Incident: The company released the September revenue report. The company's consolidated revenue for September 2024 was 4.012 billion yuan, an increase of 5.12% over the same period last year. The company released its 2024 mid-year report. 2024H1 achieved revenue of 13.126 billion yuan, a year-on-year increase of 13.79%; realized net profit to mother of 0.784 billion yuan, a year-on-year decrease of 3.40%; and realized deducted non-net profit of 0.756 billion yuan, an increase of 2.17% year-on-year.

Among them, Q2 achieved revenue of 6.44 billion yuan in a single quarter, up 32.28% year on year and 3.69% month on month; realized net profit of 0.287 billion yuan, down 27.03% year on year and 42.29% month on month; realized deduction of non-net profit of 0.252 billion yuan, a decrease of 25.01% year on year and 50.00% month on month.

The consumer electronics industry is picking up, and profitability is under pressure in the short term. In the first half of 2024, with the recovery of the downstream consumer electronics industry and the advent of a new wave of technological revolution represented by AI, the company promptly grasped industry development opportunities, worked hard, and achieved steady growth in revenue. By product: In the first half of 2024, the company's communication board business achieved revenue of 8.73 billion yuan, an increase of 3.68% over the previous year; the consumer electronics and computer board business achieved revenue of 3.931 billion yuan, an increase of 36.57% over the previous year; and the company's automotive and server products achieved sales revenue of 0.43 billion yuan, an increase of 94.31% over the previous year. In terms of profitability: On the one hand, due to the promotion strategies of major customers, there is price pressure on the company's products as a whole. On the other hand, the company is preparing ahead of schedule for mass production during the peak season in the second half of the year, and investment in R&D expenses increased year-on-year, leading to a decline in the company's short-term net profit.

Increase investment in R&D and improve operational capabilities. The company continued to increase R&D investment. In the first half of 2024, the company invested 1.079 billion yuan in R&D, an increase of 20.43% over the previous year, accounting for 8.22% of revenue. With 2024H1, the company's total sales expenses, management expenses, and R&D expenses totaled 1.729 billion yuan, accounting for 13.18% of revenue, a slight increase of 0.08 pcts over the previous year.

By effectively grasping market trends, market share can be expected to increase in the future. In response to the market situation of downstream products, the company adopts an active and flexible market development strategy, making full use of its technology and scale advantages to further enhance the market share of the company's products in the high-end PCB market. In the first half of 2024, various brands accelerated the launch of AI terminal products represented by AI phones and AI PCs. The folding phone market is booming, and the advent of a new industry innovation cycle is expected to bring new growth impetus to the development of the industry.

The company prepared the relevant technical layout ahead of time. In response to the production capacity demand for high-end HDI and SLP products brought about by AI-related products, the company accelerated the production expansion project for high-end HDI and SLP printed circuit boards in Huai'an's three parks. Up to now, the first phase of the project has been put into operation, and construction of the second phase is being accelerated. It is expected that after the completion of the project, it will further increase the company's market share in the field of high-end HDI and SLP products. At the same time, the company is also actively grasping the market demand for PCBs brought about by the rapid development of AI servers and smart cars. In the field of automotive product development, the company's radar operation board and autonomous driving domain control board products continued to grow in volume in the first half of 2024. Related products have cooperated with many domestic Tire1 manufacturers, and have also obtained certification from international Tier 1 customers. Mass production and shipment is expected to begin in the second half of the year. In the server sector, thanks to significant growth in AI server shipments, the company's related business products grew significantly in the first half of 2024. On the one hand, the company actively grasped the AI server market development opportunities. On the one hand, it promoted cooperation between Huai'an Park and major domestic and foreign server manufacturers. Currently, many new customers have entered the certification, testing and sample stage one after another. On the other hand, it is aimed at benchmarking the highest-grade server products to accelerate the construction process of the Thai park.

Investment advice

We expect the company to achieve revenue of 36.227, 42.037, and 45.984 billion yuan in 2024-26, and achieve net profit of 3.718, 4.594, and 4.992 billion yuan, corresponding to PE 21.79, 17.64, and 16.23x. This is the first coverage, giving the company a “buy” rating.

Risk warning: New product development falls short of expectations; industry competition increases risk; industry prosperity falls short of expected risk