Shares surged to the daily price limit during the day, only for major news to break overnight. On June 9, 2026, as the AI computing power sector experienced a collective surge, Grace Fabric Technology Co.,Ltd. (ASX: 603256) shares hit the upper limit and closed at 207.34 yuan, pushing its market capitalization to 187.6 billion. While retail investors were eagerly calculating the potential gains from the next trading day's surge, an evening announcement delivered a shock: the company's second and third largest shareholders planned to jointly sell up to 3% of their holdings, potentially cashing out a maximum of 5.6 billion yuan.
This is not a minor transaction. This is a major stock that has soared 46-fold since its IPO seven years ago, surged 16-fold in a single year, and more than quadrupled this year. The planned large-scale sale comes precisely at a historical peak. Many have criticized the move as appearing overly opportunistic. However, to assume this is merely a sudden need for cash would be a mistake. This appears to be a well-planned strategic move.
Examining the Stock's Rise
It would be incorrect to dismiss this stock's performance as pure speculation. The nearly 46-fold cumulative gain (post-split adjustment) since its IPO seven years ago is built on a solid operational foundation. The company is a leader in China's high-end electronic fabric market. In essence, it manufactures the glass fiber fabric that is a core component in AI servers and printed circuit boards (PCBs), representing a critical, hard-demand segment of the upstream supply chain.
Starting in the second half of last year, AI server sales exploded, leading to a massive surge in orders for high-end PCBs. This, in turn, created a supply shortage for the upstream electronic fabric. The barriers to entry in high-end electronic fabric production extend far beyond simply purchasing weaving equipment. The core competitive moats are concentrated in two areas.
The first is process technology barriers. Producing ultra-thin electronic fabric with uniform thickness, stable tension, and low dielectric loss requires extremely high-quality glass fiber yarn, precise weaving techniques, and advanced surface treatment technology. Even a micron-level defect in the fabric can render an entire copper-clad laminate (CCL) unusable. With over two decades of industry experience, the company has mastered key technologies like electronic-grade glass fiber yarn impregnation and ultra-thin fabric weaving. Its product yield rate consistently ranks among the industry's best. It is one of the few domestic companies capable of mass-producing 1067-grade ultra-thin electronic fabric and low-dielectric (Low Dk/Df) specialty electronic fabrics, positioning its technology to meet the material requirements of next-generation AI servers.
The second is customer certification barriers. Global leading CCL manufacturers impose extremely rigorous audits on their suppliers. The complete certification cycle, from sample testing and small-batch trial production to volume supply, can take 1-2 years. Once certified, to ensure product stability, customers are highly reluctant to switch suppliers. The company is now deeply embedded in the supply chains of global top-ten CCL leaders like Shengyi Technology, Kingboard Chemical, and Nan Ya Plastics. Its products indirectly reach the majority of AI server PCB manufacturers downstream, creating strong customer loyalty.
This embedded position is also the core reason it has been able to capture the benefits of price increases without losing market share. Within just half a year, prices for mainstream product grades have risen in five consecutive rounds, effectively doubling. Industry sentiment has hit a peak. Furthermore, not every company can produce high-end electronic fabric due to the high technical and customer certification barriers. The company holds contracts with leading global customers, and its production capacity and yield rate are in the top tier. Its first-quarter performance this year surged accordingly. With both a compelling narrative and strong earnings, the stock price naturally soared.
Analyzing the Underlying Risks
The 46-fold rally is essentially the result of a triple resonance: a cyclical upturn, AI-driven sentiment, and scarce production capacity. Correspondingly, however, are four layers of deeply intertwined risks related to valuation, capacity, the cycle, and capital operations. This situation cannot be summarized simply as "high valuation." Peeling back each risk layer reveals classic value traps common to cyclical stocks.
Valuation Trap: High price-to-earnings (P/E) ratios at the peak of a cycle are a most dangerous illusion. Most people's understanding of a 664x P/E ratio stops at a superficial judgment of "too expensive," overlooking a core logical principle: the valuation dynamics for strong cyclical products are the complete opposite of those for growth stocks. The peak of a boom cycle should theoretically feature the fattest profits and the lowest valuations. Currently, profits are just beginning to materialize, yet the valuation has already reached a historical extreme. This precisely indicates the stock price has already priced in multiple future rounds of earnings growth.
