Citigroup: KB LAMINATES (01888) is attractively valued, reiterates "Buy" rating; expects CCL producers to initiate a new wave of price increases.

Citi released a research report indicating that the latest data on bulk commodities shows that the sales price of the 1080 series electronic-grade glass fiber cloth rose by 17% to 18% month-on-month in August, marking the largest increase since the beginning of the year. The cumulative price increase of electronic-grade glass fiber cloth for the year has reached 118% to 165%. The strong demand for AI is driving the demand for certain products, leading manufacturers to shift their production capacity from non-AI products to AI glass fiber cloth, further exacerbating the industry's supply tightness. The bank believes that the current valuation of KB LAMINATES (01888) is attractive, corresponding to a projected price-to-earnings ratio of about 7 times for next year, with an expected dividend yield of over 7%. It maintains a "Buy" rating and a target price of HKD 130, corresponding to a projected price-to-earnings ratio of about 28 to 29 times for 2027. Citi estimates that KB LAMINATES' net profit in the second quarter increased by over 80% quarter-on-quarter to about 1.8 billion yuan, compared to approximately 1 billion yuan in the first quarter. The inflation of copper-clad laminate (CCL) prices from July to August suggests that the profit growth rate in the second half of the year will exceed that of the first half. Looking ahead, Citi expects KB LAMINATES' net profit in the third and fourth quarters to continue to rise to between 2.5 billion and 3.5 billion yuan, benefiting from continued price increases in copper-laminated boards, electronic glass cloth, and copper foils amid persistent shortages in the AI supply chain. Citi anticipates that major copper-clad laminate manufacturers will initiate a new wave of price increases. The bank estimates that the price of CCL products will rise by about 10% to 15% in August.