Strong earnings growth supports the valuation floor, leaving room for a valuation recovery in undervalued Shenzhen Hans CNC Technology (03200)

Title context: Strong earnings growth supports the valuation floor, leaving room for a valuation recovery in undervalued Shenzhen Han's CNC Technology (03200) Text: Hit by a double blow to both A-shares and H-shares, with market capitalization shrinking by more than 70% over the past five months, Shenzhen Han's CNC Technology (03200), the global leader in PCB-specific equipment that has maintained high earnings growth, is still probing new lows amid this wave of AI valuation selloff. It is understood that AI computing power pushed PCB-specific equipment into the spotlight, but also dealt Shenzhen Han's CNC Technology a "double blow to A-shares and H-shares." From June 2025 to June 2026, benefiting from AI drivers, the company's A-share market capitalization nearly increased tenfold. In February 2026, the company listed on the Hong Kong Stock Exchange, gaining as much as 60% in four months. After June, AI-related sectors entered a full-scale correction, and the company's A-shares and H-shares continued to trend lower. Its Hong Kong shares fell from a high of HK$205.8 to HK$53.65, a market capitalization shrinkage of 74%, though the A/H premium remains above 150%. Rising and falling with AI, the company's earnings have not been affected by valuation. According to its first three quarters financial report, it achieved operating revenue of RMB7.841 billion, up 100.90% year-on-year, and net profit attributable to shareholders of RMB1.544 billion, up 214.03% year-on-year, with both revenue and profit maintaining triple-digit growth. To boost market confidence, on November 9, Shenzhen Han's CNC Technology issued the "Announcement on the Share Repurchase Plan for A-Shares," proposing to use its own funds or self-raised funds to repurchase A-shares through centralized bidding, with a repurchase amount of RMB200-300 million and a price ceiling of RMB214 per share, demonstrating optimism about the company's long-term development. Stimulated by the repurchase news, the company's A-share and H-share prices both rebounded from the bottom, with H-shares rising 10.5% over three trading days, but then falling back to their original levels over the following two trading days. Earnings are the valuation anchor; revenue and profit maintain high growth Earnings are the valuation anchor. Although Shenzhen Han's CNC Technology's market capitalization has fallen sharply due to the AI valuation selloff, the high growth in both revenue and profit provides strong support for the valuation floor. Shenzhen Han's CNC Technology's main products are mechanical drilling equipment, with customers concentrated in the PCB sector. It aims to "become the world's most respected and trusted PCB equipment service provider," offering core process processing solutions for PCB enterprises. Looking at the company's development history, the stages are very distinct. The rapid development of AI PCB in 2024 imposed structural upgrade requirements on processing techniques, bringing market opportunities to Han's, which possesses technological advantages. From a timeline perspective, the company's performance began to grow rapidly in 2024. From 2024 to the first three quarters of 2026, revenue growth was 104.56%, 72.68%, and 100.9%, respectively. Drilling equipment and inspection equipment, as the two core products, have maintained high revenue growth. Among them, drilling equipment is the largest revenue contributor and the most impressive performer, growing 101.4% in the first half of 2026, accounting for 72.61% of revenue, with the two products combined accounting for 81% of revenue. Data source: Company financial reports On the profitability side, growth is even more rapid. From 2024 to the first three quarters of 2026, net profit attributable to shareholders was RMB302 million, RMB824 million, and RMB1.548 billion, respectively, up 122.13%, 173.16%, and 214.91% year-on-year. The net profit margin attributable to shareholders rose to 19.74%, and annualized ROE rose to 16.65%. Shenzhen Han's CNC Technology's strong performance growth benefits from its comprehensive AI strategic transformation. The company's strategic positioning is "ALL IN AI." Facing opportunities from increased PCB processing difficulty brought by iterative upgrades in AI computing chips and data center technology, the company has refined product research and development to consolidate its technological moat in core processes such as drilling. In 2026, the company seized market opportunities from downstream customers' capacity expansion and upgrades, with orders for all product lines growing significantly. Among them, demand grew notably for high-end AI PCB products such as high-layer HDI boards for next-generation rack server computing power and switching units, N+N structure high-layer boards, and mSAP-type substrates for 800G and 1.6T high-speed optical