Nomura: Shengyi Electronics: Third-quarter gross margin hits record high as Nomura raises earnings forecasts but cuts target price

Where did third-quarter growth come from?

In the third quarter of 2026, the company reported revenue of 3.764 billion yuan and net profit attributable to shareholders of 801 million yuan, up 23% and 37% year on year, and 11.6% and 20.3% quarter on quarter, respectively. Profit was in line with the midpoint of its earnings guidance range.
Gross margin reached 36.6%, up 2.7 percentage points year on year and 3 percentage points quarter on quarter, a record high. Nomura believes a greater contribution from AI PCBs and product price increases partially offset pressure from upstream material costs; capacity expansion also supported revenue growth.

As a supplier of high-layer-count PCBs, Shengyi Electronics serves the AI server and networking switch equipment markets. Nomura believes successive generations of ASIC servers and upgrades to 800G and 1.6T switches could drive upgrades and higher value per unit for the company's PCB products.
Nomura expects server business revenue to grow at a compound annual rate of 28% from 2026 to 2028, accounting for 58% of the company's total revenue by 2028.
To expand its business and address customer concentration risk, management said the company has shipped PCBs for 800G optical modules and entered satellite communications; Nomura sees both as potential new growth drivers.

Nomura raised its net profit forecasts for 2026 through 2028 by approximately 9.6% to 14%, to 2.88 billion yuan, 4.233 billion yuan and 5.6 billion yuan, respectively. The bank raised its gross margin forecast for each of the three years by 1.9 percentage points, saying higher AI PCB value per unit would help offset material price increases.
Despite the upgrades, Nomura's 2027 net profit forecast remains approximately 6% below the Wind consensus. The bank is more cautious about material costs and cost control during aggressive capacity expansion.
The company completed an A-share private placement plan in September, aiming to raise 2.5 billion yuan to invest in AI server and automotive electronics HDI products, with a target annual capacity of 450 thousand square metres and a three-year construction period. Nomura believes this will help expand the business, but the company is relatively small in the HDI market and execution is key.

Nomura maintained its buy rating but cut its target price from 159 yuan to 91.6 yuan. The bank lowered its applied 2027 forward price-to-earnings multiple from 35 times to 18 times, corresponding to forecast earnings per share of 5.09 yuan; the new multiple is in line with the median price-to-earnings ratio of China's A-share PCB sector.
Based on the 30 October closing price of 65.33 yuan cited in the report, the target price implies approximately 40.2% upside. Downside risks cited by Nomura include weaker-than-expected downstream demand from servers and automotive electronics, and margin pressure from competition in high-end PCBs and rising raw material costs.