深南电路（002916）：3Q26 earnings: Continued margin expansion fueled by AI demand

深南电路(002916) 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 nearthe upper end of the profit alert range, while NPM expanded to 17.9%, from16.1% 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 richerproduct mix, high capacity utilization and the continued ramp-up of theGuangzhou plant. We adjust up the revenue estimates by 9.3%/9.8% and GPMestimates by 0.5ppt/0.3ppt in FY26/27E on surging demand and more favorableproduct mix. Maintain BUY but lower our TP to RMB432 from RMB462, aswe reduce our target multiple to 31x 2027E P/E from 37x, broadly in line withthe peer average. AI demand and product upgrades drove broad-based growth.According to mgmt., continued investment in AI infrastructure supporteddemand for AI servers, high-speed switches, optical modules, processorsand memory-related substrates. High capacity utilization, product-miximprovement and the Guangzhou plant ramp-up altogether drove earningsgrowth. In 9M26, revenue/net profit increased 53.8%/77.5% YoY toRMB25.77bn/RMB4.13bn, while GPM expanded 4.4ppt to 32.6%. Net profitgrew 87.8% despite higher finance expenses and lower government-relatedincome, indicating solid underlying profitability. AI-related products and new capacity to drive the growth outlook. Weexpect AI-related PCBs, BT substrates, FC-BGA and ABF products toremain the key growth drivers into 2027E, supported by capacity expansionin Guangzhou, Thailand, Nantong and Wuxi. Further margin upside willdepend on product-mix improvement and utilization gains to more thanoffset raw material inflation, ramp-up costs and incremental depreciation. Key risks include weaker hyperscalers’ capex, slower client qualification,slower capacity ramp-up, etc.