The capacity expansion project for high-end PCB precision cutting tools has officially commenced, accelerating Tiangong International (00826) toward its transformation into a high-end materials platform.

The explosive surge in AI computing demand has fueled sustained prosperity across the entire PCB supply chain. From copper-clad laminates, electronic glass fabric, and copper foil, to midstream PCB manufacturers, and further upstream to tungsten carbide rods and consumables like drill bits and end mills, every segment has significantly benefited from the AI infrastructure boom—and has spawned multiple high-flying stocks with staggering gains.

These include Tongguan Copper Foil (301217.SZ), which surged up to 17 times its value over two years; Shenghong Technology (300476.SZ), a PCB manufacturer that rose as much as 21-fold over three years; and DingTai High-Tech (301377.SZ), the PCB drill bit leader, which posted an astonishing 31-fold peak gain over two years.

Behind DingTai High-Tech’s dramatic rally lies a clear indication of severe supply tightness in China’s PCB drill bit segment. Against this industrial backdrop, Tiangong International (00826), a former specialty steel leader now rapidly transforming into a high-end materials platform $TIANGONG INT'L (00826.HK)$ , after extending its business reach into titanium alloys and fusion materials, the company has accelerated its strategic push into the PCB micro-drill segment, aiming to inject fresh momentum into its transformation and upgrading journey.

Recently, Tiangong International took a pivotal step in the high-end precision cutting tools segment for PCBs. On July 7, its indirect subsidiary, Jiangsu Tiangong Cemented Carbide Technology Co., Ltd., officially launched a project to expand production capacity to 300 metric tons per year of ultrafine-grain carbide rods dedicated to PCB tools, alongside annual output targets of 100 million PCB end mills and 300 million PCB drill bits. This marks Tiangong International’s formal entry into the upstream consumables segment of the PCB value chain.

Leveraging technological foundations from its powder metallurgy platform and synergies with its cemented carbide subsidiary—whose processes are inherently aligned—Tiangong International enjoys significant vertical integration advantages in this initiative, likely enabling faster-than-expected progress. As product validation proceeds smoothly and capacity ramps up steadily, the PCB micro-drill and upstream rod businesses are not only expected to generate substantial incremental revenue but also emerge as Tiangong International’s third major growth pillar, following titanium alloys and fusion materials.

Tightening supply of carbide rods is widening market gaps, accelerating cost pressures downstream.

The sustained boom across the entire PCB industry stems from increasingly thick PCB boards inside AI servers. To accommodate more GPUs and high-speed signals, NVIDIA has stacked board layers from 16–18 layers in the H100 all the way to 20 layers in the GB200, with future Rubin orthogonal backplanes projected to reach an astonishing 78 layers. Board thickness has surged from the traditional 3 millimeters to as much as 8 millimeters.

This physical shift has exponentially increased drilling difficulty. The era when a single drill bit could penetrate an entire board is over—now, drilling a single hole often requires four different drill bits with varying length-to-diameter ratios working in sequence, effectively doubling consumable usage per hole.

More critically, to handle the intense thermal loads from high-compute workloads, PCB manufacturers have begun widely adopting high-silicon specialty substrates like M9, which are extremely hard. This has slashed the lifespan of conventional HDI drill bits from 2,000 holes per bit to just 200—a four- to five-fold acceleration in wear—and driven industry-wide drill bit consumption to 5–8 times historical levels.

Only ultra-micro drills with diameters under 0.1 millimeters can handle these 'tough bones.' These premium products typically command prices 25 times higher than standard drill bits, and M9-compatible models alone fetch 15–20 times the unit price of those used for M7/M8 substrates—laying a solid foundation for both volume and price increases in the PCB drill bit market.

Yet even more critical than drill bit shortages is the scarcity of the raw material at the very front of the supply chain—the carbide rod, or the 'skeleton' of PCB drill bits. For years, ultrafine, high aspect-ratio rods below 0.2 mm have been tightly controlled by three Japanese firms: Sumitomo, Mitsubishi, and Kyocera. Sumitomo alone, with its AF series (e.g., AF209/AF308), holds over 40% of the global market share and near-monopoly status in ultrafine specifications.

