Where does the copper-clad laminate price increase hit first on the financial statements: for Shennan Circuits (002916), in the third-quarter report disclosed on October 31, how much more raw material inventory was there than at the end of the second quarter, and was the single-quarter gross margin lower than in the second quarter?

Where does the copper-clad laminate price increase hit first on the financial statements: for Shennan Circuits (002916), in the third-quarter report disclosed on October 31, how much more raw material inventory was there than at the end of the second quarter, and was the single-quarter gross margin lower than in the second quarter?

Two premises in this are invalid: Shennan Circuits' third-quarter report was disclosed on October 23, not October 31; and the third-quarter report has no "raw materials" line item, so the figure for "how much more raw materials inventory than at the end of the second quarter" cannot be found in any public document.

Three things that can be checked: total inventory is 18.82 yi more than at the end of the second quarter; single-quarter gross margin did not fall, rising from 32.41% to 34.85%; the copper-clad laminate price increase has landed on the balance sheet and has not yet landed in operating cost on the income statement.

What was posted on October 31 was a research record

The third-quarter report was disclosed on October 23, announcement no. 2026-065. What was posted on October 31 was an investor relations activity record, no. 2026-24, covering a research visit by fifteen institutions from October 27 to 30.

In the record there happens to be a question about raw materials, and the company answered: main raw materials include copper-clad laminate, prepreg, copper foil, gold salt, ink, etc.; in the third quarter, "affected by changes in commodity prices, prices of some raw materials such as gold salt rose year-on-year and also rose somewhat quarter-on-quarter."

Asked about consolidated gross margin quarter-on-quarter, the company said it "improved somewhat quarter-on-quarter," citing growth in data center and wired communications revenue, release of packaging substrate orders, and ramp-up at the Guangzhou Nantong phase-four Thailand plants — it did not mention cost.

The company itself did not attribute the gross margin rise to lower cost.

The raw materials line does not exist in the quarterly report

The third-quarter report has only one line, "inventory": 96.997 yi at end-September, 51.397 yi at the start of the year, up 88.72%; the company gave the reason for the change as "increased business scale and the impact of stocking materials."

The breakdown exists only in the interim report: on June 30, raw materials book balance 26.03 yi (book value 25.50 yi), work in progress 19.90 yi, finished goods 14.26 yi, goods shipped 20.95 yi, totaling 81.14 yi, book value 78.17 yi.

So the only thing that can be calculated is the total: from 78.17 yi to 97.00 yi, an increase of 18.82 yi, up 24.1%. The raw materials balance on September 30 will not appear in any public document — the interim report gives June 30, the annual report gives December 31.

Asking "how much more raw materials" is asking for a number that does not exist.

Single-quarter gross margin rose 2.44 points, but the improvement is narrowing

Breaking out single quarters by subtracting cumulative figures: first quarter revenue 65.96 yi, cost 46.72 yi, gross margin 29.17%; second quarter 87.01 yi, 58.80 yi, 32.41%; third quarter 104.78 yi, 68.26 yi, 34.85%, single-quarter gross profit 36.52 yi.

The operating cost ratio fell from 67.59% to 65.15%; the cost side simply was not pushed up.

Last year followed the same path: second quarter 2025 27.59%, third quarter 31.39%, up 3.80 points quarter-on-quarter. This year the same third quarter rose only 2.44 points, 1.36 points less.

This year's third-quarter revenue rose 66.29% year-on-year, with capacity utilization at a high level; both scale and mix are helping. Against that backdrop, the improvement instead narrowed; the most reasonable explanation is that a chunk of cost was absorbed, but not enough to outweigh the mix upgrade.

Inventory turnover days are also lengthening (inventory ÷ single-quarter cost × 91): end of second quarter 78.17 yi against quarterly cost 58.80 yi, 121 days; end of third quarter 96.997 yi against 68.26 yi, 129 days. The extra 8 days, converted at average daily cost of 0.75 yi, is 6.2 yi of materials.

