Deeply involved in digital communication boards for decades, AI computing power+automobile boosts the company into a new development cycle. Shengyi Electronics was founded in 1985 and listed on the Science and Technology Innovation Board in 2021. It has long focused on and is deeply involved in the printed circuit board industry. Its products are mainly PCBs in applications such as communication networks, computers/servers, and automotive electronics. The company ranked 23rd among the top 100 comprehensive PCBs and ranked 10th among the top 100 domestic PCBs. In the medium to long term, strong demand for AI, high-speed networks, and automotive systems will drive the growth of high-end HDI and high-speed high-level market segments, and drive the PCB industry into a new growth cycle. The company specializes in the manufacture of high-speed, high-density, high-multilayer boards, and serves leading customers in the communications, server, and automotive industries. The product matrix is complete, and it is expected to take off again in the AI wave.

The dawn of AGI is dawning, and demand for AI computing power has increased dramatically. The success of ChatGPT is mainly due to the ability of large models to emerge, and the technology path of big models is expected to lead to AGI. The world's leading technology companies, such as Microsoft, Google, Amazon, Meta, Baidu, and Alibaba, all hope to take the lead in the new wave of AI technology, and are increasing AI-related capital expenditure to purchase AI servers and high-speed switches, driving a rapid increase in demand for high-end digital communication boards. Digital communication boards have strict requirements in terms of number of layers, special technology, and electrical performance, and high technical barriers. Only a few leading PCB players in the world can participate. **** and American manufacturers have relatively conservative capital expenditure, and may not be able to accept all high-end PCB orders, and related orders may spill over. Shengyi Electronics, Shanghai Electric Power Co., Ltd. and others have many years of experience in digital board manufacturing, and are expected to accept more high-end PCB orders in this AI wave, boosting the performance of related companies to a new level.

Leading players in the digital communication board industry are expected to take advantage of the AI industry's Dongfeng again. The company has been deeply involved in digital communication boards for decades. Its technical strength is comparable to that of Shanghai Electric Power Co., Ltd. and Shennan Circuit, and has won leading customers such as Huawei, ZTE Kangxun, Samsung Electronics, IBM, and Amazon. In recent years, due to the slowdown in the global wireless communication market and the rise in production capacity, the company's performance has been under pressure in the short term. However, the company has actively developed server and automobile businesses and successfully developed many server customers, including Amazon. AI-enabled motherboards and accelerator card projects have all entered the mass production stage, and are cooperating with customers to develop 800G switch products. With the commissioning of Dongcheng Phase IV and increasing production, the company's production capacity for AI products will be further expanded. The company has abundant production capacity for high-end PCBs, and is expected to accept more PCB orders for AI servers and high-speed switches, and embark on a new journey with Dongfeng in the AI industry.

With the general trend of electrification, connectivity, and intelligence of automobiles, the company's automotive board business is expected to grow steadily. Demand for automotive PCBs grew steadily as automotive tri-transformation progressed. The company further developed the automotive electronics market, and the full commissioning of Ji'an Shengyi Phase I and the commissioning and production increase of Dongcheng Phase IV. The revenue scale of automotive electronics products increased dramatically in 2023, accounting for 17% of revenue, +6pcts compared to the previous year. The company continues to develop more new technologies and certify products for product lines such as intelligent assisted driving, power energy and smart cockpits. It is expected to win recognition from more new customers, introduce more batch orders, and promote steady growth in the automotive board business.

Investment advice: The company has first-class technology, products and customers, and is expected to benefit deeply from the rapid development of the AI industry. The company has already reversed its losses in Q1. The recently released equity incentive plan shows confidence in performance. Considering the growth of the company's AI server and switch business, we expect the company's 24-26 profit forecast to be 1.60/4.90/776 million yuan. Considering that the company is in a period of rapid growth at an inflection point in performance, with rapid expansion on the demand side, profit elasticity is expected to continue to exceed expectations under high operating leverage. It was covered for the first time, and a “recommended” rating was given.

Risk warning: The development of the AI industry falls short of expectations, the introduction of AI server customers falls short of expectations, the introduction of high-speed switch customers falls short of expectations, the rise in production capacity falls short of expectations, and the introduction of automotive customers and mass production of products fall short of expectations.