Core views

According to the company's 2023 annual report, the company's communication boards account for 73.33% of revenue. The downstream is a smartphone, and the product types cover FPC, SLP, etc. The revenue share of the company's largest customer in 2021/2022/2023 was 76.2%, 78.4%, and 80.0%, respectively, and has been stable at over 75% for a long time. The company's future strategy will always firmly embrace North American customers. The company's major customers accelerate AI deployment through endogenous and epitaxial methods, and its terminal products are expected to see both volume and price increases. As a major customer and core supplier to FPC and SLP, the company is expected to benefit deeply in the future.

Brief review

Based on communication boards, we deeply embrace major customers and focus on new endside AI opportunities. According to the company's 2023 annual report, the company's communication boards accounted for 73.33% of revenue; consumer electronics and computer boards accounted for 24.87% of revenue; and automobile and server boards and other boards accounted for 1.68% of revenue. The downstream of the corporate communication board is a smartphone, and the product types include FPC, SLP, etc.

According to the company's annual report, the revenue share of the company's largest customer in 2021/2022/2023 was 76.2%, 78.4%, and 80.0%, respectively, and has been stable at over 75% for a long time. The company's future strategy will always firmly embrace North American customers.

Major customers accelerate AI deployment through endogenous and epitaxial methods, and their terminal products are expected to see both volume and price increases. According to Stocklytics, Apple will acquire a total of 32 AI companies in 2023 to enhance AI functional applications. In February 2024, it was announced that electric vehicle projects would be suspended to increase investment in AI. In terms of price, the application of AI functions on the end side will be upgraded first from the software side in the short term. In the medium to long term, changes in software upgrades will drive the increase in hardware requirements, including requirements for the precision of PCB products such as soft boards and hard boards, and stand-alone ASP will rise. From a quantitative perspective, iOS 18, which is about to debut at the WWDC 2024 developer conference, will be launched on the iPhone 16 series in the future. The new AI features of iOS 18 will not be available on older models. If users want to thoroughly experience the new AI features of iOS 18, they need to upgrade their devices to iPhone 15 Pro or higher, and iOS 18 entering the terminal is expected to drive a new cycle of switching.

Lay out servers and automobiles to open up a second growth curve

In the automotive sector, the company has mass-produced and supplied FPC products, radar operation boards, and domain controller products used in battery modules, and lidar boards already have technical reserves and begun sample certification. In the server field, in the face of growing demand for emerging AI servers, the company continues to technically improve its thick HDI capabilities, and has now entered the supply chain of world-renowned server customers. According to the company's announcement, the company plans to invest 250 million US dollars to build a new factory in Thailand. In the future, it will mainly meet the needs of overseas automobile, tier 1 and server customers, and is expected to be able to certify and test clients in the second half of 2025.

Profit forecasting and investment advice

We expect the company's 2024/2025/2026 revenue to be 365.03/420.04/45.785 billion yuan, with year-on-year growth rates of 13.84%//15.07%/9.00%, net profit to mother of 36.87/43.04/4.704 billion, year-on-year growth rates of 12.16%/16.74%/9.30%, corresponding to 2024/2025/2026 P/E of 19/16/15X, maintaining a “buy” rating.

Risk analysis

1. The risk that global macroeconomic fluctuations will increase and that the level of industry inventory removal will fall short of expectations. In 2024, the global macroeconomy is still facing many fluctuations and challenges. The level of inflation in Europe and the US remains high, and the prospects for the US dollar interest rate hike are uncertain, all of which bring some uncertainty to the recovery of the downstream electronics industry, thereby affecting the PCB industry. At the same time, if the downstream electronics industry's inventory removal level falls short of expectations, it will also affect the growth of the PCB industry.

2. Risk of exchange rate changes. The company's main customers and suppliers are overseas companies. The company's exports and imported raw materials are mainly settled in US dollars, resulting in the company continuing to hold large amounts of US dollar assets (mainly US dollar monetary funds and operating receivables) and US dollar liabilities (including operating liabilities, bank loans, and other loans). As the scale of production and sales expands, the amount of the company's raw material imports and product exports will continue to increase, and the amount of foreign exchange settlement will continue to increase. Currently, due to multiple factors, there is great uncertainty in the foreign exchange market, so the company still faces the risk of exchange rate fluctuations.

3. The risk of further intensification of international trade frictions. The company's main customers are overseas companies. Currently, there is still great uncertainty about the international economic environment, especially Sino-US relations. If international trade frictions intensify and escalate in the future, it will have an impact on the overall operation of the economy and the upstream and downstream industrial chains, and the global market will inevitably be affected by this systemic risk.

4. Shortage of raw materials and energy and the risk of rising prices. The company's PCB products use electronic components, copper foil substrates, steel sheets, adhesives, coating films, gold salts, semi-cured sheets, ink, copper balls and copper powder as the main raw materials. Fluctuations in raw material prices will have a certain impact on the gross margin level of the company's products; at the same time, the company requires a large amount of electricity in production, and electricity supply and electricity prices are also affected by fluctuations in energy supply and energy prices. Global geopolitical conflicts and worsening climate change have triggered fluctuations in global energy and commodity market prices. There is some uncertainty about raw materials and energy prices, and companies may face the risk of rising raw materials and energy prices.