The whole chain is stocking up, and upstream pockets the money first

Shengyi Technology makes copper-clad laminate and is Shennan's upstream: third-quarter single-quarter revenue 141.82 yi, up 78.76% year-on-year, single-quarter gross margin up 9.00 points quarter-on-quarter.

Its exact words were "facing rapid increases in raw material prices and continued high-speed growth in demand for high-end products," and it lifted gross margin through volume ramp-up of early-stage developed products and capacity release.

The money from the price increase lands first on Shengyi's income statement. Inventory at the three companies rose 18% to 25% quarter-on-quarter in the same direction; it is not Shennan alone that is betting, it is the whole chain building stock.

Shennan's notes payable plus accounts payable went from 76.72 yi to 88.64 yi, up 11.92 yi. Of the 18.82 yi of new inventory, 11.92 yi is owed to suppliers; it advanced only 6.90 yi of its own.

The transmission chain in one sentence

Where it comes from: page 12 of the interim report — copper-clad laminate and glass fiber cloth, driven by AI computing demand, face "tightening supply and accelerating price increases," and some downstream customers are placing orders early.

Who it passes through: copper-clad laminate makers like Shengyi Technology, with third-quarter single-quarter gross margin of 41.63%.

Where it lands: Shennan's balance sheet, the September 30 column, inventory up 18.82 yi and payables up 11.92 yi; operating cost must wait until this batch of materials enters production, at the earliest the fourth quarter.

The only inventory impact that entered the income statement in the first three quarters was asset impairment loss of 3.15 yi (cumulative year-on-year increase 40.81%; the company noted the main reason as increased provision for inventory write-downs) — that is price declines on old products, not price increases on new materials.

The strongest one-line rebuttal from the bear side

The bear side would say: the gross margin rise is entirely due to the AI product mix and has nothing to do with copper-clad laminate; "not yet transmitted" is unfalsifiable nonsense, and price increases will always be covered up by mix.

There is half a point to it. But two things don't add up: the improvement is 1.36 points narrower than the same period last year; Shengyi's third-quarter revenue rose 78.76% year-on-year, and single-quarter gross margin rose 9.00 points quarter-on-quarter, with volume and price moving together — the price increase really did happen, while Shennan's own capacity utilization is still at a high level, so it is not without bargaining power over downstream.

There is also a harder rebuttal: the price increase was passed through long ago, but Shennan simultaneously raised prices to customers, which is why gross margin was not squeezed. I cannot rule out this possibility — the company only said it "maintains active communication with suppliers and customers" and did not disclose the magnitude of the price increase. If that is the case, what should be watched in the fourth quarter is whether the price increase can continue, not when costs enter the statements.

The watershed is whether the fourth quarter can pass on the upstream increase.

Under what circumstances I would be wrong

If single-quarter gross margin in the fourth quarter falls below 33% and the operating cost ratio rises more than 2 points quarter-on-quarter, it means the price increase had already penetrated into costs in the fourth quarter, and my timing — that it did not enter costs in the third quarter and would only show in the fourth quarter — would be wrong.

Another one: if the share of raw materials in inventory in the annual report clearly drops from 32%, it means this 18.82 yi is not stockpiling but accumulation, and the characterization of "active stockpiling" would also be wrong.

Sources: Shennan Circuits 2026 Third Quarter Report, 2026-10-23, Announcement 2026-065; Shennan Circuits 2026 Semi-Annual Report, 2026-08-27; Shennan Circuits Investor Relations Activity Record, 2026-10-31, No. 2026-24; Shennan Circuits 2025 First Quarter Report, 2025-04-24, Announcement 2025-017; Wus Printed Circuit 2026 Third Quarter Report, 2026-10-28, Announcement 2026-076; Wus Printed Circuit 2026 Semi-Annual Report, 2026-08-26; Wus Printed Circuit 2026 First Quarter Report, 2026-04-23; Shengyi Technology 2026 Third Quarter Report, 2026-10-30; Shengyi Technology 2026 Semi-Annual Report, 2026-08-15; Shengyi Technology 2026 First Quarter Report, 2026-04-29.