Shengyi Technology Long-Term Owner's Perspective Research

Hunting ten-year five-baggers among great growth stocks — pressing the upside question: "Can it get much bigger?"

• QHow large is its market ceiling? Is it expanding an existing pie, or creating an entirely new market?5/10

  A

  The ceiling is not low, but Shengyi is trying to win a higher-end share of an existing pie that is already large and being expanded again by AI. It is not creating a new market from scratch.

  Start with the absolute size of the pie. Copper-clad laminate (CCL) is the core substrate for PCB, and demand broadly tracks global PCB demand almost proportionally. According to Prismark's April 2026 view, global PCB output value was about 85.2 billion dollars in 2025, up 15.8% year over year, and is expected to rise another 12.5% in 2026 to about 95.8 billion dollars. The corresponding upstream CCL market is also a large market worth tens of billions of dollars. The report cites a Prismark forecast that the global electronics industry could grow by +8.0% year over year in 2026, with PCB output value up +12.5%, and servers and data storage as the strongest growth poles. So the "ceiling" is high enough in aggregate terms. This is a long runway.

  But it is important to distinguish honestly between "large aggregate size" and "the part Shengyi can capture." Shengyi is not opening up untouched territory. It is doing two things in a mature market with clear competitors: ① following the industry's natural aggregate growth; ② migrating its own product mix from mid- to low-end FR-4 toward high-frequency and high-speed materials, AI power supplies, FC-BGA packaging substrates, automotive electronics, and other higher-value-added areas, thereby capturing structurally higher unit prices and margins. Almost all of the real incremental elasticity comes from AI. The AI-specific CCL segment, according to Global Info Research, was about 7.7 billion dollars in 2025 and is expected to reach about 11.5 billion dollars by 2032 (2026–2032 CAGR of about 6.6%). AI server PCB itself has been estimated by several brokerages to grow at a CAGR of about 32.5%, far above the industry average. This is "expanding the fastest-growing corner of an existing pie," not creating a brand-new category.

  From Baillie Gifford's perspective of "why has the market not recognized the opportunity," there is no hidden TAM being underappreciated here. AI-driven PCB/CCL demand is already one of the most crowded consensus narratives in the 2025–2026 market. Shengyi's current trailing PE of about 91 times (stockanalysis data, 2026-06-10) shows that this ceiling has not only been seen, but has been fully, and even excessively, priced in.

  Bottom line: the ceiling is high (tens of billions of dollars, with a second AI-driven expansion), and the direction is "winning higher-end share within an existing large pie." This fits Baillie Gifford's preferred category of "expanding an existing pie." But it is a pie everyone is already watching. The scarcity is not in the size of the track, but in whether Shengyi can keep capturing the high-end corner.

  Jun 10, 2026
• QCan its revenue at least double over the next five years? Will growth be driven mainly by volume, price, or new businesses?5/10

  A

  A doubling of revenue over the next five years (CAGR≈15%) is not fantasy, but it requires AI/high-end demand to keep providing support. The growth would come from three forces combined: volume as the main driver, price as a secondary driver, and the ramp-up of the subsidiary's high-end PCB business. It is not a single-engine story. The probability is moderately optimistic, but it is not a high-certainty event.

  Anchor the starting point first. In 2025, Shengyi Technology's revenue was 28.431 billion yuan, up +39.45% year over year, and net profit attributable to the parent was 3.334 billion yuan, up +91.75%. The acceleration continued into 2026: Q1 2026 revenue was 8.141 billion yuan, up +45.09% year over year, and net profit attributable to the parent was 1.158 billion yuan, up +105.47%. Simply annualizing Q1's 8.141 billion yuan already gives more than 32 billion yuan, so "doubling in five years to ~57 billion yuan" is not excessive under current industry conditions. The challenge is not whether the company can push volume in the short term, but whether this growth rate can hold for five years.