However, the industry landscape shifted dramatically starting in 2026. With China’s tungsten carbide exports to Japan dropping to zero for three consecutive months beginning in February, Japanese manufacturers’ low-cost inventories rapidly depleted. In May, the president of Sumitomo Electric confirmed during an earnings call: 'Tungsten supplies from China have completely halted—we relied on China for roughly 30% of our raw materials over the long term.'

Tightening tungsten inventories have triggered a wave of price hikes for rod materials. Sumitomo's AF series underwent two consecutive price adjustments in January and June, each increasing by 15%–25%, with some specifications shifted to 'price quoted per order.' Mitsubishi went even further, raising its procurement price for upstream ultra-hard alloy billets by as much as 300% and placing strict limits on supply of high-end, ultra-fine-grain tungsten carbide raw materials.

The upstream shock has rippled down the supply chain, transmitting cost pressures to drill bit manufacturers. Leading domestic drill bit makers opened their price-increase window in July, while Japanese suppliers have gone so far as to propose 'delivering only 20% of orders,' extending lead times from 4–6 weeks to over 12 weeks (orders for ultra-micro drills under 0.1mm now face a 24-week wait).

On one hand, Japanese suppliers are retreating from the supply side; on the other, NVIDIA’s Rubin mass production has pushed the per-hole consumable cost of AI PCB drill bits from RMB 6.3 to RMB 16.3. Under such intense dual pressure from supply and demand, the shortage of high-end rods is no longer a 'nice-to-have' option for domestic substitution—it has become an urgent, non-negotiable necessity for securing the entire industrial chain.

With cracks emerging in the Japanese supply chain, the rigid supply constraints on upstream raw materials like rods are far more severe than capacity expansions at the midstream drill bit level. Whoever can close this critical gap first will secure a ticket into the core AI hardware supply chain.

Shared technology and processes could accelerate ramp-up timelines, with potential annual revenue reaching RMB 2 billion at full capacity.

Tiangong International’s entry into the PCB micro-drill segment is not a speculative cross-industry gamble chasing trends, but a natural extension of its existing business framework. This means the company isn’t starting from scratch in this new venture; instead, it’s precisely transferring its established capabilities—from its powder metallurgy platform and cemented carbide subsidiaries—into the PCB ultra-fine rod and micro-drill applications, a unique barrier that newcomers to the PCB micro-drill space simply lack.

The most critical—and most challenging—aspect of PCB drill rod material is achieving a grain size below 0.2μm, which is the make-or-break threshold for ultra-micro drills under 0.1mm. If the grain size is even slightly coarser, the cutting edge tends to chip during drilling of sub-0.1mm holes—especially problematic given the high hardness of M9 substrates used in AI servers, which leaves virtually zero tolerance for grain size deviation.

Globally, fewer than five players can produce ultra-fine WC powder with grain sizes under 0.2μm. Japan’s Sumitomo, with its AF209/AF308 grades (suitable for 0.1–0.8mm micro-drills), dominates this field. In the ultra-micro drill rod segment for ≤0.05mm applications (used in AI/IC substrates), Sumitomo holds roughly 20–25% of the global market share, forming a duopoly with Kyocera.

In this most technically demanding segment of PCB drill rod production, Tiangong International already possesses relevant foundational technologies. It is widely recognized that Tiangong International is China’s only manufacturer offering a full range of powder metallurgy tool and die steels. By 2025, its powder metallurgy steel capacity is expected to reach approximately 1,500 tons, with high-alloy powder atomization capacity of 8,000 tons, and its powder metallurgy process has been operational for six to seven years. Specifically, its powder high-speed steel process chain—'gas atomization → hot isostatic pressing → sintering → forging/rolling'—shares core technological roots with controlling particle size distribution, carbon/nitrogen balance, and sintering densification in tungsten carbide powders.

