Investment logic

Vertical focus, copper foil is the key to determine the future. Chaohua Technology is mainly engaged in PCB/CCL/ copper foil and other products, with a current production capacity of 120,000 tons of copper foil, 1200 million sheets of copper clad laminate and 7.4 million square meters of PCB. Recently, it reserves new production capacity in a variety of ways: 1) fixed increase It is proposed to invest 650 million yuan (to raise 560 million yuan) in the "construction project of printed circuit boards (including FPC) with an annual output of 1.2 million square meters", to invest 380 million yuan (to raise 320 million yuan) in the "annual production of 6 million high-end core boards", and to raise 80 million yuan to supplement liquidity. 2) self-financing, including the second phase of 8000 tons of copper foil (which will be put into production in May 20), the construction of an electronic information industry base (including 20,000 tons of high-precision copper foil per year and 2000 million pieces of high-frequency and high-speed copper clad laminates per year). Taken together, the company's capacity reserves are 28,000 tons / year of copper foil (an increase of 23.3% over the end of 19), 2600 pieces of copper clad laminate per year (216%) and 1.2 million square meters of copper foil per year (16%). It can be seen that there is a greater tendency to invest in copper foil, coupled with the fact that copper foil is the company's main profit-making business, we believe that copper foil is the key to the company's future development.

PCB copper foil is expected to meet the high boom, lithium copper foil has structural opportunities. We judge the future: 1) the demand for 5G/IDC downstream of PCB copper foil is highly deterministic and it is expected that consumer electronics products will rebound compensatively after the epidemic, coupled with the conservative expansion of PCB copper foil, so we judge that PCB copper foil will usher in a business cycle. 2) under the support of favorable domestic policies, European environmental protection and other factors, the accelerated infiltration of new energy vehicles will be the general trend. In view of the fact that the future demand for 6um lithium copper foil will increase greatly and the production capacity is limited, we believe that there are structural opportunities for lithium copper foil after the demand for new energy vehicles picks up.

Deep ploughing PCB copper foil + high-precision lithium foil cutting edge, in line with the growth of 66% in the next three years. In the context of rising industry demand, we think the company will benefit because: 1) the overall upward cycle of PCB copper foil will provide the opportunity for the company to increase the price and profit of its copper foil products; 2) the company has laid out 5G/IDC copper foil for high frequency and high speed, and has approached Taiwan manufacturers, and the company is expected to benefit from the 5G/IDC volume trend. 3) the company has 6um lithium copper foil production capacity, after the demand for new energy vehicles picks up, the structural shortage is expected to bring the company the opportunity to cut into high-precision lithium copper foil; 4) driven by the copper foil business, the company's CCL and PCB business is also expected to usher in stable growth opportunities.

Investment suggestion

We estimate that the company's net profit in 1922 is 47.71 million yuan, 134 million yuan, 182 million yuan and 219 million yuan. Based on the 20-year net profit and the valuation level of 66% and 0.75 times the compound growth rate in 1922, the corresponding market capitalization is 6.66 billion yuan and the corresponding stock price is 7.1yuan, covering "buy" for the first time.

Risk

Downstream demand is lower than expected; the company's production expansion plan can not be implemented or can not be implemented as scheduled; pending litigation leads to higher-than-expected non-operating expenses and cash outflow; the pledge rate of the first three major shareholders is high or cause high stock price volatility.