1Q24 results are in line with our expectations
Pengding Holdings announced 1Q24 results: operating income of 6.687 billion yuan, which was basically the same as the previous year; net profit to mother was 497 million yuan, up 19% year on year; net profit after deducting non-return to mother was 504 million yuan, which is in line with our expectations. Net operating cash flow decreased 29% year over year to $1,991 billion.
Specifically, the gross margin of Pengding 1Q24 decreased by 0.5ppt to 20.4% year on year, and the cost ratio improved significantly, falling 2.4ppt to 10.0% year on year. We believe that the financial cost contribution was significant, with a year-on-year decrease of 4.15ppt to -2.54%. We believe that the main reason was 1Q24 exchange earnings, which dragged down slightly in the same period last year, leading to a significant improvement in financial expenses, and the net interest rate increased by 1.1 ppt to 7.4% year on year.
Development trends
AI terminals promote FPC upgrades and user switching, and Pengding is expected to fully benefit. Currently, the AI trend of the world's leading mobile phone brands is clear. Brands such as Samsung and MOV have all released related models, and leading PC brands such as Lenovo are also speeding up the deployment of AI terminals. We believe that in the future, more leading consumer electronics brands are expected to accelerate the deployment of the AI terminal market. As a core component for signal and data transmission in consumer electronics terminals, we believe it is also expected to benefit from the AI upgrade trend. The line width and line spacing are expected to continue to shrink and increase the value of stand-alone machines. As a leading global supplier of consumer electronics FPCs, Pengding is expected to fully benefit. Furthermore, we are optimistic that major North American customers will launch end-side AI models one after another this year to optimize the user experience, which is expected to drive user switching. We are optimistic that the shipment and turnover rate of businesses related to Pengding will improve.
Actively deploying the AI server and automotive fields, the second growth curve is worth looking forward to. According to the company's announcement, Peng Ding is deeply involved in the AI server industry, continuing research and development on the product side, improving thick plate HDI capabilities, and developing products related to AI high-efficiency computing servers. At the same time, in the automotive field, the company continues to accelerate the certification and mass production of automotive PCB products. We are optimistic about the rapid growth of the AI server field and automotive business, which will drive the continuous and steady growth of Pengding.
Profit forecasting and valuation
We maintain Pengding 2024/25e EPS at 1.80/2.04 yuan, and the current stock price corresponds to 2024/25e12.6/11.2x P/E. We maintain our industry rating and target price of 28.0 yuan, corresponding to 2024/25e15.6/13.7x P/E. Compared with the current one, there is still room for 23% increase.
risks
Downstream demand for consumer electronics is weak; business development such as AI terminals, servers, and automobiles falls short of expectations.