Key points of investment
The sharp rise in volume and price of copper-clad panels contributed to 21H1 profit growth of more than 300% year-on-year. The company's 21H1 revenue was 13.9 billion (HKD, same below) (yoy +105%), and net profit of 3.4 billion (yoy +358%), consistent with the earnings forecast announcement (net profit increased 330-380% year-on-year). It mainly benefited from the sharp rise in volume and price of the copper-clad panel business, and the gross margin of the copper-clad panel division (including material export sales) reached 34% (yoy+12ppts, qoq+4ppts). Business distribution: fiberglass coated sheet revenue of 10 billion (yoy +133%), shipment of about 52 million sheets (yoy +40%), unit price of HK$190 (yoy +66%); revenue of paper-based copper clad sheets of 1.6 billion (yoy +75%), shipment of about 11.6 million sheets (yoy +6%), unit price of HK$134 million (YOY +66%); upstream materials revenue of 1.7 billion (YOY +86%), of which copper foil/glass wire/epoxy revenue was 1.1 billion/300 million/200 million/200 million/200 million/200 million The sharp rise in prices made up for the reduction in the proportion of outbound sales.
The structure of copper-clad plate products continues to be optimized, and it is planned to expand production by 26% from 20 to 24. Currently, the company has a production capacity of 8.2 million copper-coated sheets per month, a production capacity of 3 million sheets/month for paper-based copper-coated sheets, and continuously optimized the product structure. 21H1 high-value products such as lead-free and halogen-free products account for 27% of sales (yoy+12ppts), mainly for export sheets with higher environmental requirements, especially European standard automotive panels, which are 10-20% higher than the unit price of traditional copper-clad panels; products with a high leakage coefficient account for 10% (yoy+4ppts), mainly for wind power equipment, etc., and benefit from a 10% higher price of thin sheets than traditional copper clad plates; Portable devices and LED panels As an increase, the number of copies shipped in a single month in June reached 1.06 million (last year's average of 600,000 sheets/month). The company is also actively expanding high-frequency high-speed boards. Customer certification in the communications and automotive fields is progressing steadily, and product structure optimization is expected to drive a continuous increase in profits. In terms of capacity expansion, in the second half of the year, the production capacity of glass fiber-coated copper clad sheets in Shaoguan, Guangdong increased by 800,000 sheets/month, which is expected to bring in 2.53 billion dollars/year in revenue (a total of 1.2 million sheets/month). At the same time, the company adjusted the production capacity of 900,000 sheets/month of paper-based copper-coated sheets to glass fiber to fill the domestic production capacity gap of cost-effective glass fiber-coated copper sheets, fully benefiting from the tight supply of copper-coated plates at all levels. In the long run, the company plans to increase production capacity of 1 million copper-coated panels per month in 2023 and 2024, respectively.
Production of upstream materials has been greatly expanded to meet the strong demand for copper-coated plates, and the advantages of vertical integration have been highlighted. With the exception of copper-clad panels, upstream materials have surplus production capacity and demand for export sales is strong. Copper foil is planned to expand production by 1,800 tons/month by 22H1, contributing 1,72.2 billion yuan to annual revenue. Processing costs of about 40,000 yuan/ton remain high (about 2-3 million yuan/ton in 2020), driving performance growth. It is expected that production will expand by 1,500 tons/month in 23-24. Glass wire plans to increase production capacity by 4,000 tons/month in '22, corresponding to annual revenue of 700 million. The second phase is expected to expand by another 4,000 tons/month in '23. Glass cloth is expected to increase production capacity by 13 million meters/month on 22H1, contributing 1 to 1.4 billion annual revenue, and is expected to expand by another 1,400 tons/month in 23. Epoxy resin increased production capacity by 1,000 tons/month, contributing 4-5 billion dollars in revenue. It is expected to expand by another 1,500 tons/month in '22 and 8,000 tons/month in '24.
Investment advice: As a leading manufacturer of integrated supply of copper-clad plates, demand has led to a sharp rise in volume and price in all sectors. We forecast the company's net profit of HK$71/67 billion for 21/22. Based on the highest 10-fold PE (TTM) in the previous cycle, we gave the company 9 times the 2021 PE valuation and gave the company a target price of HK$20.44, maintaining the “prudent increase” rating.
Risk warning: production capacity climbs less than expected; prices of upstream raw materials fall; macroeconomic fluctuations