  Growth breaks down into three forces, not one:

  First, volume. This is the main force. The report says 2025 growth reflected "year-over-year growth in copper-clad laminate sales volume" plus capacity release. The company is also investing about 5.2 billion yuan in a high-performance copper-clad laminate project at Dongguan Songshan Lake, explicitly aimed at AI compute, advanced packaging, and new energy vehicles. Capacity ramp-up is the base of the revenue outlook over the next five years.

  Second, price/mix. This is the source of profit elasticity, but it is a secondary contributor to revenue. The report notes that 2025 gross margin for the main business was 25.10%, up +4.52 percentage points year over year, driven by a higher share of high-value-added products. PCB materials also saw a new round of price increases in 2026. But the report also honestly points out that direct materials account for as much as 87.46% of CCL cost, so a meaningful part of price increases is passive pass-through of raw material cost inflation (copper foil/resin), not pure net incremental value.

  Third, the ramp-up of the subsidiary's high-end PCB business (Shengyi Electronics, 688183). This is the underappreciated third engine. Shengyi Electronics recorded revenue of 9.494 billion yuan in 2025, up +102.57% year over year, and net profit attributable to the parent of 1.473 billion yuan, up +343.76%. AI compute-related products grew +242% year over year, and server products accounted for more than 60% of revenue. Shengyi Electronics' consolidation is an important amplifier of the parent's revenue and profit elasticity.

  From a Baillie Gifford perspective, the key variable for a five-year doubling is the durability of AI server/data center demand. This is a high-beta bet. The report's bear case is exactly here: the high growth in 2025–2026 "benefited to a large extent from industry conditions and a higher share of high-value-added products." If AI demand peaks cyclically or inventory destocking begins, both volume and price can fall, breaking the doubling path.

  Bottom line: a revenue doubling in five years is achievable, but it would not be steady linear growth. It would be a cyclical surge driven by "volume first + mix upgrade + Shengyi Electronics high-end ramp-up," with heavy dependence on continued AI demand. The probability of doubling is moderately above average, while the probability of a smooth and certain doubling is much lower.

  Jun 10, 2026
• QFive years from now, what will take over as the next growth engine? Does this "second curve" exist today?4/10

  A

  The "second curve" is already visible today, but it looks more like an extension of the same main curve (electronic substrates) into higher-end materials than a new growth pole independent of copper-clad laminate. That is the hallmark of Shengyi as a materials platform company, and also its limitation.

  First, the "quasi-second curves" that already exist and are ramping today:

  The first is high-end/AI-related high-speed materials and packaging substrates. The report says 2025 R&D directions included high-Tg automotive electronic substrates, medium-loss copper-clad laminates for AI power supplies, Low CTE/high-modulus packaging substrates for FC-BGA, low-Dk HDI, Anylayer advanced HDI, and others. But the report also honestly notes that some of these projects remain at stages such as "[completed laboratory research]," "[moved into small-batch production]," and "[seeking more order conversion]." In other words, part of the moat is still under construction and has not been fully monetized. This curve is directionally right, but maturity is uneven.

  The second is packaging substrates (FC-BGA/IC substrates). This is the key leap for a materials manufacturer from PCB substrates into upstream semiconductor packaging. The TAM and technical barriers are both higher, and this is the area with the clearest "second curve" character. But it is also precisely the most uncertain part of the report and the one most dependent on "order conversion." It cannot yet be described as contributing revenue at scale today.

  The third, and the most concrete, is Shengyi Electronics' (688183) high-end PCB business. It is no longer just an embryonic curve; it is a growth pole already being realized. In 2025, it recorded revenue of 9.494 billion yuan, up +102.57% year over year, and net profit up +343.76% year over year, while achieving a technical breakthrough in 1.6T high-end switches, small-batch mass production of satellite communication products, and batch orders for autonomous driving domain controllers/millimeter-wave radar PCB. For the consolidated statements, this is the most credible "successor" today.

  Under Baillie Gifford's question of "what takes over five years from now, and does this curve exist today," one implicit premise must be added: a true second curve should be able to stand on its own when the main business (standard CCL) slows. Shengyi's issue is that its new curves (high-speed materials, packaging substrates, high-end PCB) still essentially share the same parent cycle of "electronic compute/AI demand" and are highly correlated with one another. If AI server demand cools cyclically, these curves will likely pull back in the same direction rather than offset each other. This differs from companies with genuinely heterogeneous second curves across different end markets or cycles.

