Incident Overview

After the market on August 16, the company released the 2024 semi-annual report:

1) In the first half of 2024, we achieved operating income of 4.855 billion yuan, an increase of 32.29% year on year; realized net profit of 0.459 billion yuan, an increase of 33.23% year on year; realized net profit after deduction of 0.462 billion yuan, an increase of 31.00% year on year.

2) The second quarter of 2024 achieved operating income of 2.464 billion yuan, up 28.84% year on year, up 3.02% month on month; realized net profit of 0.249 billion yuan, up 13.60% year on year and 18.99% month on month; realized net profit of 0.255 billion yuan after deduction, up 7.02% year on year and 23.37% month on month.

The company's revenue growth in the first half of the year was mainly due

1) Mergers and acquisitions to increase profit flexibility. In the first half of 2024, MFS Group's revenue increased 13% year on year and net profit increased 104% year on year. Among them, revenue for the second quarter reached a record high. MFS Group's outstanding performance helped the company achieve growth in performance.

2) Increase investment in R&D and adhere to innovation drive. In the first half of 2024, the company invested 0.198 billion yuan in R&D to carry out research and development on technologies required in various high-end fields, such as AI computing power, next-generation transmission PCIe 6.0 protocol and chip Oak Stream platform technology for AI server products; 800G/1.6T optical transmission in single-channel 112G & 224G transmission technology on optical modules and switches.

Leading HDI technology, seizing opportunities for computing power development

According to Prismark's forecast, the compound annual growth rate of global PCB output from 2024-2028 is about 4.5%, while the server/data transmission sector grew by 8.7%, which is far higher than the average. We think future PCB growth will focus mainly on the server/data transmission segment. The company used its HDI first-mover advantage to actively deploy AI computing power PCB products. Its high-end AI data center computing power products, 5-tier, 6-tier HDI and 28-layer acceleration card products, successfully entered mass production, and 1.6T optical modules entered small-batch mass production.

Acquiring APCB to accelerate overseas expansion

The company announced on August 9 that it plans to acquire APCB in cash through wholly-owned subsidiaries Singapore Shenghong and PSL. The target company has a mature production system, business qualifications and talent team in Thailand. The largest customer is a world-renowned leading manufacturer of overall energy saving solutions. This acquisition is one of the company's initiatives to implement a global strategy. After the acquisition is completed, the target company 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. The establishment of a production base in Thailand will also strongly drive the company's domestic factory order demand growth.

Profit forecasting and investment advice

According to the company's 24 semi-annual report, we adjusted the profit forecast. It is estimated that in 2024-2026, the company will achieve operating income of 11.896 billion yuan, 13.766 billion yuan, and 15.792 billion yuan (original value was 11.168 billion yuan, 13.923 billion yuan, 16.559 billion yuan), with year-on-year increases of 50.0%, 15.7%, and 14.7%, respectively; EPS for 2024-2026 is expected to be 1.49/1.97/, respectively 2.28 yuan (original value was 1.25/1.71/2.12 yuan).

Corresponding to the closing price of 34.20 yuan on August 20, 2024, PE was 23.00/17.33/14.98 times, respectively, maintaining the “gain” rating.

Risk warning

New product production schedule falls short of expectations, downstream demand falls short of expectations, APCB acquisition progress falls short of expectations, etc.