Matters:
The company released its report for the third quarter of 2023:
The first three quarters of 2023 achieved revenue of 3,349 billion yuan (YoY +0.18%), gross profit margin of 20.09% (YoY +3.72 pcT), net profit of 374 million yuan (YoY +25.60%), net profit of 374 million yuan (YoY +25.60%), and deducted non-net profit of 366 million yuan (YoY +22.84%).
Looking at a single quarter, Q3 in 2023 achieved revenue of 1,198 billion yuan (YoY +5.01%, QoQ +5.48%), gross profit margin of 24.53% (YoY +5.61pct, QoQ +8.19pct), net profit of 178 million yuan (YoY +8.42%, QoQ +47.59%), and net profit of 174 million yuan (YoY +7.63%, QoQ +47.03%).
Commentary:
Increased utilization rate, product structure optimization, and exchange rate impact 23Q3 performance exceeded expectations. The revenue side of 23Q3 companies increased slightly by 5.01% to 1,198 billion yuan, mainly due to downstream recovery and an increase in the operating rate of companies. Profit side 23Q3 accounts for net profit of 178 million yuan (YoY +8.42%, QoQ +47.59%), mainly due to the following three factors: (1) increased utilization rate, increased revenue (2) increased share of high value-added products, increased average unit price of products, and further increase in the company's gross margin (3) the company's overseas sales accounted for a relatively high share, and most of the revenue was settled in US dollars. The decline in the exchange rate of the RMB against the US dollar made a positive contribution.
The automotive & digital communication business is driven by two wheels, and the company can be expected to grow. The long-term development trend of new energy vehicles has been determined. The intelligent electrification has led to an increase in the share of automotive electronics, and has driven the volume and price of automotive PCBs to rise. The company laid out the automotive PCB business in 2010 and established cooperative relationships with leading customers including Tesla, Volkswagen, BMW, Luminar, and HL-KleMove (Korea Autonomous Driving Solution Provider). The company has a remarkable first-mover advantage in the automotive business. The application and development of artificial intelligence automatic content generation technology represented by ChatGPT is inseparable from huge computing power support, and high computing power requirements place higher demands on the material, number of layers, and processing technology of PCBs. According to Prismark's forecast, the annual production value of server/storage PCBs in 2027 will reach US$14.201 billion, and the compound growth rate from 2022-2027 will reach 7.6%, ranking first in the growth rate of major downstream applications. In terms of new fields such as AI, the company has carried out technical exchanges and new product verification with some domestic and foreign first-tier brand customers. Among them, high-multi-layer ultra-low loss server PCBs in cloud data centers have achieved mass production of 24-layer ultra-low loss servers and 5G communication PCBs. 28-layer products also already have manufacturing capacity, and have applied precision HDI, traditional high-layer mixed compression technology, and ultra-accurate interlayer alignment deviation control technology, high-precision back drilling technology, high-frequency signal characteristics, and loss control technology.
Profit forecasts and investment advice. The company is of high quality and has maintained steady growth over a long period of time. The company has broad development prospects in the context of the development of the automotive & digital PCB industry. Affected by the poor development of automotive PCBs, etc., we lowered our 2023-2025 net profit forecast to 5.18/613.7 billion yuan (original value: 5.18/6.59/812 million yuan). Referring to the valuation situation of comparable companies such as Shanghai Electric Power and Shennan Circuit, we gave the company a price-earnings ratio of 23 times in 2023, with a target price of 22 yuan, maintaining a “push” rating.
Risk warning: raw material prices are rising, exchange rates fluctuate, and downstream demand falls short of expectations.