  Bottom line: a second curve does exist today, and parts of it are already being realized (high-end PCB plus high-speed/packaging materials). The direction is right and fits the "materials platform" positioning. But it is a high-end extension of the main curve, not an independent new pole, and it shares the same AI demand parent cycle with the core business. It adds points on "can it be realized," but it is not a true safety cushion against the core cycle.

  Jun 10, 2026
• QWhat is its core competitive advantage? Will this moat widen or narrow over the next three to five years?5/10

  A

  The core competitive advantage is a medium-strength moat built from scale, process accumulation, and customer certification barriers, not brand or network effects. Over the next three to five years, the moat has a tendency to widen in high-end materials, but it is also being eroded by capital expenditure, technology iteration, and strong competitors. This is a dynamic tug-of-war of widening while being chased, not a one-way widening.

  First, identify the real sources of the moat (the report's judgment, independently verifiable):

  First, scale and global position. Shengyi's rigid copper-clad laminate sales have ranked second globally for many consecutive years according to Prismark, with a global market share of about 13.7% in 2024. Scale brings a broader materials platform, a larger trial-and-error budget, and more reliable delivery. This is a real advantage.

  Second, customer certification and switching costs. For products such as high-frequency/high-speed materials, automotive electronics, high-layer HDI, and packaging materials, customer certification, process matching, and reliability validation can take months to years. Switching is not frictionless. The report says many of the company's R&D projects have passed PCB and end-customer certification. This is the most tangible part of the moat.

  Third, R&D investment. In 2025, R&D investment was 1.450 billion yuan, accounting for 5.10% of revenue, with 2031 R&D employees, representing 13.98% of total headcount. For a materials manufacturer, this is sustained and substantive investment, supporting moat maintenance.

  But three opposing forces could honestly make the moat "narrow":

  First, pricing power is limited. The report is explicit: direct materials account for as much as 87.46% of CCL cost, and there are comparable competitors in the industry. Price is more the result of "industry conditions + product mix + certification barriers" than Coca-Cola-style end-brand pricing power. This means the moat cannot be converted into a "broad, sustained, painless" ability to pass through costs.

  Second, competitors are not standing still, and stronger players are already vertically integrated. The strongest competitor named in the report, Kingboard Laminates (01888.HK), recorded 2025 revenue of 20.400 billion Hong Kong dollars and net profit of 2.442 billion Hong Kong dollars, up +83.6% year over year, and has already achieved complete vertical integration with in-house glass fiber yarn/glass fiber cloth/copper foil production (its new Lianzhou copper foil capacity of 1500 tons/month was fully utilized in the first half of 2025). Its cost structure is more resilient than Shengyi's. Domestic players such as Nanya New Material and Wazam New Materials are also continuing to catch up in high-end materials.

  Third, the moat is still "under construction". The report repeatedly describes high-end projects as "moving into small batches" and "seeking order conversion." That means the part that is widening has not yet fully turned into profit.

  Bottom line: the moat is medium-strength (scale + certification + process), and it is directionally widening in high-end materials/packaging/automotive electronics. But it is also being thinned by three forces: high material costs that weaken pricing power, deeper vertical integration by strong players such as Kingboard, and continued competitor catch-up. Over three to five years, the moat is likely to widen net of these forces, but only to a limited extent. This is far from a broad moat that allows investors to ignore cycles and competition.

  Jun 10, 2026
• QIf its core business is disrupted, does it have the DNA to reinvent itself? How does it handle mistakes and bad news?4/10

  A

  Shengyi is better at "continuous, incremental materials iteration" than at "radical reinvention after disruption." It has the engineering inertia to keep upgrading formulas and follow technology roadmaps, but it lacks the experience of surviving an existential crisis and remaking itself as a different species. In its treatment of mistakes and bad news, governance is standardized and disclosure is compliant. It is the "honest but not aggressively self-critical" type.

