Incidents:

In the first half of 2024, the company achieved operating income of 2.147 billion yuan, a year-on-year increase of 5.19%; net profit to mother was 0.222 billion yuan, a year-on-year decrease of 20.04%. Among them, the second quarter achieved operating income of 1.171 billion yuan, up 13.06% year on year and 19.83% month on month; net profit to mother was 0.111 billion yuan, down 24.52% year on year and 0.66% month on month.

Comment:

Take the lead in deploying end-side AI to inject new momentum for growth. In the first half of 2024, end-side AI was implemented at an accelerated pace, various brands accelerated the launch of AI mobile phones and AI terminal products represented by AIPC, and the folding phone market was also booming. The arrival of a new industry innovation cycle is expected to bring new growth impetus to the development of the industry. PCB products will be upgraded to high-end products such as high quality, low loss, high heat dissipation, and fine circuits. The company continues to strengthen AIPC product development and design layout, especially for various high-density interconnect (HDI) technologies and through-hole production involved in AIPC development. It already has large-scale production capabilities, and has now steadily achieved mass production. With subsequent AIPC rollouts, the company is expected to continue to benefit from AI end-side trends.

Data center products are progressing smoothly, and automotive electronics customers and orders continue to develop. The company continues to focus on R&D investment and market development for high-value-added products such as AI servers, seizing the rapid development opportunities of AI server products, as well as opportunities for general-purpose server upgrades, and server business revenue is growing rapidly. In the automotive electronics sector, as the NEV market continues to expand, and driven by disruptive trends such as electrification, intelligence, and connectivity, the demand for automotive PCBs is expected to continue to show a steady, moderate and positive development trend. The requirements for complexity, performance and reliability are also increasing. The company continues to increase its development efforts for domestic and foreign customers, actively optimize the product structure and customer structure related to automotive electronics, and open up incremental space for automotive electronics.

Strategic cooperation with Japanese PCB giant Meiko Electronics to accelerate overseas high-end layout. The company has signed a “Cooperation Intent Agreement” with Japan's Meiko Electronics, which is expected to promote the efficient layout of the company's business in the downstream field, accelerate the promotion and application of the company's existing products in the fields of AI servers, AIPC, communication and network equipment, automotive electronics, etc., and continuously enhance the company's overall competitiveness and market position. Currently, the company has two major production bases in Hunan and Guangdong, and plans four specialized chemical plants. The Guangdong base is more digitized and has a cost advantage. Mass production is imminent at the company's base in Thailand, laying the foundation for the company to obtain overseas orders and move towards globalization.

Profit forecast and investment rating: We expect the company to achieve net profit to mother of 0.556/0.722/0.86 billion yuan in 2024/2025/2026, respectively, and the corresponding PE is 13/10/9 times, respectively, maintaining a “buy” rating.

Risk warning: raw material prices fluctuate, downstream demand falls short of expectations, production capacity release falls short of expectations