Key points of investment
2019 performance situation: Jiantao Laminated Board's 2019 revenue was 18.38 billion yuan (HK$, same below) (-11.0%), gross profit margin of 24.0% (-2.8pcts), and net profit of 2.4 billion yuan (-26.1%). Thanks to a recovery in demand for 19H2 copper-clad sheets, an increase in the company's capacity utilization rate, and a recovery in product prices, the company's revenue and net profit increased by 40.9% and 22.0%, respectively. The Board recommended a final dividend of HK30 cents per share and a special final dividend of 40 HK cents per share.
19H2 Industry demand warmed up, capacity utilization increased to 100%, and company performance rebounded markedly. In the first half of 2019, the industry was oversupplied, product prices were under pressure, and capacity utilization was insufficient. In the second half of the year, demand in various sectors such as communications, LED, home appliances, automobiles, and data centers picked up, and demand for copper-clad panels increased rapidly. The company shipped more than 10 million sheets/month in September-October, the capacity utilization rate was close to 100%, and prices rebounded.
At the same time, it is also driving up the prices of upstream raw materials. The company benefited from a vertically integrated business model and enjoyed the flexibility of performance brought about by upstream and downstream price increases. The company's H2 net profit increased 22% month-on-month.
Short-term public health events may temporarily suppress demand, but demand in many industries is expected to continue to pick up in the next two years, driving the prosperity of the copper-clad plate industry to rise. This year, industry demand may be temporarily suppressed due to public health events, but the general trend of 5G and new energy vehicles will not change. We believe that in the next two years, many industries will grow strongly, driving demand for PCBs and copper-clad boards. The company's production capacity is expected to remain high, and product prices are expected to rise. Furthermore, the company's market share is expected to increase due to the release of production capacity of some small manufacturers.
The price increase for upstream raw materials is likely to continue this year. Currently, electronic yarn production capacity is declining, and price recovery is expected to continue until the end of the year. Electronic copper foil production capacity may be squeezed by lithium battery copper foil, and product prices will rise. The company, on the other hand, is expected to continue to enjoy the double benefits of price increases for upstream raw materials and copper clad plates, and maintain high performance flexibility.
Investment advice: Raise the target price by 6.2% to HK$8.18 to maintain the “prudent increase in holdings” rating. The industry's recovery was better than our previous forecast. We raised the company's net profit for 2020-22 to HK$31.8/36.5/3.2 billion, EPS to HK$1.03/1.18/1.04, and BVPS to HK$6.29/6.54/6.75. The copper-clad plate industry is gradually picking up, giving 1.3 times the 2020 PB valuation, raising the company's target price to HK$8.18, an increase of 6.2%. There is room for a 14.1% increase from the closing price on March 31, 2020, maintaining the “prudent increase” rating.
Risk warning: 5G's driving effect on the industry falls short of expectations; upstream raw material prices fall; macroeconomic fluctuations