The core target of copper cable shielding materials: We believe that with the release of GB200 by AI leader Nvidia, the future market space for high-speed copper servers will grow rapidly. Since copper cables are susceptible to electromagnetic interference, one of the technical difficulties of copper links is the stability and performance of the shielding layer. According to our supply chain research, the shielding layer that acts as electromagnetic shielding in high-speed copper cables is in the form of fluorine material+aluminum film, and the current aluminum film supplier is Toray Japan. Since copper foil has better ductility, flexibility, and shielding performance, copper foil may become an important trend in replacing aluminum film when high-speed copper cables transition from 112G to 224G or higher transmission rates. At the same time, compared with cable composite copper foil and lithium battery composite copper foil, preparation difficulty and barriers are higher due to higher requirements for performance such as elongation rate and peeling strength. According to the company's disclosure, composite copper foil products can be applied to cable shielding, and small orders from related cable customers have been obtained since 3Q23. We believe that copper foil will be introduced in server cables or will begin at the end of 2024, and the market space for copper foil shielding materials for AI server cables will reach 420 million yuan in 2025 and maintain a rapid growth trend.
AI drives demand for multiple products: Electromagnetic shielding film: Future AI mobile phones/PCs will require higher performance of electromagnetic shielding films due to more computing power on the end side. At the same time, the combination of shielding films and heat dissipation materials (graphene, etc.) will also become an important trend, leading to an increase in ASP. On the other hand, the company is also expected to introduce major North American customers and benefit from the incremental demand for FPC/electromagnetic shielding films brought about by future North American customers launching folding products. Peelable copper: Increased AI cooling requirements have also prompted mobile phone manufacturers to introduce RCC for new mobile phone motherboards. Our supply chain research shows that major North American customers may start introducing RCC in certain models in 2025, and leading domestic mobile phone manufacturers will follow suit. Peelable copper materials must be used to prepare RCC.
Valuation and suggestions: We believe that AI will bring incremental market space to the company, and the company is a core participant in the field of copper cable shielding materials, so we will increase the company 2025 PE to 30x (previously 25x). Considering the starting revenue of cable composite copper foil in 2025, our net profit forecast for 2025 will reach 153 million yuan, +6% compared to the previous one, corresponding to a target price of 57 yuan, maintaining a “superior to the market” rating.
Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Continued rise in copper prices impacts profitability; 4) Production capacity release falls short of expectations.