The world's leading PCB manufacturer, diversified business layout: Higashiyama Precision is the world's leading PCB manufacturer. In 2023, the PCB company ranked third in the world in revenue ranking, and ranked second in the world in the revenue ranking in the flexible circuit board field. In 2023, the company achieved revenue of 33.651 billion yuan (year-on-year increase of 6.56%), net profit to mother of 1.965 billion yuan (year-on-year decrease of 17.05%), and gross profit margin of 15.18% (2.42pct year-on-year decrease). In 2024Q1, the company achieved revenue of 7.745 billion yuan (up 18.94% year on year, down 30.54% month on month), realized net profit of 0.289 billion yuan (decrease of 38.65% year on year, decrease of 54.21% month on month), and gross profit margin of 13.60% (decrease of 1.20 pct year on year, decrease of 4.03 pct month on month).
The PCB business is leading the development of the industry, and there is room for new electronic products such as VR/AR: On the soft board side, with the significant increase in demand for mobile phone FPCs and the launch of new electronic products such as VR/AR, the company's major domestic supplier to A customer is expected to increase steadily. In terms of hard boards, the subsidiary MULTEK is one of the top ten PCB suppliers in the world. The company has rich production capacity for high-end PCBs, the product structure is developing towards high-end, and the customer structure is constantly improving.
The A+T strategy continues to advance, and the LED business is expected to improve in 24 years. The company has accelerated the expansion and layout of the NEV product line. Work is progressing smoothly with new base investment, new customer certification, and mass production of new products. In the future, ASP can be expected to increase with the commissioning and integration of the company's overseas factories; in the field of soft and hard boards, there is still room to increase the company's share; the LED and touch business, the company's profitability is expected to gradually recover as industry inventories are removed. We are optimistic about the company's development over 24 years.
Apple released Apple Intelligence to drive PCB upgrades, benefiting leading PCB manufacturers. Apple released an artificial intelligence system called Apple Intelligence, which focuses more on user experience and application levels, heralding the true advent of the AI mobile phone era. AI phones drive the upgrading of PCB demand, which is beneficial to leading PCB manufacturers. In order to reduce attenuation and crosstalk in signal transmission, the PCB specifications of AI phones need to be upgraded, such as using carrier-like technology to increase line width and line spacing density, and achieve lightness and high thermal conductivity.
Profit forecast, valuation and rating: We maintain the 2024 net profit forecast of 2.329 billion yuan. Considering the expected expansion of the automobile business in 2025/2026, we raised the net profit to mother for 2025/2026 to 3.185/3.527 billion yuan (increase of 14.82%, 8.69%), corresponding to the current PE valuation of 19X/14X/13X. The steady development of the company's hard and soft boards in the consumer electronics sector is at the forefront of the world, and with years of experience, it has successfully deployed new energy in the three major sectors of PCB, optoelectronic displays and precision manufacturing, and continues to expand its material numbers and customers. We are optimistic about the company's long-term development and maintain a “buy” rating.
Risk warning: Vehicle electrification development falls short of expectations, consumer electronics demand falls short of expectations, and large customers account for a high share of revenue