Meanwhile, Tiangong International’s powder metallurgy steel follows an 'iron-based powder + alloying' technical route, whereas producing ultra-fine WC rods—the base material for PCB ultra-micro drills and high aspect-ratio end mills—uses a 'tungsten carbide powder + cobalt binder' approach. At their core, both rely on the same fundamental principles: 'making powders ultra-fine and stabilizing the sintering process.' As previously reported by CCTV, Tiangong International has already increased the service life of its powder metallurgy steel from the traditional 6,000 cycles to over 20,000 cycles, demonstrating that its 'ultra-fine powder + high-temperature sintering' process has been successfully validated for at least five years. The company now only needs to adapt this proven process specifically for WC-based ultra-fine rods.

Looking downstream at the drill bit/cutting tool segment, Tiangong International’s synergistic advantages become even more evident. The PCB micro-drill business line was not an impromptu initiative for 2026; as early as 2021, its indirectly held subsidiary, Jiangsu Tiangong Cemented Carbide Technology, was established to focus on double-helix-hole rods, solid cemented carbide cutting tools (end mills, drills, taps), and CNC inserts. Its Oust brand has been upgrading from conventional cemented carbide tools to powder metallurgy high-speed steel (PM-HSS) tools since 2025, with spiral-point taps, straight-shank drills, and micro-diameter end mills (0.5–2 mm) already penetrating applications in 3C electronics, robotics, and aerospace.

In other words, Tiangong International is no newcomer to the ‘five-axis grinding + coating’ processes required for PCB drill bits. The ROLLOMATIC-type grinders and TiAlN/AlCrN coatings used for taps and micro-diameter end mills share high equipment and process overlap with those for PCB drill bits—the only differences lie in drill-bit-specific know-how such as helix angle, point geometry, and flute design, which can be mastered within as little as six months.

Moreover, the core base material for internal-cooling drill bits—double-helix-hole rods—has already been mass-produced at scale by Jiangsu Tiangong Cemented Carbide Technology. The current 300-ton ‘ultrafine-grain PCB-specific’ project essentially represents a targeted upgrade of these double-helix-hole rods from ‘general-purpose cemented carbide’ to ‘PCB-drill-bit-specific’ grade. Although the specialized material demands narrower specifications and stricter grain-size control standards, its underlying process relies entirely on mature existing production lines—making this an enhancement built on a solid foundation rather than a ground-up rebuild.

Leveraging the process synergy between its powder metallurgy parent platform and its cemented carbide subsidiary, Tiangong International could achieve mass production of ultrafine-grain PCB rods within as little as six months. This provides significant tactical flexibility: on one hand, it can swiftly market rod materials to downstream drill-bit manufacturers facing supply shortages, precisely capturing the window created by Japanese suppliers’ capacity contraction and acting as a ‘pick-and-shovel’ supplier; on the other hand, once certified by downstream PCB manufacturers, Tiangong International can rapidly scale up rod production capacity and drive large-scale commercialization of its end mills and drill bits through vertical integration.

According to industry estimates, based on current market prices—ultrafine rods (comparable to AF209/AF308) at RMB 2,000–2,300/kg, AI-coated drill bits at RMB 1.7–1.8/unit, and PCB end mills at RMB 5–8/unit—the project, at full capacity, would generate: approximately RMB 900 million to RMB 1.4 billion in annual revenue from finished cutting tools alone under a fully integrated model (with internal rod supply); or a total theoretical output value of RMB 1.3 billion to RMB 2.0 billion if part of the rods are sold externally.

Thus, PCB micro-drills will become the core growth engine driving Tiangong International’s performance in 2027. However, more critical than the earnings uplift is the potential re-rating of its valuation framework. As the PCB micro-drill business transitions from ‘expectation’ to ‘realization,’ Tiangong International will fully shed the valuation constraints typical of traditional specialty steel companies and accelerate its transformation into a premium materials platform. Once the market recognizes its consumables-driven business logic, its valuation multiple could rise above 20x P/E, unlocking substantial upside in its market capitalization through a dual catalyst of earnings growth and multiple expansion.

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