Matters:

On August 16, 2024, the company released its 2024 semi-annual report: the company achieved revenue of 4.855 billion yuan (YOY 32.29%) in 2024H1; net profit to mother of 0.459 billion yuan (YOY 33.23%), after deducting non-net profit of 0.462 billion yuan (YOY 31%).

2024Q2 achieved revenue of 2.464 billion yuan (YOY 28.84%); net profit of 0.249 billion yuan (YOY 13.60%, QOQ 18.99%), after deducting non-net profit of 0.255 billion yuan (YOY 7.02%, QOQ 23.37%).

Commentary:

The AI computing power business broke through multiple business lines & MFS business integration went smoothly, and 24H1 performance increased. 24H1's performance growth is mainly due to (1) progress in AI multi-business lines, successful entry of high-end AI data center computing power products into mass production, 1.6T optical modules into mass production (2) The company fully empowered MFS Group. 2024H1 MFS Group's revenue increased 13% year on year, net profit increased 104% year on year (3) strengthened cost management, achieved cost reduction and efficiency, and continued innovation to drive strong technical advantages, and carried out next-generation transmission for AI computing power and AI server products PCIe 6.0 protocol and chip Oak stream platform technology, 800G/1.6T optical transmission in single channel 112G & 224G transmission technology on optical modules and switches.

AI computing power: Accelerate overseas deployment and serve leading customers to enjoy development dividends. The volume and price of AI server PCBs have risen sharply, and PCB material upgrades & processing difficulty upgrades (HDI penetration rate increase) have led to an increase in value. The company has a forward-looking layout in the server PCB field, with advantages such as customers, products, manufacturing capacity (HDI), and overseas layout: (1) the company reached cooperative relationships with leading players Nvidia, AMD, Microsoft, Cisco, etc. (2) Smooth mass production of the company's AI data center level 5- and 6-tier HDI and layer 28 acceleration card products in the product layout (3) AI server materials & processing difficulties were further upgraded in terms of manufacturing capacity. The demand for AI server HDI increased. The company's forward-looking layout in the HDI field in 2019. The factory was put into operation, and mass production of 14-layer Anylayer HDI boards was achieved in 2023. Currently, it has achieved mass production of 6-level HDI (4). In terms of overseas production capacity layout, the company laid out production capacity in Thailand and Vietnam in March 2024, and announced in August that it plans to acquire 100% of APCBelectronics (Thailand) shares to accelerate the Thai layout.

Automotive: Electric Intelligent Drive Company's automotive PCB business is on the rise. According to Trendforce, the automotive PCB market is expected to grow from 9.2 billion US dollars to 14.5 billion US dollars from 2022 to 2026, with a CAGR of 12% in 4 years. The company is the world's largest TOP2 PCB supplier for electric vehicle customers, and sales are growing year by year. At the same time, the company has introduced a number of world-class automotive Tier 1 customers; currently its products are widely used in ECU, BMS, Inverter, OBC and other components, and also supplies headlights, intelligent driving ADAS, autonomous driving calculation modules (multi-stage HDI), body control modules (Level 1 HDI), and PCBs for three-electric systems for new energy vehicles.

Investment advice: AI computing power+automotive-driven PCB industry is growing in a new round. The company is a domestic PCB leader, and leading customers serving leading customers in the digital and automotive fields are expected to benefit deeply from this round of industry development. The company's AI multi-business line is progressing smoothly. We raised the company's 24-26 profit forecast to 1.254/2.009/2.702 billion yuan (original value 1.235/1.587/1.879 billion yuan). Referring to comparable companies Shanghai Electric Power Co., Ltd., Shennan Circuit, and Shiyun Circuit, we gave the company a 25-year 20X target PE with a target price of 46.6 yuan, giving it a “strong push” rating.

Risk warning: AI computing power and automobile demand fall short of expectations, the competitive landscape deteriorates, and raw materials rise sharply