Our target price for SYTECH of Rmb60 is based on a 36x 26E PE, +1.5SD (ie mid point of peak PE  range in the historical CCL upcycle) vs. its historical mean to reflect the CCL cycle turning up. We employ the same 36x PE for 2026 after the announcement of 1H25 preliminary results. In addition, 2026E PE is more relevant to reflect AI-CCL upcycle as the maiden full-year contribution. The implied 9x PB for 2026E is broadly in line +4SD in which we saw this level in the last peak in 2021. We believe this is justified based on our EPS CAGR of 42% over 2024-27E, following a ~24% decline in 2023. Our target PE is higher than the peer group average, which we believe is appropriate given: 1) SYTECH’s strong track record of winning market share in the global CCL market (from 8% in 2007 to 13% in 2024); 2) SYTECH's technology edge as the first to enter Nvidia AI supply chain among China CCL players; 3) increasing premium for domestic component sourcing, underpinned by bans preventing dealing with US companies to source components.

Key downside risks to achieving our target price include: 1) worse-than-expected demand for AI-CCL order, 2) subdued China consumption, and 3) worse-than-expected capex on 5G/IoT products. Key upside risks to achieving our target price include: 1) secure of ASIC-based customers for CCL orders, 2) better-than-expected macro-economic conditions in China, 2) better-than-expected operating margin on higher rev growth due to high operating leverage, and 4) stronger-than-expected AI demand and consumption subsidy.