Incidents:

In the first half of 2024, the company achieved operating income of 9.63 billion yuan, a year-on-year increase of 22.19%; net profit to mother was 0.932 billion yuan, up 68.04% year on year; net profit after deducting non-return to mother was 0.909 billion yuan, an increase of 75.74% year on year. Among them, the second quarter achieved operating income of 5.206 billion yuan, up 26.22% year on year and 17.70% month on month; net profit to mother was 0.54 billion yuan, up 75.94% year on year, up 37.82% month on month.

Comment:

Domestic copper clad plate leaders have benefited from economic recovery and high performance growth. Shengyi Technology is the second largest manufacturer of rigid copper-clad sheets in the world, and its global market share has stabilized at around 12%. Benefiting from phased market highlights such as consumer electronics, automotive electronics, energy products, and mining machinery, combined with customer Spring Festival inventory preparation factors, Q1 demand grew rapidly. Q2 Due to the sharp rise in copper prices since late March, LME Copper and Shanghai Copper both hit record highs in May. Downstream customers actively prepared stocks, and the company's operating rate continued to increase, driving up the company's sales volume. In the first half of 2024, the company sold 70.0951 million square meters of various types of copper-clad plates, up 27.59% year on year; sold 90.6204 million meters of adhesive sheets, 14.83% year on year; sold 0.7145 million square meters of printed circuit boards, up 21.34% year on year.

Keep up with the advanced needs of the market, and have sufficient product technical reserves. The company continues to cooperate with high-quality downstream customers in R&D, forward-looking layout technology plans, and self-developed products have obtained certification from advanced terminal customers. The products are widely used in various fields such as high computing power, AI servers, 5G antennas, communication backbone networks, next-generation communication base stations, large computers, routers, and high-end servers. In the field of high-frequency high-speed packaging substrates, the company has now developed a full range of high-speed products with different dielectric losses, high-frequency products with different dielectric application requirements and multiple technology routes, and has achieved a variety of batch applications. In terms of copper-clad plate technology for packaging, the company's products have been used in batches in the fields of card packaging, LEDs, memory chips, etc., while breaking through key core technologies, and developed and applied in higher-end AP, CPU, GPU, and AI products represented by FC-CSP and FC-BGA packages.

The process of high-end products continues to advance, benefiting from AI to lead breakthroughs in high-end categories. The company actively promotes product certification and project certification. Among them, it maintains close cooperation with leading terminals at home and abroad in the AI field. Ultra-low loss materials have passed material certification from many North American and domestic terminal customers. With strong demand in segments such as AI servers, high-speed copper-clad panels are expected to recover first, and the company is expected to benefit from a sharp increase in volume and price during the AI implementation process.

First coverage, giving a “buy” rating. We expect the company to achieve net profit due to mother in 2024/2025/2026 of RMB 2.156/2.641/3.09 billion respectively, corresponding to PE of 20/16/14 times, respectively, giving it a “buy” rating.

Risk warning: Industry demand is lower than expected, market competition intensifies, and material prices are at risk