Description of the event

Shengyi Technology released its 2024 semi-annual report: in the first half of 2024, the company achieved operating income of 9.63 billion yuan, an increase of 22.19% over the previous year; net profit to mother was 0.932 billion yuan, an increase of 68.04% over the previous year. Looking at the second quarter of a single quarter, the company achieved operating income of 5.206 billion yuan, a year-on-year increase of 26.22% and a month-on-month increase of 17.70%; realized net profit to mother of 0.54 billion yuan, an increase of 75.94% year-on-year and 37.82% month-on-month.

Incident comments

Downstream demand is picking up, and sales growth is impressive. Looking at downstream demand, Prismark predicts that the global electronics industry market output value will reach 2.55 trillion US dollars in 2024 with the delocalization of products and the recovery of downstream demand for artificial intelligence, XR, and consumer electronics. Among them, the AI server and network infrastructure sector has performed well due to strong market demand; at the same time, 2024 is considered the first year of AI PCs and AI phones, and the consumer electronics market has ushered in new growth opportunities in the context of integration with AI technology. In the first half of 2024, sales of the company's various products achieved steady growth. The company sold 70.0951 million square meters of all kinds of copper-clad plates, an increase of 27.59% over the same period last year; sales of 90.6204 million meters of adhesive sheets were increased by 14.83% over the same period last year.

Benefiting from rising copper prices, the product structure continues to be optimized. The company closely grasped phased market highlights such as consumer electronics, automotive electronics, energy products, mining machinery, etc., and compounded the influence of factors such as customer inventory preparation during the Spring Festival. Demand grew rapidly in the first quarter. By adjusting the product sales structure in a timely manner, the company raised its overall profit level. Faced with the sharp rise in copper prices since late March, LME Copper and Shanghai Copper both hit record highs in May. The company balanced customer order demand and profits by continuing to optimize the product structure and adjust product prices. In terms of profitability, in the first half of 2024, the company achieved gross margin and net profit margin of 21.56% and 10.15%, compared with +2.27pct and +3.17pct, respectively; with 2024Q2, the company achieved gross margin and net profit margin of 21.78% and 11.03%, +2.90pct and +3.58pct, respectively.

Maintain a “buy” rating. Shengyi Technology has been deeply involved in the copper-clad plate industry for many years. From 2013 to 2022, total sales of rigid copper-clad sheets have jumped to second place in the world, and the global market share has stabilized at around 12%. In a situation where high-frequency high-speed copper-clad panels have high technical barriers, talent barriers and customer certification barriers, and face foreign technical blockades, the company has invested a large amount of human, material, and financial resources with deep technical accumulation. Currently, it has developed a full range of high-speed products with different dielectric losses, different dielectric application requirements, and high-frequency products with multiple technology routes, and has achieved a variety of batch applications. With strong demand in segments such as AI servers, high-speed copper-clad panels are expected to recover first, and Shengyi Technology, which lays out high-speed copper-clad panels in depth, will fully benefit. The company is expected to achieve net profit of 1.808 billion yuan, 2.252 billion yuan, and 2,605 billion yuan in 2024-2026, corresponding to the current PE share price of 23.78 times, 19.10 times, and 16.51 times, respectively, to maintain a “buy” rating.

Risk warning

1. AI server delivery falls short of expectations;

2. Downstream demand growth falls short of expectations.