  Start with the implicit premise of "reinvention DNA." The CCL business is usually not "disrupted" through overnight replacement, but through generational migration of materials systems (FR-4 → high-frequency/high-speed → low-loss → packaging substrates → possible future new media/new processes). Shengyi's response is to keep investing in R&D and position itself in next-generation materials. The report says 2025 R&D investment was 1.450 billion yuan, accounting for 5.10% of revenue, with R&D directions covering AI power-supply CCL, FC-BGA packaging substrates, Anylayer advanced HDI, automotive electronic substrates, and almost all mainstream next-generation nodes. This shows it has the engineering capability to keep up with generational migration. That is a form of incremental reinvention capability.

  But be honest: this is not the Baillie Gifford version of a company that can "change species and survive when the core business is completely disrupted." Shengyi's several evolutions in form (from standard substrates to high-end materials, then to spinning out Shengyi Electronics for high-end PCB) have all been extensions along the same main electronic-substrate channel. It has not experienced an external technology replacing the core business wholesale and forcing it to rebuild from zero. Its "reinvention" is capability expansion in an upcycle, not a paradigm shift in adversity. The latter remains untested.

  Then consider "how it handles mistakes and bad news." This is exactly the test of governance and integrity, and Shengyi performs adequately here:

  • The report says the 2025 and 2024 annual reports both received standard unqualified audit opinions; there was no non-operating occupation of funds by the controlling shareholder or related parties, no illegal external guarantees, and no securities regulatory penalties over the past three years.
  • The report also discloses its own bad news relatively candidly: weak free cash flow in 2024 (only 530 million yuan), accounts receivable rising from 7.305 billion yuan to 9.526 billion yuan, inventories increasing, and high-end projects still at the "small-batch/seeking orders" stage. Putting this adverse information into the annual reporting system suggests a disclosure culture that is compliant and not evasive.

  But there is also a limitation: Shengyi has a dispersed ownership structure with no controlling shareholder and no actual controller (Guangxin Holdings, Guohong Investment, and Wei Hua Electronics independently exercise voting rights). The board looks more like a multi-party balance. The benefit is that the company is less likely to be hollowed out by a single controller; the drawback is the absence of founder-style decisiveness to "admit mistakes, turn around, and reinvest." In a true disruption, multi-party balanced governance often reacts more slowly and conservatively.

  Bottom line: Shengyi has incremental self-iteration capability (continuous positioning in next-generation materials), but it has not been tested by radical reinvention after disruption and lacks the turn-around decisiveness of a strong founder. Its attitude toward mistakes and bad news is "standardized, compliant, and not evasive," honest but not sharp. On Baillie Gifford's core dimension of "crisis reinvention DNA," Shengyi is neutral to weak.

  Jun 10, 2026
• QDoes management, especially the founder, have a long-term view and interests deeply aligned with the company? Is it willing to sacrifice current profit for five to ten years out?4/10

  A

  This is Shengyi's most obvious weakness as a "growth stock": it does not have a founder-led, strong owner-operator structure. Management's personal shareholdings are tiny, and alignment with the company mainly comes from professional-manager incentives rather than personal net worth. The long-term orientation and governance discipline are acceptable, but there is insufficient evidence of the subjective willingness to sacrifice current profits for five to ten years out.

  Start with the governance base. Shengyi Technology is a dispersed-shareholding company with no controlling shareholder and no actual controller: the report says that at the end of 2025, Guangdong Guangxin Holdings Group held 23.56%, Dongguan Guohong Investment held 13.29%, and Wei Hua Electronics held 12.25%. All three exercise voting rights independently, with no concert-party arrangement (note: more recent public data indicate Guangxin's stake may have risen to about 25.12%, but the "no actual controller" conclusion is consistent). This is the opposite of Baillie Gifford's preferred structure of "a founder with a large stake who treats the company as a life's work." There is no central figure with net worth concentrated in the stock.

