The rise in copper prices combined with the recovery in demand has driven the recovery of leading copper-clad plate performance, giving “buying” companies the leading copper-clad plate industry leader. Along with the rise in copper prices in 2024, downstream demand is gradually picking up. Copper-clad sheets have room for flexible price adjustment, compounding the cost advantages of vertical integration and scale effects of the supply chain, which is expected to drive the company's revenue and profit back to the growth trajectory in 2024. We expect the company's revenue for 2024-2026 to be HK$209.4/233.8/HK$24.02 billion, up 25.0%/11.6%/2.7% year-on-year; net profit to mother for 2024-2026 will be HK$18.0/27.0/2.90 billion, respectively. The latest stock price of HK$7.88 corresponds to 13.7/9.1/8.5 times PE in 2024-2026, with the first coverage giving a “buy” rating.
The vertical integration capability is excellent, and the scale effect continues to be unleashed. The company has completed an integrated supply chain system layout with competitive products, and is self-sufficient in major raw materials such as glass fiber cloth, high-performance copper-coated base paper, and electronic yarn. The company had the largest market share in the copper-clad plate industry in 2022, and continued to make good use of scale cost reduction in the production field. Benefiting from the combined effects of vertical integration and scale, the company's gross margin increased by 6.8% in 2021, ahead of industry friends and merchants; during the period of continuous decline in the price of copper-clad panels from 2022 to 2023, it was still able to maintain a gross margin level of 23%/16%, and the cost advantage remained leading.
The continuous rise in copper prices has led to flexible price increases for copper-clad sheets, boosting revenue and profit splitting the cost structure of copper-clad panels. Copper foil is the most important raw material, accounting for 42.1%; followed by resin and fiberglass cloth, accounting for 26.1% and 19.1%, respectively. The price of copper clad plate is flexible to the price of copper, and its increase is generally higher than the cost of copper prices. Copper prices entered an upward channel in 2024. Shanghai Copper and Lun Copper had cumulative increases of 4%/5% in 2024Q1, and maintained an upward trend in April, driving the simultaneous rise in copper clad plate prices.
Demand for automobiles and home appliances continues to be released, and consumer electronics are recovering moderately. The company's first beneficiary direct customers are PCB manufacturers, and downstream terminal customers are mainly automobiles, home appliances, consumer electronics, servers, etc. Overall, home appliances and automobiles are booming, and growth is certain; consumer electronics have bottomed out and rebounded. Due to the highly fragmented customer structure of the company, the revenue ratio of the top five customers is less than 30%, and the largest external customer revenue contribution is estimated to be between 2% and 3%. The company has strong bargaining power in the face of downstream PCB manufacturers, enabling it to take the lead in responding to price increases during the boom phase of the industry.
Risk warning: Downstream demand falls short of expectations, risk of copper price fluctuations, capacity release falls short of expectations.