Event: The company released an interim report. The revenue for the second quarter was 1.09 billion yuan, up 27% month-on-month and 32% year-on-year. Along with the recovery of the CCL industry, the company's profitability has improved significantly. The profit side reversed losses in a single quarter, achieving net profit of 11 million yuan to mother, and the company's overall profit was greatly dragged down by the aluminum-plastic film business. The company's interim report revealed that its subsidiary Huazheng Energy lost 16.09 million yuan in the first half of the year. We believe that the company's future share price impetus will stem from continued demand/price restoration at the CCL industry level, as well as the release of high-end and new products.
The price of 1H24 has been fixed. Pay attention to the price situation during the peak season: According to our supply chain research, domestic CCL companies raised prices to customers by about 10% from April to May, and prices rose slightly later in June. The core driving force behind the price increase was 1) the rise in raw material prices, with copper prices as the core driving force (LME copper prices rose nearly 30% from the mid-May high); 2) Communications, home appliances and other industries showed a marked recovery. At the same time, demand for automobiles was also very strong, rising month by month. In addition to domestic manufacturers, **** manufacturers also discussed prices with core customers and completed the first round of price increases in July. Looking ahead, it is very difficult for the industry to raise prices in July and August. On the one hand, copper prices fell from their high point, and customer demand for stocking was relatively weak in July and August. We believe that an important time point to observe price increases is demand during the September/October peak season. Customers are preparing goods for the upcoming Spring Festival, compounding the recent rise in prices of epoxy resin and glass fiber cloth, and it is expected that prices will continue to rise.
High-speed high-frequency materials/CBF domestic replacement acceleration: In 2024, the company accelerated the shipment of high-frequency high-speed materials, and we predict that 1H24 will account for close to 15%. Shengyi Technology, the core leader in the industry, is full of production capacity, so orders for M2/M4/M6 grade materials spilled over to second-tier manufacturers such as Huazheng and South Asia. At the same time, with the launch of new products from leading domestic GPU manufacturers in September, related orders are also expected to be further released. In terms of CBF materials, the company's interim report revealed that the company has formed a series of products in application scenarios such as computing power chips, which have been verified by major domestic IC carrier board manufacturers, while some CBF-RCC products have been delivered in small batches.
We believe that an increase in the share of high-speed high-frequency materials and the gradual release of high-margin CBF materials will help push the company's overall gross profit level upward.
Valuation and suggestions: We maintain the 20x forward valuation. We expect the company's net profit for 2024/2025 to be 0.056/0.216 billion yuan (previous value was 0.068/0.225 billion yuan), corresponding to a target price of 30.41 yuan (previous value was 31.66 yuan), maintaining an superior market rating.
Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Continued rise in copper prices impacts profitability; 4) Production capacity release falls short of expectations.