Event: The company released fourth-quarter results, with revenue of 864 million yuan, down 6%/5% month-on-month. On the profit side, as upstream recovery was slower than expected, product prices were under pressure, gross margin fell 7 percentage points month-on-month, and profit-side losses increased to 90 million yuan. The overall operating conditions were in line with the pre-disclosure of performance.

The bottom of the CCL industry has reappeared, and focus on the 1H24 recovery: the CCL industry still faces significant oversupply in 4Q23. We believe that price competition pressure has further reduced the profitability of the industry compared to 3Q23. However, our supply chain research shows that the capacity utilization rate of first-line PCB manufacturers recovered to 80% in 1Q24, while the capacity utilization rate of domestic CCL manufacturers also recovered to more than 80% at the same time. Looking ahead, Prismark predicts that the size of the PCB market will grow 4% in 2024, and we expect both PCB and CCL capacity utilization to continue to recover moderately in 2Q/3Q24. On the other hand, LME copper has risen 9% since January, and CCL vendors are actively negotiating with PCB manufacturers to transfer cost pressure. KB announced a $10 price increase for all product lines in March. Our research shows that the remaining CCL vendors may gradually increase prices by about 3-5% for small to medium customers/large customers in April/May. At the same time, we believe that the price increase will have a positive impact on the gross margin of CCL manufacturers, because a 10% increase in copper prices only means a 2-3% increase in CCL costs.

AI-driven industry growth and CCL structure upgrade: As the US continues to introduce restrictions on domestic computing power chip acquisition, we believe that the domestic AI computing power chip industry chain will present great opportunities and significantly drive demand for high-speed CCL. The company disclosed that it has cooperated with leading terminal customers in the field of AI servers in China to develop Ultra low loss grade materials, and has now completed testing and certification. At the same time, high-speed materials used in the next PCIe 6.0 platform servers have been laid out in advance. The corresponding materials have good test feedback on PCIe and terminal customers. At the same time, the company has developed various types of high-speed materials with low CTE and low loss, which can meet the application scenario requirements of high-computing power large-size chips, and have been tested, certified, and supplied with some products in many well-known terminals.

Valuation and recommendations: We will roll the valuation level to 2025 and maintain a forward valuation of 20x. We expect the company's net profit for 2024/2025 to be 0.68/225 million yuan respectively, corresponding to a target price of 32 yuan, maintaining a superior market rating.

Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Continued rise in copper prices impacts profitability; 4) Production capacity release falls short of expectations.