The acquisition of APCB's factory in Thailand achieved an important layout for overseas business expansion. Shenghong Technology announced on August 9 that the company plans to acquire 100% of APCBBelectronics Thailand (APCB) shares in cash through its wholly-owned subsidiaries “Singapore Shenghong” and “PSL”, with a total purchase price of no more than RMB 0.279 billion. After the settlement of this transaction is completed, the company will increase the capital of the target company by 0.5 billion yuan through Singapore Shenghong and PSL to support APCB's production and operation. APCB has a mature production system, business qualifications and talent team in Thailand, and its largest customer is a world-renowned leading manufacturer of overall energy saving solutions. APCB's main product, multi-layer circuit boards, is also a product field that Shenghong Technology excels at. After the acquisition, the company can quickly integrate APCB. APCB will become the company's production base in Thailand and a bridgehead for overseas business expansion, which is conducive to quickly meeting customers' overseas delivery needs and building global supply capacity. At the same time, the establishment of a production base in Thailand will also strongly drive the increase in demand for orders from Shenghong Technology's domestic factories. The acquisition is an important step in line with the company's strategy and customer needs, and will strongly drive the company's future business expansion.
Shenghong Technology is the global core manufacturer of AI PCBs, and the AI business layout is fully blossoming. Sorting through the latest legal discussions of overseas cloud vendors, the 24Q2 capital expenditure of large cloud vendors such as Meta, Microsoft, Amazon, and Google continues to exceed expectations. Each company continues to increase AI hardware infrastructure construction, and it is anticipated that capital expenditure will continue to increase significantly in 24 and 25. AI hardware continues to be upgraded, and the value of PCBs compatible with the eight-card architecture AI server has increased dramatically, and the GB200 architecture has been upgraded again, driving a high increase in demand for AI HDI. In addition to AI servers, we see that HDI is also beginning to accelerate penetration in high-end data center switches, AIPC, autonomous driving, etc., and HDI is expected to become the fastest growing PCB product in the AI field. AI HDI products are difficult and production capacity is scarce. Shenghong Technology is the world's leading HDI manufacturer. It has R&D and manufacturing capabilities for 24-layer and six-level HDI circuit boards, and has accelerated the deployment of next-generation R&D certification for high-end HDI products used in various AI servers. The downstream covers a wide range of leading North American customers such as Nvidia, AMD, and Tesla. We are optimistic that the company will benefit from the wave of cloud (AI servers, etc.) and edge side (AIPC, AIPhone, smart cars) computing power with leading AI HDI product performance and capacity layout depth. Furthermore, the company will continue to promote cooperation with other customers through the demonstration effect of cooperation with leading computing power customers, and the business layout is expected to fully blossom.
A new CTO took office, leading the company's R&D sector to a new level. On August 2, 2024, the company announced the appointment of Mr. Victor J. Taveras of the United States as the company's CTO, to be fully responsible for technology research and development. Mr. Victor J. Taveras has a deep background in the PCB industry and has deep knowledge of material principles and technology. He is particularly good at high-frequency and high-speed material evaluation, electroplating solution control, alignment control, etc., and is familiar with the technical development and process control of high-reliability, high-multi-layer boards and high-end HDI products, and is famous in the fields of switches, servers, optical communications, etc. The addition of Mr. Victor J. Taveras will lead the company's R&D strategy to a new level, help the company cultivate a better R&D technical team, and is of great significance to the company's future development.
Profit forecast and investment suggestions: We continue to be optimistic that new AI server products from major customers are expected to bring significant performance flexibility to Shenghong. At the same time, the large customer demonstration effect will also help the company's other leading customers in North America achieve effective expansion. It can be seen that the company has made remarkable progress in R&D, production capacity and client services. The business layout will enter a harvest period one after another in the next few years, and the growth momentum will be sufficient. According to this, it is estimated that in 2024/2025/2026, the company will achieve a net profit of 1.22/2.29/3.26 billion yuan, corresponding growth rates of 81.2%/88.0%/42.5%, respectively. Corresponding to the 2024/2025/2026 PE valuation is 21.9/11.7/8.2x, maintaining the “Highly Recommended” rating.
Risk warning: Downstream demand falls short of expectations, industry competition intensifies, and R&D falls short of expectations.