1.85 Billion Yuan Expansion Targets Advanced Packaging

Kaifa Technology (000021.SZ) said in an announcement on the evening of September 9 that its wholly owned subsidiary Payton Technology plans to expand its high-end memory chip packaging and testing capacity. The two subprojects will require a total investment of 1.85 billion yuan and are both scheduled for completion in December 2028.

About 1.22 billion yuan will fund the establishment of a wholly owned subsidiary and construction of a new plant. Once completed, the project is expected to support conventional packaging and testing capacity of 90,000 wafers per month and 2.5D advanced packaging capacity of 10,000 wafers per month. The company will fund about 52.5% of the project itself, with the remainder covered through borrowings or bank loans. The estimated pre-tax payback period is 12.01 years.

A further 630 million yuan will be used to build a 2.5D/3DS advanced packaging R&D line, including the refurbishment of roughly 2,600 square meters of plant space and the purchase of process equipment. The project will add about 52 pieces or sets of process equipment and will be funded entirely by the company. At full capacity, it is expected to add monthly advanced packaging capacity of 100 wafers each for 2.5D and 3DS.

Kaifa said the investment is intended to capture advanced packaging opportunities created by growth in the AI industry, meet the needs of strategic customers, overcome key technical hurdles in advanced packaging, and address existing capacity constraints.

Memory Business Posts Limited Revenue Growth

Founded in 2004, Payton Technology primarily provides packaging and testing services for high-end memory chips, including DRAM and NAND Flash.

According to Kaifa’s first-half 2026 report, the company generated revenue of 8.278 billion yuan, up 6.96% year on year. Net profit attributable to shareholders of the listed company rose 20.28% to 543 million yuan.

By segment, the memory semiconductor business generated 2.138 billion yuan in first-half revenue, up 1.83% year on year and accounting for about 25.83% of total revenue. Operating costs fell 8.96%, while gross margin increased 9.16 percentage points from a year earlier to 22.72%. The business showed limited revenue growth but a recovery in profitability.

High-end manufacturing remained the company’s largest revenue source, generating 4.722 billion yuan in the first half, up 20.78% year on year and accounting for about 57.05% of total revenue. Revenue from smart metering terminals fell 19.18% to 1.357 billion yuan, reducing its share to about 16.39%.

Kaifa’s expansion is focused on memory and advanced packaging, but its current growth is still driven primarily by the high-end manufacturing business, according to its first-half report.

Long Expansion Timeline Adds Industry-Cycle Uncertainty

The development of AI chips, HBM and high-performance memory products continues to drive demand for advanced packaging technologies such as 2.5D, 3D and Chiplet. As chips incorporate more stacked layers and larger interposers, packaging requires more sophisticated processes, greater equipment investment and larger-scale capacity.

However, neither of Kaifa’s expansion projects is scheduled for completion until December 2028, more than two years away. The new plant has an estimated pre-tax payback period of 12.01 years, while the 2.5D/3DS R&D line is a strategic investment. The company said its benefits will mainly come through technology development and stronger core competitiveness, rather than direct economic returns.

The memory industry is highly cyclical. Capital spending and capacity expansions undertaken during an upswing may come online at the same time several years later, affecting product prices and corporate earnings. Returns on this investment will therefore depend on whether AI demand persists when the projects are completed, whether advanced packaging orders meet expectations, and how quickly global memory capacity comes online.

Cash Flow and Financing Pressures Warrant Attention

Kaifa’s first-half 2026 report showed that net cash generated from operating activities fell 91.90% year on year to about 118 million yuan.

At the end of the second quarter of 2026, the company held about 10.935 billion yuan in cash and cash equivalents. Short-term borrowings had risen sharply to roughly 8.871 billion yuan from 5.333 billion yuan at the end of the previous year. Inventories increased to about 3.522 billion yuan from 2.428 billion yuan. The company attributed the inventory increase mainly to tight supplies of electronic components and additional stockpiling to meet demand from certain major customers.

The company currently has the financial resources to move forward with the projects, but the expansion requires substantial investment and has a long payback period. It must also contend with rising short-term borrowings and declining operating cash flow.

Betting at the Top of the Cycle on Demand in 2028

Kaifa’s expansion is essentially an effort to secure future capacity ahead of time as AI drives growth in advanced packaging demand. Once the projects are completed, the company could strengthen its high-end memory chip packaging and testing capabilities, expand its 2.5D/3DS advanced packaging capacity, and improve its ability to serve strategic customers.

However, if the memory industry enters a downturn, or if AI demand, customer orders or equipment utilization fall short of expectations, the projects could face higher depreciation, pressure on earnings and a longer payback period. Kaifa also warned in its announcement that the projects have a lengthy return cycle and that changes in the industry cycle could adversely affect returns.