China Merchants Securities: Electronic distribution is in a super boom cycle, and the driving force of the industry is shifting to performance growth

The Zhitong Finance App learned that China Merchants Securities released a research report saying that this round of electronic distribution is a high boom cycle driven by “the explosion of demand in the AI industry” and “orderly supply”. The current transaction has gone from a “shortage of space increase” to a stage where “whether the increase can exceed expectations and how long the boom will last”. They determine the company's EPS and valuation separately. There is still room in the electronic cloth industry, and the driving force will shift from valuation expansion to performance growth and focus on profit fulfillment. The current round of the glass fiber market is driven by the explosion in demand for AI computing power and the resonance of leading production capacity conversion. Prices of high-end electronic cloth increased simultaneously with conventional electronic cloth.

The main views of China Merchants Securities are as follows:

2020-2022 electronic cloth market review

Demand starts first, supply is then released, product prices determine profit expectations, and valuation comes first. Since 2020 M9, the improvement in the downstream integrated circuit boom has driven up the price of e-yarn and 7628 e-cloth; the price of 2020M9-2021M7 and G75 e-yarn rose from 7,950 yuan/ton to 17,000 yuan/ton, an increase of 113.8%, and the market price of 7628 e-cloth rose from 3.35 yuan/meter to 8.78 yuan/meter, an increase of 162.1%. Demand then weakened marginally, compounded by the release of additional e-yarn production capacity, and prices declined after about 3 months of high sideways trading. On the supply side, domestic electronic yarn production capacity rose from 862 thousand tons/year in 2020 M9 to 1,132 million tons/year in 2022 M6, an increase of 270,000 tons/year, an increase of 31.3%. At the individual stock level, Jiantao Laminated Board, Taibo, and Fuqiao are more in sync with the electronic cloth chain; China Jushi and Sinoma Technology account for a relatively high share of comprehensive businesses such as thick yarn and wind power yarn, and the synchronicity between stock prices and electronic cloth prices is relatively weak.

This round of market

The core driving force comes from the “production capacity squeeze” of conventional 7628 electronic cloth and the “expansion of the supply and demand gap” of high-end electronic cloth brought about by the “siphon effect of AI demand”. AI computing power led to an explosion in demand for high-end electronic cloth, and industry leaders took the initiative to adjust production capacity and switch production of thin cloth such as 1080/2116 and special electronic cloth such as Low-DK/Low-CTE. Therefore, compared to the logic of the previous boom cycle where high IC production and sales led to a sharp rise in volume and price, this round of 7628 electronic cloth price increases have clear dominant characteristics of supply contraction. The reduction in conventional cloth supply brought about by the diversion of high-end production capacity is the core underlying logic that supports the continuous rise in the price of 7628 electronic cloth in this round. On the price side, on 2025/6/30-2026/7/1, the price of G75 e-yarn rose from 8950 yuan/ton to 16,850 yuan/ton, an increase of 88.3%; on 2025/6/30-2026/7/3, the market price of 7628 e-cloth rose from 4.20 yuan/meter to 8.55 yuan/meter, an increase of 103.6%. Currently, the market has pre-traded e-yarn/cloth price increases and the AI upstream boom. The bank believes that this round of price increases is not over in the short term, and that the supply and demand pattern supports the continued strengthening of e-yarn/cloth prices; however, the medium- to long-term excess revenue ultimately depends on the degree of implementation on the profit side of the enterprise.

Aftermarket judgment

In the review cycle, product prices are highly consistent with the scissor gap between supply and demand, confirming the commodity pricing logic; reflected in the current cycle, the glass fiber industry is still in an upward boom channel. The demand gap for high-end electronic cloth has not been filled, demand for conventional electronic cloth is resilient enough, short-term supply growth is limited, and the price inflection point has not yet been revealed. Furthermore, in the last cycle, the second-order price derivative of e-yarn/cloth peaked and was about 1 month ahead of the stock price inflection point. When the price increase slope slowed, the profit margin weakened ahead of time, and the fall in spot prices was a lagging confirmation signal that the profit cycle peaked; however, in this round of the market, the current monthly price increase of e-yarn/cloth is still expanding. The second-order price derivative remains within a positive range, and the price increase momentum has not yet shown an inflection point. Sector valuations already reflect market expectations. The core driver for subsequent stock prices may shift from valuation expansion to performance implementation. It is necessary to track the three dimensions of price increase transmission, capacity investment pace, and profit reporting.

Valuation judgments

In the past, the glass fiber industry was tied to consumption, real estate, and traditional electronics, and profits fluctuated greatly, and the PE valuation center was generally in the 10-15 times range; now, the industry's core demand has increased to demand for high-end electronic fabrics driven by AI computing power and advanced packaging, and growth attributes have strengthened. As leading electronics companies continue to expand their high-end production capacity, the share of AI-related high-margin products increases, and profit stability and growth are expected to increase. The bank believes that under the benchmark scenario where demand for AI computing power continues to be high and the industry's supply and demand gap cannot be substantially mitigated in 2026-2027, the valuation level of glass fiber faucets is expected to rise.

Risk warning: Demand in the AI computing power and electronics industry chain falls short of expectations, sales volume and prices fall short of expectations, raw material and fuel prices have risen sharply, new production capacity has been released too fast, high-end product development or customer certification progress is slow. Historical experience is for reference only.