Asset restructuring divests inefficient assets, turning losses into profits in '23

“Yanzhong Industrial”, the predecessor of Fangzheng Technology, was founded in 1984 and issued shares in 1985. It was the first batch of listed joint stock companies in China, and the company's PCB business ranked 50th in the world.

The restructuring of the company was completed on December 26, 2022. Prior to the asset restructuring, the company had related businesses such as IT system integration and Internet access. Affected by multiple factors, the company lost two businesses year after year. The company resolved the financial crisis by divesting these two businesses. After the asset restructuring, the Zhuhai State-owned Assets Administration Commission became the actual controller of Fangzheng Technology. The company divested inefficient assets and focused on the high-end PCB market. The company's downstream manufacturers in the PCB market include consumer electronics, 5G communications and automotive electronics related manufacturers.

The return of Huawei's 5G phones is driving demand for consumer electronics, and the high-end HDI boom is increasing

According to research data from Qunzhi Consulting, global smartphone shipments in 2023 were about 1.11 billion units, a year-on-year decline of 3.9%. The decline narrowed to a low single-digit percentage and initially emerged from the middle of winter. The launch of popular products such as the Huawei Mate 60 and Xiaomi 14 has strongly stimulated demand in the consumer electronics market. According to the company's response in the September 13, 2023 institutional survey, the company is a PCB supplier for many top mobile phone customers, benefiting from increased consumer electronics sales.

According to investor relations activity records, the company has deployed a number of HDI and ANY-layer HDI products. In order to enhance the company's competitiveness, improve the industrial layout, and meet the order needs of various customers, the company invested in the construction of the second phase of the high-end HDI project of the Zhuhai Fangzheng PCB High-end Intelligent Industrial Base. At the same time, make full use of the F7 factory and existing plant to expand production capacity, build the F7 factory's full-process self-production capacity for high-end HDI products, increase output efficiency, and accept orders from high-density high-grade HDI spillover customers and products in Zhuhai.

AI drives computing power demand, high-end PCB deep benefits

Chat GPT - large model - increased computing power demand - training Nvidia server - mother of electronic components - PCB

Chat GPT evolved from an AI model that mainly generates text to a multi-modal model that can process speech and images. In the context of large models, the demand for computing power increases due to an increase in the number of parameters, a larger amount of data, and a complex structure. Increased demand for computing power has increased the demand for trainable AI servers. The demand and price of PCBs as carriers for electronic components has also increased accordingly.

The company is based in the field of high-end PCBs, and is based on businesses in the fields of communication equipment, service storage and consumer electronics, and is accelerating the expansion of market share in the fields of optical modules and digital energy. Major breakthroughs have been made in the number of layers, technology, and materials to meet the high bandwidth and high throughput requirements of AI and HPC.

Investment advice

We expect the company's revenue in 2023-2025 to be 3.481/40.40/4.982 billion yuan, net profit to mother of 134/3.73/709 million yuan, EPS of 0.03/0.09/0.17 yuan, closing price of 2.17 yuan on February 2, 2024, corresponding PE 67.75 /24.26/12.76 times, and the first coverage will give the company an “increase in wealth” rating.

Risk warning

Downstream demand falls short of expectations risk: the company's downstream consumer electronics account for a relatively high proportion. If consumption is not continuously repaired, customer demand may fall short of expectations;

Production capacity release falls short of expectations: There is a risk that the company's F7 Phase II and Thailand project progress will fall short of expectations, which may cause the company's ability to take orders insufficient;

Risk of fluctuations in raw material prices: Fluctuations in the prices of raw materials such as upstream copper will significantly affect the company's profit level.