SCC delivered strong 3Q26 results, with revenue/net profit rising 66.3%/94.4% YoY and 20.4%/34.0% QoQ to RMB10.48bn/RMB1.88bn. Net profit was near the upper end of the profit alert range, while NPM expanded to 17.9%, from 16.1% in 2Q26 and 15.3% in 3Q25. GPM also improved to 34.9%, vs. 32.4%/31.4% in 2Q26/3Q25, driven by robust AI infrastructure demand, a richer product mix, high capacity utilization and the continued ramp-up of the Guangzhou plant. We adjust up the revenue estimates by 9.3%/9.8% and GPM estimates by 0.5ppt/0.3ppt in FY26/27E on surging demand and more favorable product mix. Maintain BUY but lower our TP to RMB432 from RMB462, as we reduce our target multiple to 31x 2027E P/E from 37x, broadly in line with the peer average.

AI demand and product upgrades drove broad-based growth.

According to mgmt., continued investment in AI infrastructure supported demand for AI servers, high-speed switches, optical modules, processors and memory-related substrates. High capacity utilization, product-mix improvement and the Guangzhou plant ramp-up altogether drove earnings growth. In 9M26, revenue/net profit increased 53.8%/77.5% YoY to RMB25.77bn/RMB4.13bn, while GPM expanded 4.4ppt to 32.6%. Net profit grew 87.8% despite higher finance expenses and lower government-related income, indicating solid underlying profitability.

AI-related products and new capacity to drive the growth outlook. We expect AI-related PCBs, BT substrates, FC-BGA and ABF products to remain the key growth drivers into 2027E, supported by capacity expansion in Guangzhou, Thailand, Nantong and Wuxi. Further margin upside will depend on product-mix improvement and utilization gains to more than offset raw material inflation, ramp-up costs and incremental depreciation.

Key risks include weaker hyperscalers’ capex, slower client qualification, slower capacity ramp-up, etc.