Established PCB companies continue to enhance their core competitiveness. Bomin Electronics was founded in 1994. Currently, the company has its own PCB business as the core, and is continuously expanding horizontally to PCBA mounting, electronic circuit assembly, electronic device development, etc.; product depth has been continuously increased vertically. Currently, a new model of main business+innovative business (PCB+) has been formed, increasing the company's core competitive advantage and consolidating the long-term growth curve. In terms of performance, in 2022, due to the impact of factors exceeding expectations at home and abroad, prices of commodities and energy products fluctuated greatly, leading to a decline in downstream PC and smartphone demand, and the PCB industry was impacted to a certain extent, causing the company's performance to be affected to a certain extent.

PCB: Upstream and downstream are improving at the same time. PCBs can connect electronic components to each other, play the role of relay transmission, support for electronic components, and are known as the “mother of electronic products”. Currently, the size of the industry has grown from 41.6 billion US dollars in 2000 to 80.9 billion US dollars in 2021, while mainland China dominates the world PCB industry with a market share of more than 50%. Looking at upstream materials, copper, resin, and glass fiber cloth account for about 26.19% of the total cost of PCBs. Currently, according to Wind data, the prices of related raw materials have all declined to a certain extent after experiencing a sharp rise. Judging from downstream demand: demand continues to be strong in various fields such as server upgrades to PCIe 5.0 and the electrification of smart cars, and it is expected that volume and price will rise sharply in core areas in the future.

Ceramic substrates: With a space of 10 billion dollars, AMB's growth rate is impressive. Currently, with its advantages such as excellent thermal performance, microwave performance, mechanical properties, and high reliability, ceramic substrates are more suited to the development direction of electronic packaging technology towards miniaturization, high density, multiple power, and high reliability compared to other substrates. The global market for ceramic substrates was approximately $7.02 billion in 2021 and is expected to reach $12.03 billion in 2028, with a CAGR of 8.0% during this period. Among them, compared to mainstream DBC processes, the AMB process has higher bonding strength and is more resistant to high temperatures. Currently, voltage levels in downstream fields such as automobiles and high-speed rail are constantly improving. Because of their stability and high temperature resistance properties, AMB substrates are more suited to high temperature and high voltage working environments, we think they are expected to become the mainstream ceramic substrate process in the future. According to Bomin's electronic announcement, the global AMB substrate scale was about 400 million US dollars in 2020, and is expected to increase to 1.60 billion US dollars in 2026. CAGR was 25.99% during this period, far greater than the future compound growth rate of ceramic substrates.

AMB is actively reserving production capacity, and is expected to achieve a monthly production capacity of 120,000 to 150,000 tablets by the end of 2023. According to the company announcement, as of October 2022, the company's AMB production capacity reached 80,000 pieces/month. Currently, as demand for SiC continues to increase in the high-power sector, the amount of AMB used for bicycles is about 1 to 3 pieces. If calculated based on 1 bicycle, the company's monthly production capacity corresponds to only 80,000 new energy vehicles, and the gap between supply and demand is still large. According to the company announcement, in the future, the company plans to systematize the PCB production capacity at the rear end of the Shenzhen factory. After completion, it will become a production base for PCB new energy special boards and ceramic liners. The company expects AMB production capacity to reach 120,000 to 150,000 pieces/month by the end of 2023, and the Hefei project is expected to achieve an AMB substrate production capacity of 300,000 pieces/month after delivery.

Performance forecasts and investment recommendations: We expect Bomin Electronics' 202E/2023E/2024E to achieve revenue of 27.12/36.09/4,499 million respectively, and net profit of 0.99/3.50/464 million respectively, corresponding to the current stock price valuation of 72.2/20.4/15.4x. Compared with the industry average, it has a valuation advantage over the industry average. It is covered for the first time, giving a “buy” rating.

Risk warning: downstream demand falls short of expectations, upstream raw material prices fluctuate, new product expansion falls short of expectations, and capacity expansion falls short of expectations.