  Then look at hard evidence of "alignment." The report clearly says management's personal holdings do not constitute a strong owner-operator feature. The company uses restricted stock incentives. The 2024 incentive plan saw unlocking and small-scale repurchase cancellation in 2025, and at year-end there were still 34.6177 million related restricted shares, corresponding to about 1.43% of share capital. The dilution is not excessive, but it also shows that alignment relies on the institutional arrangement of "issuing shares to managers," with much less force than a founder using personal capital to hold a large position.

  There are positive signals on "long-term view," but not enough to call it sacrifice for the long term:

  • The company is indeed reinvesting in long-term capacity during a good cycle, such as the roughly 5.2 billion yuan high-performance CCL project at Dongguan Songshan Lake for AI compute, advanced packaging, and new energy vehicles. This is a multi-year layout, and the direction is long-term.
  • But dividends are also continuing to rise: 6.00 yuan per 10 shares for 2024 and a proposed 8.00 yuan per 10 shares for 2025. Higher cash returns are positive, but they also show the company's character as a "dividend-paying manufacturing leader," not an offensive growth company willing to compress current dividends and profits to invest aggressively for dominance five to ten years out.

  "Honesty and discipline" are the strongest part of this item: the report says annual reports have repeatedly received standard unqualified opinions, with no non-operating fund occupation, no illegal guarantees, and no regulatory penalties over the past three years. The baseline is sound, excluding the most dangerous governance risks.

  Bottom line: management is credible, disciplined, and reasonably long-term oriented, but there is no strong founder, personal ownership is extremely low, and alignment relies on institutional equity incentives rather than personal net worth. There is insufficient evidence of subjective willingness to sacrifice current profits for long-term outcomes. Against Baillie Gifford's high standard for "founder long-termism," this dimension is clearly weak.

  Jun 10, 2026
• QIf it disappeared tomorrow, how much would customers miss it? Is its growth model sustainable and not dependent on harming society or regulation?5/10

  A

  If Shengyi disappeared tomorrow, downstream PCB manufacturers and end customers would miss it considerably in the short to medium term, especially for certified materials such as high-end high-speed and automotive electronics, where replacement is difficult. But it is not an irreplaceable monopoly node; strong players such as Kingboard can absorb demand. Its growth model is highly sustainable and does not depend on harming society or regulatory arbitrage. Instead, it sits on policy-supported main channels such as AI compute and vehicle electrification, which is a clean positive.

  Start with the premise of "indispensability." Shengyi sells foundational materials for the electronics industry, and how much it would be "missed" has two layers:

  • Standard FR-4 and other general substrates: substitutability is relatively high. Nanya New Material, Wazam New Materials, and Kingboard can all fill the gap, and customer switching costs are lower. At this layer, Shengyi is not indispensable.
  • High-frequency/high-speed, automotive electronics, high-layer HDI, and packaging-related materials: replacement is difficult. The report notes that customer certification, process matching, and reliability validation for these products take months to years. Many of the company's projects have passed PCB and end-customer certification and are embedded in customer supply chains. At this layer, Shengyi would genuinely be "missed" in the short term. A sudden disappearance would interrupt customers' high-end material part numbers and force recertification.

  But the boundary must be drawn honestly: Shengyi's global position is second globally in rigid CCL sales, with a share of about 13.7%, and the top five manufacturers together control more than 55% of global share. That means the industry is "oligopolistic but fragmented," not a "single-point monopoly." Its disappearance would cause pain and price increases, but the supply chain could gradually be filled by peers such as Kingboard within one to two years. So the answer is "customers would miss it a lot, but alternatives exist," not "the industry cannot function without it."

  Now the second Baillie Gifford premise: is the growth sustainable and not dependent on harming society or regulation? On this item, Shengyi is clean and even positive:

  First, social utility is positive. Its growth comes from real industrial demand in AI servers, data centers, automotive electronics, and high-end packaging (the report cites a Prismark forecast that servers and data storage are the strongest growth poles). It supplies materials for compute and electrification infrastructure. It does not have the common growth-stock hidden illness of growth built on harming users or society, such as addiction, data misuse, or regulatory arbitrage.

