The company released its 2023 annual report and 2024 quarterly report. 23. The annual performance was under pressure, and 24Q1 profit increased sharply year on year. The company vigorously invested in the FCBGA packaging substrate project. Given the company's deep layout at the cutting edge of the industry, it is optimistic that the company's performance will pick up at an accelerated pace with the release of production capacity and the increase in industry sentiment, and maintain an increase in holdings rating.
Key points to support ratings
The company's 23 annual results were under pressure, and 24Q1 profit increased sharply year over year. The company achieved revenue of 5.36 billion yuan for the full year of 2023, a year-on-year increase of 0.11%, realized net profit of 211 million yuan, a year-on-year decrease of 59.82%, and realized deducted non-net profit of 0.48 million yuan, a year-on-year decrease of 87.92%. In the first quarter of 2024, the company achieved revenue of 1,388 billion yuan, +10.92%/month-on-month +1.24%, realized net profit to mother of 0.25 million yuan, +230.82%/month-on-month +19.6%, and realized deduction of non-net profit of 24 million yuan, +2500.78%/month-on-month +67.09%. In terms of profitability, the company's gross profit margin in 2023 was 23.32%, a year-on-year decrease of 5.34pcts, a year-on-year net profit margin of 3.94%, a year-on-year decrease of 5.88pcts, a year-on-year decrease of 5.88pcts, after deducting a non-net interest rate of 0.89%, and a year-on-year decrease of 6.50pcts. In the first quarter of 2024, the company achieved a gross profit margin of 17.07%, -7.08pcts/month-on-month +0.18pcts, a net profit margin of 1.79%, +1.19pcts year-on-year, after deducting a non-net interest rate of 1.72% and +1.65pcts year-on-year. The above changes are mainly due to: 1) insufficient demand due to the overall decline in the industry and increased competition; 2) the cost investment of the FCBGA packaging substrate project and the loss of production capacity of Zhuhai Xingke CSP packaging substrates during the climbing phase.
The FCBGA packaging substrate business is progressing steadily, with a forward-looking layout in the field of high-end PCBs. 1) The Zhuhai FCBGA packaging substrate project was completed and successfully tested at the end of December 2022. Mass production is expected to begin in the second quarter of 2024.
The Guangzhou FCBGA packaging substrate project completed production line construction and entered the trial production stage in the fourth quarter of 2023. Currently, factory audit and product certification work is progressing according to plan, and mass production is expected to begin in the third quarter of 2024; 2) In July 2023, the company completed the acquisition of Beijing Xingfei to achieve a breakthrough in Anylayer HDI board and SLP (carrier board) product capabilities, and expand its business scope to high-end mobile phones, optical modules, millimeter wave communication, etc.
The production cycle has been further shortened, and there have been breakthroughs in yield research and development. In the traditional PCB field, the average production cycle of the company's high-end model digitization factory has increased to 5 days, and the delivery rate and yield have increased to more than 98%. The yield of FCBGA packaging substrates has increased rapidly, the yield of low-layer boards has increased to 90%, and the yield of high-rise boards has increased to more than 85%. The yield gap with leading overseas companies has further narrowed. It is expected that the product yield will reach the same level as leading overseas companies by the end of 2024. At the product capability level, we already have mass production capacity for 20 layers and below, and products with 20 layers or above are in the testing stage. At the level of new technology development, glass substrates, magnetic substrates, and embedded processes for multi-layer substrates are progressing in an orderly manner, with breakthroughs in core materials and production processes.
valuations
Although profits are being dragged down by the FCBGA packaging substrate project in the short term, considering the gradual launch of high-end PCB products, FCBGA packaging substrates are strategically significant. We expect the company to further strengthen its market competitiveness in 2024/2025/2026. We expect the company to achieve revenue of 63.41/86.70/10.435 billion yuan in 2024/2026, and realized net profit of 4.05/6.09/825 yuan, respectively, and EPS 0.24/0.36/0.49 yuan respectively, corresponding to 2024-2026 PE was 47.7/31.8/23.5 times, respectively. Maintain an increase in holdings rating.
The main risks faced by ratings
Competition in the PCB market has increased risks, the risk of fluctuating raw material prices, and the risk of absorbing additional production capacity, and the FCBGA packaging board project fell short of expectations.