Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 3.362 billion yuan, +2.31% year over year; realized net profit attributable to mother - 121 million yuan, turning loss year on year; deducted non-net profit - 130 million yuan, turning loss year on year. In 2024, Q1 achieved revenue of 855 million yuan, +12.79% year over month, and -1.11% month on month; realized net profit of 99.27 million yuan, a sharp decrease in year-on-year losses and a sharp decrease in month-on-month losses; deducted non-net profit of 633,800 yuan, turning a loss into a profit year on year and turning a loss from month to month.

Falling demand and price competition put pressure on the 23-year results, and Q1 profitability increased sharply: in 2023, the company sold 29.4966 million sheets of copper clad plates, +25.21% over the same period last year, driving a slight increase in the company's revenue.

The pressure on the company's profit side is mainly due to insufficient market demand for the company's products, weak overall upstream and downstream performance in the industrial chain, intensified competition in the industry, and low overall utilization rate of the industry. In 2023, the company's gross margin was 8.89%, -4.09pcts; the net margin was -3.58%, -4.82pcts; the 2024 Q1 gross margin was 10.09%, -1.34pcts, and +6.54pcts; the net margin was -0.10%, +0.94pcts yoy, +10.47pcts month-on-month. Q1 profitability increased significantly from month to month. We think it is mainly due to relatively strong downstream demand in Q1, and revenue growth has driven the repair of the profit side. The company's main raw materials for CCL are copper foil, glass fiber cloth, resin, etc. Since March, the price of copper and glass fiber cloth has risen, and the upward pressure on related costs has been transmitted to CCL manufacturers. Recently, several CCL manufacturers have issued price increase notices. The company stated that it will adjust its marketing strategy in a timely manner according to market conditions and factors such as costs, which we believe may help the company continue to improve its gross margin. In terms of expenses, the sales/management/R&D/finance expense rates in 2023 were 2.61%/3.55%/5.85%/1.66%, respectively. The increase in financial expenses was mainly due to a decrease in exchange earnings in the current period and a reduction in the capitalization portion of interest expenses for project completion.

High-speed high-frequency products continue to break through, and the layout of new products helps growth: 1) High-speed CCL: The higher-level ultra-low loss grade material suitable for AI servers has been certified by major domestic telecommunications companies and can be applied to 56Gbps switches, 400G optical modules, and high-end AI servers; the company has developed an Ultra Low Loss material with a lower CTE in the X/Y axis direction, which has now been verified by major domestic end customers and is progressing well. The material can be applied to the use of large-scale server chips Scenario, high-frequency start-stop scenario to reduce energy consumption; In response to market demand in the 112 Gbps switch field and 800G optical module field, the company has developed extreme low loss grade materials, which have been certified by major domestic telecommunications companies and completed NPI introduction. 2) High-frequency CCL: The product covers applications in base station antennas, power amplifiers, filters, etc., and is continuously expanding new customers. At the same time, the products have passed the certification of well-known overseas terminals and achieved small-batch sales. At present, the company has launched a variety of product solutions that can be applied to various application scenarios such as millimeter wave antennas and millimeter wave radars, and related materials have achieved stable production and supply. At the same time, the company is actively developing products for higher frequencies to meet future 6G and satellite communication technology needs.

Benefiting from the growth in AI computing power demand+consumer electronics recovery, CBF is progressing smoothly: CBF multilayer insulating film is a semiconductor packaging material developed by the company in cooperation with the Shenzhen Advanced Electronic Materials International Innovation Research Institute. It is a material that urgently needs to be imported. It has good dielectric properties, thermal expansion coefficient, peeling strength, insulation performance and processability, and can be applied to semiconductor packaging and ECP packaging technology for computing power chips such as CPUs, GPUs, FPGAs, and ASICs. The company has formed a series of products in application scenarios such as computing power chips and ECP packaging, and has been verified by many leading domestic companies; end customers and downstream customers of CBF-RCC products in smartphone application scenarios such as VCM voice coil motors and motherboards have begun verification processes and made good progress. The company will continue to develop photosensitive CBF materials for finer circuits and wafer-level packaging, and has carried out preliminary cooperative research with many domestic carrier board manufacturers and terminals. The company is expected to fully benefit from the increase in demand for advanced packaging substrates brought about by future high-performance chips with high computing power and the recovery in smartphone demand, opening up the company's profit ceiling.

Maintaining the “gain” rating: Due to the intensification of CCL competition in 2023, the recovery of downstream demand fell short of expectations, and the company's profit forecast was lowered, but we are optimistic that the company will continue to lay out high-growth new products. CCL products are expected to fully benefit from AI high-computing power construction, and will also benefit from millimeter-wave and 6G technology promotion. CBF is expected to gradually increase its domestic market share and become the second growth curve for the company's performance, driven by domestic replacement demand and AI. The company's net profit from 2024 to 2026 is estimated to be 85 million yuan, 230 million yuan, and 345 million yuan, EPS is 0.60 yuan, 1.62 yuan, and 2.43 yuan respectively, and the corresponding PE is 44X, 16X, and 11X respectively.

Risk warning: the risk of raw material price fluctuations, downstream demand falling short of expectations, increased market competition, and the impact of exchange rate fluctuations.