  Second, the regulatory profile is clean. The report says the company had no securities regulatory penalties over the past three years, annual reports have repeatedly received standard unqualified opinions, and there were no illegal guarantees or fund occupation. Its growth does not depend on skirting regulation.

  Third, policy is a tailwind rather than a headwind. Domestic AI compute, self-reliance in semiconductor materials, and new energy vehicles are all long-term policy priorities in China. Shengyi's high-end materials layout is aligned with industrial policy. The one point to watch is environmental/energy compliance in materials manufacturing (CCL involves resin, glass fiber, and chemical processes), but the report did not disclose any related material risks.

  Bottom line: customers would genuinely miss Shengyi at the high-end materials layer because of certification barriers and switching costs, but the industry is oligopolistic and fragmented rather than a single-point monopoly, so peers can fill the gap. Its growth model is highly sustainable, socially useful, clean from a regulatory perspective, and aligned with policy priorities. "Indispensability" is moderately high, while "sustainable and non-harmful" is a clear positive.

  Jun 10, 2026
• QWhat are the unit economics of this business (gross margin, incremental returns)? Do they improve or deteriorate with scale? Where does the money it earns go?5/10

  A

  The unit economics are "medium and highly cyclical": gross margin is about 25%, and ROE can reach about 21% in a good year, but because direct materials account for 73%–87% of cost and incremental returns swing sharply with the cycle, scale does not meaningfully reduce marginal cost. This is not software-style leverage. The money earned mainly goes into capacity expansion, R&D, and dividends. Capital allocation is rational but not outstanding.

  First, the actual level of unit economics:

  • Gross margin: gross margin for the main business in 2025 was 25.10%, up +4.52 percentage points year over year; under the 2025 third-quarter report basis, gross margin was about 26.74%. This is respectable but not high for manufacturing, far below software or branded consumer goods.
  • Net margin: 2025 net profit attributable to the parent was 3.334 billion yuan / revenue of 28.431 billion yuan, implying a net margin of about 11.7%.
  • Return on capital: the report estimates 2025 ROE at about 21%. That looks attractive at a cyclical high, but the report clearly warns that it has not been stable and excellent across cycles. Compared with the 2023 trough, when net profit attributable to the parent was only 1.164 billion yuan, the returns of this business clearly swing sharply with the cycle.

  The key constraint is the cost structure: the report says direct materials account for 87.46% of the cost of copper-clad laminate and prepreg, and 73.37% for printed circuit boards. This determines three things: ① it is not an asset-light model with very low marginal cost where price increases almost entirely turn into profit; ② margins are strongly affected by copper, resin, and glass-fiber cloth prices; ③ earnings elasticity works both ways, amplifying profit in an upcycle (hence 2025 net profit +91.75% year over year) and shrinking just as sharply in a downturn.

  "Do they improve or deteriorate with scale?" The answer is limited improvement, but not structural improvement. Scale brings procurement bargaining power, capacity utilization, and R&D amortization benefits, while a higher share of high-end products can raise blended gross margin (which was the main reason for 2025 margin improvement). But because materials dominate the cost structure and the industry has comparable competitors, scale cannot push unit costs beyond competitors' reach or create strong pricing power. Incremental returns are determined more by "product mix + position in the cycle" than by scale itself.

  "Where does the money earned go?" The report says 2025 net cash flow from operating activities was 5.274 billion yuan, mainly going to three areas: ① capacity expansion/R&D reinvestment, including 2.376 billion yuan paid for purchase and construction of fixed assets and the roughly 5.2 billion yuan high-performance CCL project at Songshan Lake; ② dividends, with a proposed 8.00 yuan per 10 shares for 2025 and 2.727 billion yuan paid in dividends/interest; ③ moderate debt management. But the report points out a weakness in capital allocation: the so-called "repurchase" in 2025 used only 2.4227 million yuan in cash and was mainly repurchase cancellation for equity incentives, not a large market-based repurchase when undervalued. It is a "dividend-paying leader," not a capital allocator that forcefully increases per-share value when undervalued.

