The company announced its 23rd annual report and 24Q1 quarterly report, with 23 revenue of 7.93 billion yuan +0.6%, net profit of 670 million yuan -15.1%, net profit of 660 million yuan -12.2% year-on-year, gross margin of 20.7% yoy +2.6 pcts, and net margin of 8.5% yoy -2.5 pcts. The company plans to distribute a cash dividend of 1.9 yuan for every 10 shares. 24Q1 revenue of 2.39 billion yuan +36.1% /month-on-month +9.3%, net profit to mother of 210 million +67.7% month-on-month +144.8%, net profit of 210 million yuan after deducting net profit of 210 million yuan +81.1% month-on-month +163.8%. Gross profit margin 19.5% yoy -0.6pcts month-on-month, net profit margin 8.9% yoy +1.7pcts month-on-month +4.9pcts. Our review is as follows:

The pressure on the 23-year results was mainly due to weak demand and the decline in product prices due to increased competition. The profit side decline in '23 was mainly due to the fact that demand for consumer electronics remained weak in '23, demand in the PCB industry fell short of expectations, and product prices declined due to increased competition. The increase in gross margin stemmed from product structure optimization. There was a marked increase in products in the fields of servers, automobiles, new energy, industrial control, and medical care in 23 years. The decline in net interest was mainly due to an increase in the cost ratio of 2.4 pcts to 10.4% during the period. 23Q4 revenue of 2.19 billion yuan +14.0% month-on-month +5.5%, net profit of 90 million yuan -64.5% month-on-month; deducted non-return of 80 million yuan year-on-year -66.2%; gross profit margin 17.2% yoy -3.9 pcts month-on-month -6.8pcts, net profit margin 4.0% yoy -3.9 pcts month-on-month. Q4 Expense side: Sales/ Management/ R&D/ Finance cost rates were 2.1%/4.3%/2.5%/1.7%, respectively, +0.7/+0.4/-1.5/-1.3pcts.

In terms of servers, the company's products used in the Eagle/Birch Stream server field have all been industrialized. As the demand for AI computing power technology increases, the company continues to increase investment in R&D and has made major breakthroughs in the field of computing power and AI servers, such as multi-level HDI and high-layer products based on AI server acceleration modules. The company has achieved certification and industrialization of 5-tier 20-layer HDI products, and has accelerated the development and certification of next-generation high-end HDI products. Such products are widely used in various AI server fields. In the HPC field, the company has implemented batch operations for AIPC products and simultaneously carried out product certification for AI mobile phones. In the field of high-end data transmission, 1.6T optical modules have been tested; high-end SSDs have been industrialized. The company will continue to increase the layout research and development of products in the field of industrial robots and high-end artificial intelligence, keep up with the market, and lay out cutting-edge technology.

In terms of automotive electronics, the company is the world's largest TOP2 PCB supplier for electric vehicle customers, and sales are growing year by year; as of 2023, the company has introduced a number of world-class automotive Tier 1 customers (such as Bosch, Aptiv, Continental, Harman, UAES, etc.) to achieve small-batch industrialization of products; currently automotive products involve ordinary multi-layer, HDI, HLC, FPC, and Rigid-Flex, which are widely used in ECU, BMS, IPB, EPS, Safety PCBs for components such as airbags, inverters, OBC, and braking systems are also supplied with PCBs for headlights, intelligent driving ADAS, autonomous driving calculation modules (multi-stage HDI), body control modules (first-stage HDI), and three-electric systems for new energy vehicles; the company has continuously increased investment in research and development of new automotive technologies and materials, and has completed the introduction of automotive thick copper and embedded copper blocks.

The main reasons for the sharp year-on-year increase in 24Q1 revenue were 1) due to the merger of the PLS soft board business; 2) downstream demand was steadily improving, and the utilization rate of middle and high-end production capacity continued to increase. The main reasons for the sharp increase in profits: 1) the smooth introduction of new AI-related high-tier and HDI products, and the increase in proportion led to an increase in profitability; 2) PLS contributed to the increase in profit. In terms of cost ratio, sales/management/R&D/finance expenses ratio was 1.9%/4.0%/3.8%/0.5%, which was flat year-on-year level/+1.1/-1.0/ -2.5pcts, and Q1 exchange losses decreased.

Looking ahead to this year, the industry's boom will pick up marginally, and core customers of card computing power and automotive electronics expect flexible performance. In the short term, the company's consumer electronics business will gradually expand the visibility of orders from downstream consumer customers, driving a continuous recovery in capacity utilization. The proportion of high-layer and HDI product shipments will continue to increase, and profitability is expected to continue to improve. Looking at the medium to long term, in the field of computing power, the company's Eagle-level products have been mass-produced, and high-end HDI and high-speed high-layer boards used in AI servers have completed commercialization layout and customer certification. AI server acceleration cards and module cards are expected to be shipped and contributed to flexible performance this year; in terms of automotive electronics, the company is already the main supplier of PCBs for T customers and has imported many Tier 1 customers. The products cover autonomous driving, three batteries, body domain control, vehicle radar boards, etc., and the share of the acquisition of the subsidiary MFSS into the automotive board field continues to increase. On the other hand, high-margin shipments of new products continue to expand; demand in the consumer electronics sector is expected to show a steady, moderate, and positive trend this year. At the same time, in the future, the company will continue to accelerate the global layout of production capacity in Vietnam, Thailand, Malaysia and other places in line with the needs of leading international customers.

Maintain an “overweight” investment rating. Our latest forecast is that the company's 24-26 revenue is 111.0/127.7/14.43 billion, net profit to mother is 10.8/14.2/1.63 billion, the corresponding EPS is 1.25/1.65/1.89 yuan, and the corresponding PE is 20.9/15.9/13.8 times the current stock price. We believe that the company has been deeply involved in the PCB field for many years. In recent years, it has actively deployed fields such as AI computing power, new energy and new energy vehicles. The card position advantage for leading customers is obvious. Soft and hard boards work together to promote and accelerate overseas production capacity layout, are optimistic about the company's medium- to long-term production capacity expansion and product upgrade expectations, and maintain an “increase” investment rating.

Risk warning: Industry demand falls short of expectations; competition among peers intensifies; customer expansion falls short of expectations; risk of capacity absorption; risk of exchange rate fluctuations.