1Q24's net profit recovered significantly year-on-year, and continued to benefit from the server and AI terminal upgrades of Pengding 1Q24's revenue of 6.687 billion yuan (YoY: 0.3%, QoQ: -42.41%), net profit to mother of 497 million yuan (YoY: 18.8%, QoQ: -65.53%), after deducting 504 million yuan (YoY: 24.8%). IDC data shows that Q1 Apple phone sales fell 9.6% year on year, but the company showed performance resilience. We think it was mainly due to 1) the increase in new products, impressive share, and low customer supply chain inventory; 2) the year-on-year decline in financial expenses, and the net interest rate was +1.16 pct year over year. Looking forward to the future, consumer demand will gradually recover, and new products such as AI mobile phones/AI PCs/folding screens will drive high-density board upgrades, and the company's basic market is expected to resume growth; at the same time, the company's improved product technology standards in the automotive and server fields will become a new growth pole.

Maintain Peng Ding's 24/25/26 EPS forecast of 1.56/1.80/2.05 yuan. The company is leading in global deployment, and AI terminal innovation is expected to drive a sharp rise in the volume and price of the company's products, giving it an expected PE of 18x in 24 (comparable Wind consistent expected average: 15.8x), maintaining the target price of 28.1 yuan, and reaffirming the purchase rating.

Gross margin declined slightly year on year, and a sharp decrease in financial expenses led to a year-on-year increase in net profit margin of 20.37% in 1Q24, -0.53 pct year on year, -2.82 pct month on month; net margin was 7.44%, +1.16 pct year on year, and -4.99 pct month on month. At the operating level, the cost ratio was -2.47pct to 9.97% year-on-year during the 1Q24 period. Among them, the financial expense ratio was -4.15 pct to -2.54% year on year, mainly due to an increase in interest income and exchange income; the R&D expense ratio increased 1.55 pct to 7.56% year over year, mainly due to the company's increased investment in new fields; and the sales/management expense ratio was also relatively stable, at 0.62%/4.32%, respectively. The company has continued to reduce costs and increase efficiency in recent years, increasing the level of automation and per capita output value. We expect that as industry demand gradually picks up, the company's production line utilization rate is expected to increase in the second half of the year, and it is expected to achieve a steady increase in profitability.

AI mobile phones/PCs are expected to drive a sharp rise in the volume and price of consumer electronics boards, and the steady release of server and vehicle revenue from leading domestic and foreign consumer electronics brands to accelerate the layout of AI terminals since 2024. We believe that on the one hand, AI technology can drive the release of switching demand and drive further recovery in the mobile phone/PC industry; on the other hand, AI end side implementation places higher requirements on circuit board line width and line spacing, which is expected to drive an increase in the value of high-end boards.

As a global PCB leader, Peng Ding has strong advantages in the field of high-end HDI and soft boards, and is expected to continue to benefit. Furthermore, in new fields such as automobiles and servers, the company is introducing new material models, deepening cooperation with leading customers in the industry and developing new customers. Thailand's new production capacity is expected to be built in 2025, which is expected to seize the growth in demand for AI computing power and long-term opportunities for automobile electrification and intelligence.

Maintain target price of $28.1 and maintain buy rating

Maintain the company's net profit forecast of 36.2/41.8/4.75 billion yuan for 24/25/26. I am optimistic that the company will gradually contribute revenue in fields such as vehicles, high-speed servers, and ARVR. At the same time, the company is leading in global deployment. AI terminal innovation is expected to drive the volume and price of the company's products to rise sharply, giving the company 18x PE for 24 years, maintaining a target price of 28.1 yuan, and maintaining a purchase rating.

Risk warning: 3C demand falls short of expectations; the pace of commissioning additional production capacity falls short of expectations.