  Bottom line: unit economics are medium and highly cyclical (gross margin about 25%, cyclical-year ROE about 21%, but materials are a very high share of cost and incremental returns swing sharply). Scale creates limited improvement rather than structural improvement. Cash mainly goes into capacity expansion, R&D, and dividends. Allocation is rational but not outstanding, with no meaningful undervaluation buyback. This is adequate for a quality manufacturing business, but it does not reach Baillie Gifford's preferred compounding machine where unit economics improve as scale increases.

  Jun 10, 2026
• QWhat conditions must all hold for it to rise fivefold over ten years? Are those conditions realistic? What expectations are implied in today's share price?3/10

  A

  For Shengyi to rise fivefold over ten years from about 146 yuan today and a market value of about 358.0 billion yuan (to about 1.8 trillion yuan, or about 17.5% annualized), two demanding conditions must hold at the same time: profit must increase about 5 times and valuation must not fall materially. But today's trailing PE of 91 times already implies the optimistic expectation that high industry conditions will last for years and valuation will not normalize. The margin of safety is negative. A fivefold rise over ten years is unlikely.

  First, pin down today's starting point (a unified price anchor). According to stockanalysis data, 2026-06-10, Shengyi Technology's current price was about 146.29 yuan, market value about 358.2 billion yuan, and trailing PE about 91 times; the report uses 145 yuan and 2.4291 billion shares to estimate market value at about 352.2 billion yuan, static PE at about 106 times, and PB at about 21 times. Whichever basis is used, this is a price that has pulled a great deal of optimism forward.

  What conditions must all hold for a fivefold rise over ten years? A 5 times market-value increase = profit multiple × valuation multiple rising 5 times. Breaking it down:

  • Scenario A (profit-driven): If PE falls ten years from now to a normal manufacturing level (say 20–25 times), then for market value to rise ×5, net profit attributable to the parent must rise from 3.334 billion yuan to about 15–18 billion yuan (about ×5), implying a ten-year net profit CAGR of about 16%–18%. This requires AI/high-end materials demand to remain almost uninterrupted for ten years and margin mix to continue stepping up. The difficulty is extremely high.
  • Scenario B (valuation does not fall): If the current high PE of about 90–106 times is maintained, then profit "only" needs to increase 5 times. But that means betting that the market will permanently give a technology-stock valuation to a highly cyclical, capital-intensive manufacturing company whose materials account for 87% of cost. This contradicts historical patterns and is even less realistic.
  • The more likely reality: profit does not rise that much, and valuation converges toward the manufacturing average, so both sides become headwinds.

  What expectations are implied in today's share price? This is the key point. The report uses Owner Earnings to make the implied expectations clear: using the audited 2025 basis conservatively, Owner Earnings are about 3.0 billion yuan. At a 145 yuan share price and market value of about 352.2 billion yuan, that implies about 117 times Owner Earnings and a starting Owner Earnings Yield of only about 0.9%, even below the roughly 1.73% yield on China's 10-year government bond. In other words, today's price already treats all three things as facts: "high industry conditions will last a very long time + high-end materials upgrade will keep being realized + valuation will not materially normalize." The report's three-case shareholder-equity DCF (bear/base/bull) gives intrinsic value per share of only about 17 / 26 / 47 yuan, and even relaxing the assumptions to an extremely optimistic case only raises it to about 60 yuan. All are materially below the 146 yuan market price.

  Are these conditions realistic? No. Baillie Gifford's blue-sky imagination allows paying a premium for great growth companies, but only if the upside is real. In Shengyi's case, the upside condition itself (profit growing 5 times) is difficult, and valuation also has to avoid falling. That is the product of two low-probability events. The report therefore estimates that buying at 145 yuan over a 10-year horizon would produce expected annualized returns of about -18%/year in the conservative case, about -13%/year in the base case, and about -6% to -7%/year in the optimistic case. All directions are negative.

