The company's 1Q24 performance exceeded expectations

Shengyi Technology announced 1Q24 results: achieved revenue of 4.42 billion yuan (yoy: +18%) and net profit to mother of 390 million yuan (yoy: +58%, mainly due to increased operating income of copper-clad board & PCB products and improvements in the product shipping structure), exceeding Huatai's expectations of 300 million yuan. Looking ahead to 2024, although demand visibility for copper-clad panels in most categories is still weak, the company's high-speed boards may continue to benefit from high demand for AI. Considering the progress of improving the company's copper-clad board shipping structure and the better-than-expected progress in PCB business revenue and profit recovery, we raised the company's net profit forecast for 2024/2025/2026 to 17.3/22.4/2.66 billion yuan (previous value: 14.9/19.7/2.32 billion yuan). Considering the further improvement of the company's position in the global computing power chain, we raised the company's target price to 23.4 yuan (previous value: 20.3 yuan). Based on 32.0x 2024E PE (vs comparable company 21.0x 2024E PE (Wind&BBG), the valuation premium mainly takes into account the company's advantages in terms of products, customers and production capacity); maintaining a “buy” rating.

1Q24 review: The profitability of the copper-clad plate business & PCB business both improved year-on-year, and the company achieved net profit of 390 million yuan (yoy: +58%, mainly due to increased revenue from copper-clad board & PCB products and product structure improvements). Among them: 1) Copper-clad plate business: According to our industry tracking, the 1Q24 product structure of the company's copper-clad board business continues to improve, and the operating rate is around 90%. We estimate that the 1Q24 gross margin of the copper-clad board business is 23.4% (yoy: +1.9pp, qoq: +1.3pp), and the net profit to the mother is about 380 million yuan; 2) PCB business: we estimate the 1Q24 gross profit margin of the company's PCB business 15.9% (yoy: +0.8pp, benefiting from the increase in demand and product structure for high-layer multi-layer servers Improvement), and the combined profit is about 10 million yuan (vs 4Q23: we estimate a loss of 11 million yuan).

2024 outlook: Focus on product structure optimization and the expansion of new high-speed board customers. We have seen that some two- and third-line copper clad plate manufacturers have been forced to increase product prices due to cost pressure; in this regard, we believe: 1) the company's copper-clad plate product pattern is more high-end than that of the same industry, which is less affected by the rise in copper prices; 2) As the company actively optimizes its product structure, the company's overall gross margin may still have an opportunity to increase. As a leader in high-speed boards in China, Shengyi Technology's M8 grade materials have already been stored as materials for North American computing power hardware N customers, and are currently cooperating with PCB manufacturers to conduct processability tests. We are optimistic that the company will lead the domestic replacement of high-speed boards with leading production capacity layout and superior technical capabilities, product structure and customer quality to further highlight its growth attributes.

Raise target price to $23.4; maintain “buy” rating

We expect the company's net profit to be 17.3/22.4/2.66 billion yuan for 24/25/26, respectively. The company was given 32.0x 24E PE, with a target price of 23.4 yuan (previous value: 20.3 yuan); maintaining a “buy” rating.

Risk warning: Industry competition intensifies; raw material prices fluctuate; production capacity climbs and technology upgrades are slower than expected.