Guotai Haitong Securities has issued a research report maintaining an "Overweight" rating on KB Laminates (01888). The company released a profit alert for 2025, forecasting a full-year net profit of HK$2.39 billion, representing a year-on-year increase of over 80%. Notably, the second half of 2025 is estimated to contribute HK$1.46 billion in net profit. Since H2 2025, driven by rising prices of upstream copper and electronic fabric, the company's primary business of copper-clad laminates (CCL) has implemented multiple rounds of price increases. This healthy pass-through of costs along the supply chain is expected to continue. The securities firm has raised its net profit forecasts for the company for 2025-2027 to HK$2.399 billion, HK$4.562 billion, and HK$5.172 billion, respectively. Based on comparable companies trading at a 2026 price-to-earnings (P/E) ratio of 33x, and considering that KB Laminates' product portfolio upgrade is still underway, a conservative valuation discount is applied, resulting in a target 2026 P/E of 25x. This yields a target price of HK$32.3.

The main points from Guotai Haitong Securities are as follows:

Multiple price hikes for CCL in H2 2025 have driven a rapid recovery in the company's per-unit profitability. Regarding production and sales, the report estimates KB Laminates' total CCL sales volume in H2 2025 exceeded 60 million sheets. Benefiting from AI-driven demand, production and sales in Q4 2025 are expected to show a sequential improvement over Q3 2025. In terms of profitability, based on a simple calculation of net profit divided by sales volume, the net profit per CCL sheet in H2 2025 is estimated to be approximately HK$23, an increase of HK$7-8 compared to the first half of the year. Since H2 2025, the company has implemented price increases five times—in August, October, November, and twice in December. The cumulative price increase per CCL sheet is estimated to exceed HK$40. As the company self-supplies its electronic fabric, only the unit cost impact from rising copper prices needs to be deducted. The report calculates that, following these price hikes, the instantaneous net profit per CCL sheet could potentially rise to around HK$40.

Price increases in electronic fabric are being successfully passed through to CCL, establishing a healthy price increase mechanism within the industry chain. Recent expectations of tight supply for traditional electronic fabric have intensified. According to SCI, prices for 7628 electronic fabric in the first week of February ranged from RMB 4.9 to RMB 5.45 per meter, an increase of RMB 0.5-0.6 per meter compared to previous rounds where hikes were typically around RMB 0.1-0.2. KB Laminates is the second-largest producer of traditional electronic fabric by capacity. The company benefits from these price increases on the portion of electronic fabric it sells externally. Furthermore, the ability of downstream CCL manufacturers to maintain high utilization rates and successfully pass on costs is crucial for sustaining healthy price increases for electronic fabric.

The company's strategic shift towards a higher-end product mix will proceed alongside the price hike cycle. The report anticipates that the CCL price increase cycle in 2026 will align with the company's high-end product strategy. For electronic fabric, the company has announced the commencement of operations at its first low dielectric constant electronic yarn furnace. As downstream customer certification progresses, the company has announced that capacity for second-generation low dielectric constant, low expansion fiber cloth, and quartz fabric is expected to be gradually commissioned from the second half of 2025 into 2026. Regarding copper foil, the company has announced the launch of its HVLP-3 copper foil product, which is now entering the validation phase, with further upgrades underway. With advancements in electronic fabric and copper foil, the report expects the company's CCL products and capacity for M6 grade and above to be gradually introduced. Looking ahead to 2026, the dual drivers of product portfolio premiumization and industry-wide price increases are projected to collectively elevate the company's profit level.

Risk warnings include slower-than-expected capacity expansion and weaker-than-anticipated demand.