  Bottom line: a fivefold rise over ten years requires "net profit CAGR of about 16%–18% for ten years" and "high valuation not normalizing" to hold simultaneously. Both are low-probability events, and multiplying them makes the outcome even less likely. Today's PE of about 91–106 times and Owner Earnings Yield below 1% already imply the extremely optimistic expectation of "permanent high conditions + no valuation normalization," leaving a negative margin of safety. This is the core of the report's conclusion: "good company, bad price, Avoid rating." A fivefold rise over ten years from the current price is unlikely.

  Jun 10, 2026
• QWhy has the market not recognized all this yet? Is it because investors do not understand it, dismiss it, or cannot look far enough ahead? What will become the "narrative inflection point"?3/10

  A

  The market does not "fail to understand" Shengyi. It understands the story too well and has already priced it fully, even excessively. The current PE of about 91 times and the Strong Buy sell-side consensus show that this is a highly recognized and enthusiastically embraced stock, not an overlooked gem. The real "narrative inflection point" will not be "the market finally discovers its quality," but the moment when it is confirmed or falsified whether AI demand and high-end materials execution can support this price.

  First, correct the implicit assumption in the question. Baillie Gifford's question "why has the market not recognized it yet" applies to underappreciated growth stocks. Shengyi's situation is the opposite. It has already been fully recognized:

  • Valuation is already extremely optimistic: according to stockanalysis data, 2026-06-10, the current price was about 146 yuan and trailing PE about 91 times; the report's calculation at 145 yuan gives static PE of about 106 times and PB of about 21 times. By comparison, the CSI 300 static PE was only about 14 times. Shengyi's earnings yield is below 1%, while the index is about 7%. The market clearly does not "dismiss" it; it has granted a premium far above the industry.
  • Sell-side consensus is strongly bullish: public market data show an analyst rating of "[Strong Buy]" (with most recommendations as Buy), and several brokerages have published deep bullish reports. This is not an obscure stock with thin coverage.
  • Fundamental improvement is already priced in: 2025 revenue was +39.45% and net profit attributable to the parent +91.75%, and Q1 2026 net profit attributable to the parent was again +105.47%. The market has seen all these impressive numbers, and they are already reflected in the share price (the stock hit a record high of 147.90 yuan on 2026-06-01).

  So there is no cognitive gap of "investors do not understand it" or "they dismiss it." If there is any failure to look far enough ahead, it is that the market may be underestimating the strong cyclicality of the business, the pricing-power ceiling created by materials at 87% of cost, and the cyclical component of high profits in a strong year. In other words, it may be mistaking the 2025–2026 pulse of high profits for perpetual earnings power. The report's bear case is exactly this: the risk is not "fake profits," but "misreading short-term high profits in a strong cycle as permanent."

  What will become the "narrative inflection point"? (Baillie Gifford's added premise) The inflection point will not come from "the market finally discovering its value," but from the following confirmation/falsification signals, which can cut both ways:

  • Downward inflection (more likely): AI server/high-speed materials demand peaks cyclically or inventory destocking begins; the PCB materials price-increase wave fades; blended gross margin begins to decline even when industry conditions are not poor; receivables (already up to 9.526 billion yuan in 2025) and inventories continue to expand faster than revenue; Owner Earnings remain below net profit for an extended period. If any of these is confirmed, the market will realize that "this is an industry pulse, not moat widening," triggering valuation convergence toward the manufacturing average.
  • Upward inflection (requires a high bar): the revenue share of high-end materials/packaging substrates/automotive electronics expands significantly, and Owner Earnings rises to the 6–8 billion yuan range without a major increase in leverage. The report explicitly acknowledges that if this is realized, its judgment of "reasonable value" could be too low. But this is a high-bar event that requires years of validation.

  Bottom line: the market has not missed Shengyi; it understands the story too well and has overpaid for it (about 91 times PE, Strong Buy consensus, record-high share price). If the market "cannot look far enough," it is underestimating cyclicality and the risk of treating cyclical profits as permanent. The true narrative inflection point is whether "AI demand and high-end execution can support this price" is falsified (more likely, downward) or confirmed beyond expectations (high bar, upward). It is not "value discovery." At the current price, the report's Avoid rating is prudent.

  Jun 10, 2026