc. 3) In the upstream raw materials sector, AI demand is accelerating the upgrade of CCL from M7, M8 to M9, M10 levels, driving high-end raw material demand, with a continuously tight capacity gap observed. Positive outlook for Chongqing Polycomp International Corporation, Grace Fabric Technology, Sinoma Science & Technology, China Jushi Co., Ltd, Hubei Feilihua Quartz Glass; HVLP copper foil and carrier copper foil producers with technology and capacity accumulation, including Jiujiang Defu Technology, Baoding Technology, Anhui Tongguan Copper Foil Group, Guangzhou Fangbang Electronics, Long Young Electronic, etc.; M9 materials will utilize more hydrocarbon resins, with growth potential observed in Sichuan Em Technology; high-end spherical powder iterations are accelerating the domestic substitution process, focusing on Novoray Corporation, Guangzhou Lingwe Technology, etc.; in the electroplating solution segment, key focus on Shanghai Skychem Technology. 4) In terms of equipment, laser drilling machine and back-drilling machine manufacturers such as Shenzhen Hans CNC Technology, LDI exposure machine manufacturers like Circuit Fabology Microelectronics Equipment, VCP electroplating equipment manufacturers including Kunshan Dongwei Technology and Xian Taijin New Energy & Materials Sci-Tech, drill needle manufacturers like Guangdong Dtech Technology, and laminating machine manufacturers such as Hefei Metalforming Intelligent Manufacturing (which has a partial stake in German Lafa). Risk warnings: Declining macroeconomic conditions, AI data center demand falling short of expectations, intensifying industry competition, technology innovation iterations not meeting expectations, capacity expansion not meeting expectations, and worsening trade frictions.