CICC: Maintains TIANGONG INT'L (00826) with Outperform rating, target price of HKD 5.29.

CICC releases research report, stating that due to the delay in the volume time of Tiangong International (00826) powder steel and titanium alloy compared to previous expectations, the net profit attributable to shareholders for 2027 is increased by 12.4% to 1 billion yuan, with a current stock price corresponding to 26/27e 14/8x P/E. The bank maintains an Outperform rating on the company and a target price of 5.29 Hong Kong dollars (corresponding to 26/27e 20/12x P/E), implying a 46% upside potential. Key points from CICC: Company updates On July 7, the company announced the start of a project to expand the production of 300 tons of ultra-fine grain PCB tool matching rods per year, marking the company's entry into the field of AI servers and high-end PCB precision processing consumables. From materials to tools, entering the PCB consumables market with integrated advantages PCB micro drilling needles and milling cutters are essential processing consumables for AI computing power, IC carrier boards, and high-frequency communication boards. The upstream raw material rods are led by Sumitomo of Japan, while the PCB tool market is dominated by Japanese companies such as Yuken/Kyocera, with a relatively low localization rate. With its industry-leading alloy smelting capabilities, the company is extending from upstream hard alloy rod materialsinitiating the production expansion project for 300 tons of ultra-fine grain PCB tool special rods per year in this announcement. By relying on existing powder metallurgy high-speed steel and hard alloy technology accumulation to build a PCB drill needle ultra-fine crystal rod material production line, the company forms an integrated layout of "alloyrod materialfinished tool", which is expected to achieve import substitution and open up a new growth curve. Three factors support PCB tool and rod material volume, optimistic about the company 1. Deep technical reserves of raw materials: The company is one of the few domestic enterprises with mass production capabilities for powder metallurgy high-speed steel and hard alloy, laying the technical foundation for expanding into the field of ultra-fine crystal rod materials for PCB drill needles. Although there are currently no mature rod material products, relying on platform technology capabilities is expected to achieve breakthroughs through research and development efforts and achieve raw material self-control. 2. Solid accumulation of precision tool technology: The company has been engaged in the heat treatment of tool and die steel, precision drawing, and tool manufacturing for a long time, accumulating experience in micro-processing, dimensional accuracy control, and yield improvement, which can be directly transferred to the production of PCB micro drilling needles and milling cutters. 3. Potential synergies in customer resources: The company's existing high-end tool and die steel customer base overlaps with the supply chain of PCB and IC carrier board manufacturers, which is conducive to subsequent product certification and market introduction. Substitution of PCB tools for imports is expected to accelerate, with potential for the company's product volume AI servers/switches are driving the popularity of high-layer, high-TG, Low Dk/Df boards, requiring improved lifespan and breakage rate for 0.1mm micro-hole drill needles and facing long lead times and high prices for overseas supplies. With the expansion of domestic carrier/HDI production lines and restrictions on Japanese supplies, the company, with the advantage of "self-supplied rods + integrated finished tools", is more competitive than tool manufacturers that solely rely on external rod purchases in terms of lead time, cost, and customization response. It is expected to accelerate through certification by top PCB manufacturers and capture more market share, with potential for profit growth for the company. Risk warning: Drill needle certification period is longer than expected, material research and development falls short of expectations, fluctuations in AI industry capital expenditures.