1H24 expects to achieve a 40% to 61% year-on-year increase in net profit. The company announced a pre-increase in 1H24 performance. It is expected to achieve net profit of 0.275 billion yuan to 0.315 billion yuan (YoY +40.34% ~ 60.75%) in the first half of 2024, and achieve deduction of non-net profit of 0.27 billion yuan to 0.31 billion yuan (YoY +40.30% to 61.08%). The main reasons include 1) 1H24, an overall recovery in downstream demand and sufficient company orders. Coupled with the accelerated release of production capacity in fund-raising projects, the overall capacity utilization rate increased, driving performance growth. 2) Further optimization of the product structure. Increase the share of high-margin products such as new energy vehicles and data centers.
3) The company's settlement currency is mostly the US dollar. The exchange rate of RMB 1H24 fell against the US dollar, generating exchange income.
The company took the lead in setting up the automotive market, and its products have been supplied to core customers such as Tesla. The electrification and intelligence of new energy vehicles has led to an increase in the share of automotive electronics and a sharp rise in the volume and price of automotive PCBs. The company set up the automotive PCB business in 2010 and has been able to supply new energy vehicles to brands such as Tesla, BMW, Volkswagen, Porsche, Chrysler, Mercedes-Benz, Xiaopeng, GAC, and Great Wall. The company continues to deepen cooperation with leading customers in the international technology industry. This customer has been the company's largest automotive terminal customer since 2019, and its business volume has maintained rapid growth in recent years. The company is its main PCB supplier, provides them with key component products covering the field of electric vehicles, and has entered its supply chain for new products such as photovoltaics and energy storage.
AI computing power construction has entered a new stage, and terminal manufacturers are building their own computing power centers. As the wave of AI innovation sweeps through smart terminals, the field of intelligent driving will also be empowered by AI, and Tesla proposed a self-developed supercomputer system project. The company began cooperating with R&D and testing in 2020, and the project was officially mass-produced in '23.
The project has accumulated successful production experience of AI server-related PCB products for the company. Currently, the company has achieved mass production of 24-layer ultra-low loss servers and 5G communication PCBs in cloud data centers. The 28-layer products also have manufacturing capacity, and have applied precision HDI and traditional high-multi-layer mixing technology, ultra-accurate inter-layer alignment deviation control technology, high-precision back-drilling technology, high-frequency signal characteristics, and loss control technology in high-multi-layer PCB production.
Production expansion is gradually being implemented to meet the upward demand of the industry. The company planned a new circuit board project with an annual output of 3 million square meters in 2020. The first phase of the project corresponds to a production capacity of 1 million square meters; the second phase of the project corresponds to 1.5 million square meters. The capital was raised by issuing shares to specific targets. The capital was already in place in March 2024; the corresponding production capacity for the third phase of the project is 0.5 million square meters, which will be promoted according to customer order requirements. After the entire project is completed, the production capacity of the company's Heshan headquarters will increase to 7 million square meters.
Profit forecasting and valuation: First coverage, giving an “superior to the market” rating. We expect the company's 2024-26 revenue to be 5.31/6.36/7.12 billion yuan (+17.5%/19.8%/12.0%), respectively, corresponding to net profit of 0.59/0.73/0.82 billion yuan (+19.7%/23.3%/12.7%). Referring to comparable company valuations, the company will be given 24-28 xPE for 24 years, corresponding to a stock price of 28.6-30.8 yuan, with a 30%-40% premium compared to the current stock price.
Risk warning: Client growth falls short of expectations, risk of geopolitical deterioration, risk of mergers and acquisitions and impairment of goodwill.