China Securities Co.,Ltd.: Expects domestic weaving machines to be applied in mass production of ordinary fabrics in 27H2; Bullish on new technology achieving first implementation in no-cloth [production].

China Securities Co.,Ltd. released a research report stating that it is bullish on LDK2-generation cloth becoming the variety with the largest potential application space among specialty cloths in the future. LDK2-generation cloth combines both application continuity and demand growth in platform iterations. The per-GPU consumption of LDK2 in Rubin and subsequent generations can increase to about 2.8 times or more that of Blackwell. In addition, the report is bullish on the increase in penetration of LDK2-generation cloth in ASIC servers, with the volume ramp of 1.6T switches driving demand growth. According to estimates, the supply-demand gap for LDK2-generation cloth will continue to widen from 2026 to 2028, with the 2028 gap exceeding 90 million meters. The bank expects domestic weaving machines to be applied in mass production of ordinary cloth in 2027H2. Among new technologies, it is bullish on no-cloth achieving first implementation. China Securities Co.,Ltd.'s main views are as follows: The bank is bullish on LDK2-generation cloth becoming the variety with the largest potential application space among specialty electronic cloths in the future. By breaking down the PCB BOM of each generation of NVIDIA AI servers, the bank finds that LDK2-generation cloth is the main cloth type in NVIDIA's platform iteration process, combining both cross-generational application continuity and demand growth. The per-GPU consumption of LDK2 in Rubin and subsequent generations can increase to about 2.8 times or more that of Blackwell. In addition, the bank is bullish on the continuous increase in penetration of LDK2-generation cloth in ASIC servers, and the future volume ramp of 1.6T switches will also drive demand growth for LDK2-generation cloth. The supply-demand gap for LDK2-generation cloth will continue to widen from 2026 to 2028, with the 2028 gap exceeding 90 million meters. According to estimates: (1) LDK1-generation cloth: the supply-demand gap rates for 2026-2028 are -2.1%/2.1%/-18.1%, respectively (a positive supply-demand gap rate indicates tightness, while a negative rate indicates looseness; the same applies below), with supply and demand maintaining a tight balance in 2026-2027 and tending toward looseness in 2028; (2) LDK2-generation cloth: the supply-demand gaps for 2026-2028 are 9.8%/25.9%/40.7%, respectively, with the supply-demand gap continuing to widen from 2026 to 2028 and the 2028 gap exceeding 90 million meters; (3) Q cloth: demand for 2026-2028 is 316,000/5.319 million/30.218 million meters, respectively, with demand ramping in 2028, and attention should be paid to competition with the no-cloth technical route; (4) T cloth: the supply-demand gaps for 2026-2028 are 8.0%/-1.3%/5.0%, respectively, with supply and demand overall in a tight balance from 2026 to 2028; (5) ordinary electronic cloth: the supply-demand gaps for 2026-2028 are -0.3%/-6.3%/-7.0%, respectively, with supply and demand tending toward looseness from 2027, and supply release plus imitation-cloth impact in 2027-2028 will create potential pressure on future prices. It is expected that domestic weaving machines will be applied in mass production of ordinary electronic cloth in 2027H2. Given that overseas weaving machine makers such as Toyota and Tsudakoma prioritize supply for specialty electronic cloth production, the weaving machine supply bottleneck in 2027-2028 can be effectively alleviated by domestic manufacturers such as Shandong Rifa and Zhejiang Wanli. According to estimates, from 2026 to 2028, the incremental demand for weaving machines driven by specialty electronic cloth demand will be 1,185/2,222/2,378 units, respectively. With effective overseas weaving machine supply at 1,275/1,775/2,075 units, respectively, the incremental weaving machine demand required to satisfy specialty electronic cloth conversion plus ordinary electronic cloth demand will be 639/2,094/2,501 units, respectively. The bank expects that after 2027H2, weaving machines produced by domestic weaving machine manufacturers can meet the performance requirements for producing ordinary electronic cloth and begin batch supply. Assuming effective supply from domestic weaving machine manufacturers in 2027-2028 is 3,600/7,200 units, respectively, the above incremental demand can be met. New technologies for specialty electronic cloth are accelerating, with no-cloth expected to achieve first implementation. As high-end PCBs continue to raise performance requirements for low dielectric loss and dimensional stability, third-generation cloth, organic cloth, and no-cloth have become the three main new technology directions. Third-generation cloth is still in the early stage of industrialization, and the application of organic cloth in high-end PCBs remains to be verified; by contrast, the downstream application scenarios for no-cloth are clearer (NV racks + high-speed optical modules), and it is expected to achieve first implementation. Investment recommendations On the upstream materials side, for electronic cloth, attention is recommended on [Sinoma Science & Technology], [Grace Fabric Technology], [China Jushi Co., Ltd.], [Hubei Feilihua Quartz Glass], and [Shaanxi Lighte Optoelectronics Material]; for high-performance resins, attention is recommended on [Jinan Shengquan Group Share Holding] and [Sichuan Em Technology]; on the CCL/PP side, attention is recommended on [Zhejiang Wazam New Materials]; on the PCB manufacturing side, attention is recommended on [Victory Giant Technology], [Shennan Circuits], and [Shenzhen Kinwong Electronic].