Incidents:

In the first three quarters of 2024, the company achieved operating income of 3.179 billion yuan, an increase of 32.97% year on year; net profit to mother was 0.187 billion yuan, an increase of 1156.98% year on year. Among them, in the third quarter, the company achieved operating income of 1.206 billion yuan, up 49.27% year on year and 10.81% month on month; net profit to mother was 0.09 billion yuan, up 432.26% year on year, up 29.86% month on month.

Comment:

The implementation of AI led to an improvement in the product structure, and both Q3 performance and gross margin reached new highs since 2021. The company has been deeply involved in the PCB industry for more than 30 years. Currently, the main business direction is the communication network, server and automotive electronics industries. The company continues to optimize the product structure and actively improve the regional layout of the product business.

Thanks to increased market demand for high-end PCB boards, the company's performance continues to grow. The company has completed the development of AI server products, successfully completed certification of several customer projects, achieved mass delivery, and AI server projects with early system layout have been mass-produced one after another. Benefiting from the continued expansion of high-margin products, the company's gross margin increased for 4 consecutive quarters. The gross margin reached 24.93% in Q3 in 2024, and both Q3 performance and gross margin reached new highs since 2021.

Firmly lead innovation, and technology research and development have become a diversified growth engine. The company takes technology research and development as the driving force and continues to increase investment in R&D. 1) In the field of high-speed communication, PCB products related to 800G high-speed switches were certified by many important customers, and small-batch delivery was achieved in the first half of the year. The company actively promoted the development of next-generation 224G products. 2) In the field of communication networks, we focus on developing high-end product technology in the areas of 112G, 224G, 5G-A, and 6G. 3) In the field of low-orbit satellites, continue to invest in research and development of satellite interconnection space-borne technology. 4) In the field of automotive electronics, the company focuses on innovative research and development in radar technology, domain controllers, smart cockpits, etc. As high-end products continue to be released, the company's profitability is expected to continue to increase.

High-end PCB production capacity is expanding, and the international layout is progressing hand in hand. The company's Dongcheng Phase IV focuses on high-end products such as HDI and hard and soft boards. Currently, it is in the climbing stage. Production capacity for HDI and hard and soft board is gradually being released. The business situation is improving steadily, and the certification and introduction of some key customers has been gradually completed.

Preparations for the construction of the Thai factory have been fully completed. Construction is expected to officially begin in the second half of this year, marking a further deepening of the company's global strategic layout and injecting new impetus into the company's long-term development.

Profit forecast and investment rating: We expect the company to achieve net profit to mother of 0.302/0.661/1.053 billion in 2024/2025/2026, corresponding to PE of 87/40/25 times, respectively, maintaining a “buy” rating.

Risk warning: downstream demand falls short of expectations, production expansion progress falls short of expectations, industry competition intensifies