modules. In the first three quarters, contract liabilities were RMB498 million, up more than 10x year-on-year. It is worth noting that strong demand for the company's products can be further corroborated by receivables and inventory. As of September 2026, the company's receivables were RMB5.118 billion and notes receivable were RMB810 million, up 98.93% and 66.45% respectively from the beginning of the year. Inventory was RMB2.844 billion, up 50.2% from the beginning of the year. Due to increased stockpiling and the receivables model, net operating cash flow was an outflow of RMB800 million, but cash flow remains ample, with monetary funds of RMB4.931 billion. AI PCB continues to boom; valuation has fully corrected The sustainability of Shenzhen Han's CNC Technology's earnings growth depends on downstream demand, and AI PCB remains highly prosperous. According to Citi's research report published during the year, the global AI PCB market size is expected to reach RMB152 billion in 2026, up 86% year-on-year. From the performance of industry participants, the PCB industry achieved revenue of RMB332.46 billion in the first three quarters of 2026, up 45.09% year-on-year, and net profit attributable to parent companies of RMB45.832 billion, up 108.42% year-on-year, fully indicating that the downstream is in an upcycle. Shenzhen Han's CNC Technology has industry-leading advantages in PCB drilling technology and continues to make breakthroughs. Its mechanical through-hole and 3D back-drilling solutions have achieved mass production processing of through-holes with aspect ratios of 31.5:1 and above and high-precision back-drilling. Its cold laser solution can stably process 50m dense micro-holes, meeting the processing needs of AI servers and high-speed optical modules. At the same time, for advanced packaging, the company is cooperating with leading customers on development. Its new laser equipment for BT/ABF material processing and Core-layer-specific mechanical drilling equipment have received formal orders and are expected to contribute to performance in 2027. With scale advantages + technological advantages + long-term cooperative relationships with leading PCB customers, the company is likely to be one of the biggest beneficiaries of the industry's rapid development, with high certainty of sustained earnings growth. As mentioned above, earnings are the valuation anchor. In 2024, the company's performance began explosive growth, but the market capitalization lagged, only starting to rise in September of that year. In July 2025, amid the hot AI investment wave, it entered a surge mode, rising all the way to a high of RMB395.36 in June 2026, with gains of up to 13x during the period. This was actually a full reflection of earnings. After the valuation correction, the A-share PE (TTM) is 35x, while the Hong Kong share is only 10x. However, the company's earnings maintain high growth, and the Hong Kong share's 10x P/E is clearly undervalued, with a high A/H premium providing a safety cushion for Hong Kong investors. In addition, Citi has repeatedly lowered its Hong Kong target price. Its most recent target price (in October) was HK$105, still implying room for more than doubling. The bank remains bullish on the company and raised Shenzhen Han's CNC Technology's 2026 earnings forecast by 11% to reflect stronger-than-expected performance in the first nine months of 2026. During the period of sharp valuation pullback, Shenzhen Han's CNC Technology mainly did two things: first, stabilize market confidence by launching a large-scale repurchase, formulating an A-share repurchase plan of RMB200-300 million; second, to bind top-tier talent, implement an equity incentive policy, proposing to grant 12.23 million restricted shares to 536 initial grantees, linked to performance, with target net profit growth rates for 2027/2028/2029 of no less than 30%/70%/120%, respectively, injecting a shot in the arm into the market. In addition, the company pays dividends every year, continuously enhancing shareholder returns. For 2023-2025, dividends were RMB8.5 per 10 shares, RMB4 per 10 shares, and RMB6 per 10 shares, respectively, with a Hong Kong dividend yield of 1.4%. Overall, Shenzhen Han's CNC Technology's double blow to A-shares and H-shares was mainly a sector-wide valuation selloff brought about by the AI bubble, but the company's performance is impressive, with both revenue and profit maintaining triple-digit growth in 2026. The AI PCB industry has strong prospects and is in an upcycle, and the company's scale and technological advantages will allow it to fully benefit. Considering product orders, contract liabilities, and downstream demand, the company's sustained earnings growth is highly certain. Moreover, the company's valuation has fallen to the bottom, having digested the high-valuation portion. Combined with the high A/H premium and investment bank target prices far above the current price, there is substantial room for recovery.