Incident: The company released first-quarter results, with revenue of 760 million, down 17% from the previous month and 9% from the previous year. It was mainly affected by the number of working days during the Spring Festival and the January epidemic. The loss in the first quarter was 7.8 million, which was narrower than the loss in the fourth quarter.
Upward cycle, gross profit recovery combined with expansion of production: Driven by the month-on-month improvement in demand for mobile phones, servers, and PCs in the second quarter, CCL demand and capacity utilization will recover somewhat. At the same time, according to our supply chain research, the current price of glass fiber cloth is at a historically low level, and is already lower than the cash costs of glass fiber cloth manufacturers, and inventory continues to accumulate. We believe glass fiber cloth prices are expected to re-enter an upward trajectory at the end of the second quarter or the beginning of the third quarter, driven by upstream production cuts, which will drive the upward trend in this cycle and the company's gross profit recovery. On the other hand, the company's production capacity is actively expanding. The production capacity of the second phase of Zhuhai will be released at 14.4 million sheets/year by the end of the year. At that time, the total production capacity will double compared to the end of 2021. We expect the company's CCL business revenue to reach 4.60 billion in 2024, and the full-year gross margin will return to near the historical average (about 15% at the center).
The new server/AI platform is driving a sharp rise in the volume and price of high-speed CCL: according to Prismark data, the total sales volume of high-speed CCL in 2021 was 90.2 million square meters. Along with the server platform upgrade, Eagle Stream and Genoa increased the number of PCB layers by 33% (12 layers to 16 layers) compared to the previous generation platform. At the same time, CCL demand gradually transitioned from M4 to M6. The unit price increased by 20-30%, and the corresponding CCL value increased by about 50-70%. At the same time, AI servers generally use 20-28 layer PCBs, and the requirements for CCL have further increased. On the other hand, we believe that the market still has poor expectations for the company's high-end product capabilities. At present, the company's high-speed products have been shipped in batches in the fields of servers and data centers. The product matrix covers Very/Ultra/Extreme Low Loss, etc. The proportion of the company's high-end product line shipments has reached 10% in 2022, and we expect the long-term company's high-speed CCL revenue to account for 30%, which will continue to drive the company's overall gross profit upward.
The ABF membrane market has considerable space: According to Prismark's preliminary data, the global ABF carrier board market will be around 40 billion yuan in 2022. At the same time, benefiting from AI, HPC and other applications, the ABF carrier board market will maintain rapid growth. On the other hand, as domestic ABF carrier board manufacturers such as Xingsen Technology, Shennan Circuit, and Zhuhai Yueya continue to expand production, the market share of domestic ABF manufacturers is expected to reach 20% in 2028 (only about 5% in '22), and domestic demand for upstream ABF films will also grow rapidly. We expect the domestic ABF membrane market space to exceed 1.5 billion yuan in 2028. As a leading domestic ABF film manufacturer, the company is expected to gain a certain market share in the face of urgent demand for domestic alternatives.
Valuation and suggestions: Currently, the 2024 valuation of comparable domestic semiconductor materials companies is about 35x-40x, while CCL companies are about 10-15x. We think 20x 2024PE is a reasonable valuation for the company. We expect the company's net profit for 2023/2024/2025 to be 0.55/366/566 million yuan respectively, corresponding to the target price of 52 yuan, maintaining a superior market rating.
Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Continued rise in copper prices impacts profitability; 4) Production capacity release falls short of expectations.