The company released its 2023 annual report. Affected by the decline in industry sentiment, the overall performance for 23 years was poor. However, there are signs of recovery in the fourth quarter. I am optimistic that the company will release elasticity and maintain the buying rating as the economy rises and production capacity expands.

Key points to support ratings

The company's overall performance in '23 was poor, but there are signs of recovery in 23Q4. The company achieved revenue of 3.273 billion yuan for the full year of 2023, a year-on-year decrease of 7.40%, and realized net profit of -25 million yuan, a year-on-year decrease of 107.99%, and realized deduction of non-net profit of -44 million yuan, a year-on-year decrease of 115.98%. Looking at a single quarter, the company achieved revenue of 882 million yuan in 23Q4, +2.67%/month-on-month +9.14%, realized net profit to mother of -0.07 billion yuan, -109.54%/narrowing month-on-month loss, and realized deduction of non-net profit of -16 million yuan, or -136.39%/month-on-month loss narrowing. In terms of profitability, the company's gross profit margin in 2023 was 14.56%, a year-on-year decrease of 9.29pcts, and a year-on-year net profit margin of -0.76%, a year-on-year decrease of 9.62 pcts. Looking at a single quarter, the company's 2023Q4 gross profit margin was 10.07%, -13.91 pcts/month-on-month -4.10pcts, and net profit margin -0.83%, and -9.8pcts year-on-year. The above changes are mainly due to: 1) the decline in demand from some major customers, compounding the decline in product prices in the communications sector; 2) the fourth phase of the project is in the production phase, the overall production capacity is underutilized, and the unit cost of the product is high, which has led to a decrease in the gross margin of the product; 3) the company's gross profit has declined sharply, leading to a sharp decline in the company's gross profit.

The main PCB business structure continues to be optimized, and orders from key customers have increased. In 2023, the company sold 1,264,200 square meters of printed circuit boards, an increase of 12.36% over the previous year. Facing market challenges, the company actively adjusts the order structure to explore new customers and markets, especially in applications such as NEV electronics and servers, to seize development opportunities.

By optimizing product layout and passing important contract qualification reviews, the company has achieved continuous development in the aerospace and defense fields. The company's core customer orders in the AI server field are gradually increasing, and the customer matrix in the automotive electronics field continues to be enriched. Server and automotive electronics orders increased compared to the same period last year. In 2023, the share of server product orders increased to 24%, and the share of automotive electronics orders increased to 17%, an increase of 6 pcts over the previous year.

The PCB industry is under pressure in the short term, and the Dongcheng Phase IV project and international expansion have added new growth impetus to the company. According to Prismark data, global PCB market output decreased 15% year over year to US$69.517 billion in 2023. The Dongcheng Phase IV project uses an intelligent chemical factory design concept, which is expected to improve the company's production efficiency and product quality.

Furthermore, the construction of a new production base in Thailand and the promotion of the Ji'an Phase II project can also lay the foundation for the company's international expansion and production capacity increase.

valuations

Despite pressure on the company's short-term performance, considering that the boom in the AI and server sector has entered an upward range in 24 years, the company has continuously promoted product structure optimization, and performance has shown an improving trend. We expect the company to achieve revenue of 36.93/42.274/4.919 billion yuan in 2024/2025/2026, and realized net profit of 222/3.53/481 million yuan respectively, corresponding to 2024-2026 PE of 34.4/21.6/15.9 times, respectively. Maintain a buy rating.

The main risks faced by ratings

Market development falls short of expectations, industry recovery falls short of expectations, market competition intensifies, and capacity utilization falls short of expectations.