Applying this to the company, the concentration of this bubble likely exceeds most investors' perception. A cross-industry comparison within the supply chain is revealing. Shengyi Technology, a leading CCL manufacturer also in the AI computing materials chain, had a trailing-twelve-month (TTM) P/E ratio of 90.83x as of June 10. China Jushi, a leading fiberglass producer, had a TTM P/E of 41.23x around the same time. The company's 664x valuation is 6.5 times that of Shengyi Technology and 14 times that of China Jushi. The vast majority of this premium is fueled by sentiment bubbles in the AI sector, not something that can be justified by actual performance gaps.
Looking at historical industry norms, the reasonable valuation range for the electronic fabric industry during traditional cycles is approximately 30-50x P/E. Even during upward phases, leading companies' valuations rarely exceed 50x. The current 664x valuation is 15 to 30 times the historical normal range, completely detached from the typical pricing logic of manufacturing industries.
Assessing the challenge of valuation digestion: Assuming a long-term reasonable P/E for a cyclical stock is 30x, a market capitalization of around 206.8 billion yuan would require an annual net profit of approximately 6.9 billion yuan to support. Using the company's 2025 net profit attributable to shareholders of 202 million yuan as a base, it would need to maintain a 100% year-on-year net profit growth rate for five consecutive years to reach that target—a scenario with almost no possibility of realization in the highly cyclical electronic materials sector. Even under an optimistic full-year 2026 profit expectation of 600 million yuan, it would still require profits to more than double for over three consecutive years to approach the 6.9 billion yuan threshold, an extremely high hurdle.
In other words, the current stock price has already fully priced in an extremely optimistic scenario of "sustained high prosperity for several years and consecutive profit doubling." Should growth fall short of expectations, or even if the rate of increase merely slows, the valuation would inevitably revert towards the industry's 30-50x norm. The potential decline during this process could far exceed any fluctuation in the actual earnings.
Beyond valuation, other uncertainties loom. The company has announced plans to invest 8 billion yuan in capacity expansion and pursue a listing in Hong Kong, all while major shareholders are executing large-scale cash-outs. Can the 8-billion-yuan project proceed smoothly? Will the market be able to absorb the new capacity? Could a Hong Kong listing dilute equity and depress valuations? These are all unanswered questions. Coupled with the selling pressure from major shareholder减持 and the ever-present risk of a downturn in electronic fabric prices, the stock price at these elevated levels is already walking a tightrope.
Motivations Behind the Share Sale
What's more noteworthy is that this planned share sale, which could amount to 5.6 billion yuan based on the June 9 closing price, appears meticulously calculated at every step. It cannot be dismissed with a simple explanation of "funding needs."
First, the entities chosen are strategic. Instead of the controlling shareholder selling directly, two offshore entities acting in concert are being used. This allows for a massive cash-out while avoiding the stricter减持 regulations applicable to controlling shareholders, and even deflects the brunt of public criticism.
Second, the method is precise. One percent of the shares will be sold through centralized bidding (on the open market), following the standard public procedure. The remaining two percent will be sold via block trades, quietly transferring shares to institutional buyers. This minimizes the immediate impact on the share price while securing funds quickly. The total of 3%正好 hits the regulatory上限 for减持 within 90 days, demonstrating a masterful use of the rules.
Most telling is the timing. In May, the Chairman and the Board Secretary sold shares first, cashing out nearly 47 million yuan within two days, perfectly timing a阶段性 high. Barely a month later, the actual controller announced this 5.6-billion-yuan move. The sequence is tightly coordinated.
In essence, this is industrial capital making a precise exit at the peak of the cycle. Talk of "funding needs" is merely official rhetoric. The real calculation is to lock in profits and avoid the impending downturn in the cycle.
The Cyclical Reality
Ultimately, understanding the cyclical nature of electronic fabric is key to understanding the essence of this share sale. Electronic fabric is a classic strongly cyclical industry, perpetually trapped in the loop of "shortage leads to price hikes → frenzied capacity expansion → overcapacity leads to price cuts and valuation compression." This current round is fueled by AI-driven demand, but it does not change the industry's fundamental cyclical character.
Current doubled prices and industry-wide talk of shortages are due to短期产能跟不上. Once the new production lines that various companies are racing to build come online and the supply-demand gap closes, a price拐点 could arrive swiftly.
Industrial capital always has the deepest understanding of the industry. The actual controller's exit at the dual peak of both stock price and industry景气 is a vote cast with real money. Compared to the long-term promise of the AI story, cold hard cash in the pocket feels most secure.
For retail investors, getting hung up on whether the major shareholders' actions seem unseemly is not the point. The A-share market has no stocks that rise forever. Even the hottest sectors cannot defy the turning of the cyclical wheel. The applause is loudest at the peak, but those left holding the bag are often the ones standing at the very top.
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