The company issued a profit warning and expects 1H19 net profit to fall 30-40 per cent year-on-year. On July 8, Jiantao laminate issued a profit warning announcement, which expects book net profit and basic net profit for the six months ended June 30, 2019 to fall by 30-40% compared with the same period in 2018. The main reason is that the market is in short supply in the same period last year, and the unit price base of product sales is relatively high, while the gap between supply and demand narrowed in the first half of this year, and the unit prices of some products fell.
Demand for CCL did not improve, and prices of raw materials and CCL fell. Copper clad Laminate is located in the upstream of PCB industry, while PCB industry is the upstream of many electronic industries, including computer, communications, consumer electronics, automotive, industrial and medical industries. Dragged down by the slowdown in many areas, the overall growth rate of the PCB industry slows down and is at the bottom of the industry cycle. In addition, the price of glass fiber and other raw materials fell, causing greater pressure on the company's profits.
In the long run, driven by 5G, the relationship between supply and demand in copper clad laminate industry is expected to improve. We believe that driven by 5G construction, the communications industry, consumer electronics industry and automotive industry will return to growth, driven by a number of downstream industries, the PCB industry is expected to usher in prosperity. In turn, it will improve the relationship between supply and demand in the copper clad laminate industry, and product prices and profit margins are expected to pick up.
Investment advice: lower the target price by 2.5% to HK $7.7, maintaining the "prudent overweight" rating. The company's earnings police exceeded our cautious expectations, so we lowered the company's annual net profit for 2019-20-21 to HK $20.1 billion, an adjustment of-21%, 9%, 10%. We estimate that the company's EPS for 2019-20-21 will be HK $0.747, 0.976, and HK $0.828 for BVPS, 5.90, and 6.50, 6.84, respectively. Still at 1.3 times 2019 PB valuation, the company lowered its target price to HK $7.7, or 2.5 per cent, maintaining a "prudent overweight" rating.
Risk hint: the pull effect of 5G on the industry is not as expected, the price of upstream raw materials falls, and macroeconomic fluctuations.