China Merchants Securities (CMSC) has released a research report highlighting a rebound in the PCB sector in August, with the market closely watching industry fundamentals and technological advancements. The valuation levels of key PCB and CCL stocks in early August, based on historical experience, were in a favorable range for high-probability investment. The sector's fundamentals are robust, with short-term quarterly earnings having potential to exceed expectations. Additionally, new architectural changes and the application prospects of emerging technologies offer room for upward revisions to long-term earnings projections. Following the rebound in early August, valuations of core PCB and CCL stocks have risen. Looking ahead, the brokerage is optimistic about the sustainability of this rebound.

CMSC's key views are as follows: Short-term fundamentals have the potential to exceed expectations. Entering the second week of August, the PCB supply chain will begin to disclose interim results and hold earnings briefings. Based on current downstream industry demand, in the computing power sector, North American AI servers (including NVIDIA's Rubin and new ASIC architectures from Google and AWS) are entering a peak season for new product shipments. The utilization rates of new high-end capacity are gradually reaching full levels, which is expected to bring flexible profit margins for the third and fourth quarters. Additionally, in the third quarter, the continued inflation logic in the non-AI PCB sector will also contribute to improved gross margins, leaving room for upward earnings revisions. Therefore, CMSC believes that the market's expectations for the earnings performance of the PCB supply chain in the third and fourth quarters still have room for adjustment.

New technologies and architectures are expected to drive upward revisions to the long-term growth potential of the PCB sector. Based on CMSC's tracking of supply chain information: 1) New changes in the Rubin Ultra architecture: The layout of the VRUNVL576 Oberon Rack has been adjusted from "10+9+8" to "9+18+9," with the number of NVLink Switch trays doubling from 9 to 18, and the height of a single switch tray compressed from 1.5U to 0.75U. The number of NVLink Switch ASICs in the scalable version (NPO) Switch Tray has increased from 2 to 4. This significant increase in integration and design complexity is expected to drive further upgrades to related CCL materials, potentially to M9 grade or PTFE solutions, and the number of PCB layers is also expected to increase. 2) The application scenarios for mSAP are expected to broaden. With the mass production of 1.6T optical modules this year, PCBs adopt a 6-step mSAP SLP design, leading to extremely tight supply of mSAP capacity in the PCB industry. Looking ahead to 2027, HW's computing board UHDI, Rubin's SOCAMM memory modules, and three-stage power supply vertical boards will also be manufactured using the mSAP process. Furthermore, the longer-term CoWoP packaging technology will also extensively use the mSAP process. This indicates a trend in the AI PCB sector, moving from Tenting to mSAP, and the upgrade toward semi-conductorization is expected to increase the overall value of PCBs in AI system equipment. 3) Other new technologies: a) Ceramic substrate technology: Given the significant increase in power consumption per single GPU, the heat dissipation requirements for PCBs are also increasing. Consequently, the necessity and feasibility of incorporating ceramic substrate technology into computing boards are being closely watched by the industry and market. Development progress in the supply chain is already proceeding smoothly, and this is expected to become an optional solution version next year. b) Embedded PCB technology: As integration continues to increase, passive components and power devices are expected to be embedded into PCBs, significantly increasing both the process difficulty and value. Therefore, CMSC believes that the PCB supply chain still has many foreseeable technological iteration and upgrade catalysts in the future, and the sector is also expected to experience a "Davis Double Play."

Investment recommendations: In summary, 1) For CCL, the brokerage recommends Shengyi Technology Co., Ltd., which is expected to make significant progress in AI computing power (S8/S9/S10/S11, PTFE) and advanced packaging substrate materials (SIF) this year and next. It also suggests watching Nan Ya New Materials and Huazheng New Materials. 2) For PCB, it recommends Kinwong Electronic and Pegatron Corporation, which are seeing significant changes in overseas computing power boards and optical module mSAP, as well as Shennan Circuits, which has a triple upward logic of "AI computing power board + mSAP + substrate." It also suggests watching Shengyi Technology, WUS Printed Circuit, Shengyi Electronics, Fastprint Circuit Tech, Kexiang PCB (ceramic substrate HDI), Zhongfu Circuit (three-stage power supply board), Guanghe Technology, and Founder Technology. 3) For upstream raw materials, AI demand is driving the accelerated upgrade of CCL from M7, M8 to M9, M10 grades, fueling demand for high-end main materials and keeping capacity gaps tight. The brokerage favors International Composites, Honghe Technology, Sinoma Science & Technology, China Jushi, and Feilihua. For HVLP copper foil and carrier copper foil, companies with technical and capacity accumulation include Defu Technology, Baoding Technology, Tongguan Copper Foil, Fangbang Electronics, and Longyang Electronics. M9 materials will use more hydrocarbon resins, so watch the growth potential of Dongcai Technology. For high-end spherical powder upgrades and accelerated domestic substitution, watch Lianrui New Materials and Lingwei Technology. For the electroplating solution segment, focus on Tiancheng Technology. 4) For equipment, watch Han's Laser CNC (laser drilling and back drilling machines), Xinqi Micro Assembly (LDI exposure machines), Dongwei Technology and Taijin Xinneng (VCP electroplating equipment), Dingtai High-Tech (drill bits), and Hefei Duanzhi (lamination presses, holding a stake in Germany's Lauffer). Risk reminders: Macroeconomic downturn, weaker-than-expected AI data center demand, intensified industry competition, slower-than-expected technological innovation and iteration, slower-than-expected capacity expansion, and intensified trade friction.