Shennan delivered a strong 2Q25, marked by accelerated revenue growth and notable margin improvement, particularly within its core PCB segment. Quarterly revenue reached a record high of RMB5.7bn, up 30%/19% YoY/QoQ, beating Bloomberg consensus by 6%. Net profit was RMB869mn, up 43%/77% YoY/QoQ, exceeding Bloomberg consensus by 41%. GPM improved by 2.8ppt sequentially to 27.6%, while NPM hit an all-time high of 15.5% in 2Q (vs. 13.9%/10.3% in 2Q24/1Q25). Maintain BUY rating, given Shennan’s strategic exposure to high-growth markets like AI servers, datacenters, and automotive electronics. Ongoing capacity expansion (Thailand production line, Nantong Phase IV and technological upgrades across existing facilities), coupled with consistent R&D investment (6%-7% of total sales) should further solidify its competitive positioning and support sustained long-term growth. TP is revised up to RMB235.

PCB: primary growth driver with expanding margins. PCB revenue (60% of 1H25 sales) was a record RMB6.3bn in 1H25, up 29%/11% YoY/HoH Growth was fuelled by strong demand from wireless communication infrastructure, datacenters and automotive applications, which together accounted for ~75% of segment revenue. PCB's GPM expanded meaningfully from 31.6% in FY24 to 34.4% in 1H25, driven by a favourable product mix and higher capacity utilization rates. We expect PCB revenue to grow by 35% YoY to RMB14.1bn in 2025E, with GPM maintained at 34.4%, in-line with the 1H25 level.

Substrate: Robust memory demand drove substrate sales to a record; Margin pressured by ongoing capacity ramp-up. Substrate sales were RMB1.7bn (17% of rev.) in 1H25, rising 9%/10% YoY/HoH supported by improved demand for memory products. However, segment GPM declined 10.3ppt YoY to 15.1%, mainly due to new Guangzhou factory ramp-up and elevated raw material costs. Mgmt. indicated narrowing losses in 1H25 compared to 2H24, with a sequential GPM improvement of 4.4ppt, suggesting a gradually recovering trajectory. We project substrate sales to be RMB3.7bn in 2025E with a GPM of 17%.

Maintain BUY, with TP revised up to RMB235, based on 33.7x rollover 2026E P/E, ~ 1-SD above 5-year historical avg., reflecting up-cycle momentum of the sector (previously 31x 2025E PE, in line with 5-year historical average). We lift revenue and NP forecasts by 5%/11% and 25%/15% for 2025/26E, given stronger-than-expected demand growth and margin expansions. Potential risks include: 1) weaker-than-expected demand recovery, 2) capacity constraints and 3) volatility in raw material prices.