Company: copper clad laminate market share first, with upstream copper foil self-supply capacity. At present, about 70% of the company's revenue comes from copper clad laminate sales, with upstream raw material sales accounting for 12.4% and property and other sales accounting for 13.7%. The company has epoxy glass fiber copper clad laminate and fireproof paper copper clad laminate products horizontally, and vertically has upstream materials such as copper foil for self-supply. The industry has obvious periodic attributes.
Industrial chain: the group has obvious cost advantage of vertical integration and strong profitability. Kingboard Group, the parent company, has almost all the core raw material R & D and production capacity needed for CCL manufacturing. Benefiting from this, the company has a significant cost advantage. In the industry upward cycle, the company's leading competitors' cost control advantage can effectively improve the company's profitability. In the industry downward cycle, the company's cost control ability can help the company effectively resist market risks, and even take advantage of the opportunity to increase market share.
Upstream: the price of raw materials shows a rising trend, helping the company to continue to benefit from profits. The company focuses on copper clad laminate related business, copper foil and other raw materials as the main cost. Reviewing the history, copper clad laminate companies benefit from upstream price increases, copper clad laminate leader bargaining power comes from high concentration, and the rigid CCL CR10 74% is much larger than the downstream PCB CR1032%. The upsurge of new energy vehicles has brought demand for copper foil for lithium batteries, and the supply of copper foil production capacity of copper clad laminate has been tightened. The demand for lithium battery keeps growing at a high speed, and the price increase of copper clad laminate and copper foil under capacity squeeze is a long-term trend. We believe that leading copper clad laminate companies such as Jiantao laminates may continue to benefit from upstream price increases.
Downstream: in the long run, PCB is expected to be booming. With the gradual release of domestic PCB production capacity in 17-18 years, but the demand side except the communication board is relatively dull as a whole, and the prosperity of the industry shows a downward trend. We believe that with the new round of innovation cycle brought about by 5G, industry demand is expected to stabilize and rise, while the domestic economy is expected to gradually recover, which will effectively increase the demand for PCB such as automotive electronics and home appliances. At that time, the industry will usher in a new round of high business cycle.
Profit forecast and investment advice. We expect the company to achieve net profit of HK $26.61,34.22 and HK $4.24 billion respectively from 2019 to 2021, with year-on-year growth rates of-18.13%, 28.59% and 23.90%, respectively, and HK $0.86,1.11 and HK $1.38 per share, respectively. We give 2019 12.5-13.5X PE, corresponding to a reasonable value range of HK $10.75-11.61 per share, covering for the first time and giving it a better rating than the big market.
Risk tips: macroeconomic downturn, mobile phones, automotive electronics and other downstream demand dropped significantly.