Description of the event

Shengyi Technology released its 2024 three-quarter report: in the first three quarters of 2024, the company achieved operating income of 14.745 billion yuan, +19.42% year-on-year; net profit to mother of 1.372 billion yuan, +52.65% year-on-year. Looking at the third quarter of a single quarter, the company achieved operating income of 5.115 billion yuan, +14.52% year-on-year and -1.75% month-on-month; realized net profit of 0.44 billion yuan to mother, +27.83% year-on-year and -18.62% month-on-month.

Incident comments

Production and sales increased year-on-year, and profitability increased. In terms of profitability, in the first three quarters of 2024, the company achieved gross margin and net profit margin of 22.02% and 9.84%, respectively, +2.49pct and +2.65pct; in the third quarter, the company achieved gross margin and net profit margin of 22.87% and 9.24%, +2.91 pct and +1.67 pct, and -1.79 pct year-on-month, respectively.

The company's profitability improvement is mainly due to the year-on-year increase in production and sales of the company's copper-clad plate products, while optimizing the sales structure, resulting in a year-on-year increase in revenue and gross margin of copper clad plate products, as well as increasing other benefits and increasing profits by enjoying the value-added tax input tax credit policy; (2) the subsidiary Shengyi Electronics continued to optimize the product structure and actively improve the regional layout of the product business. Its production, sales, and operating income all increased compared to the same period last year. The increase in gross profit led to a significant increase in net profit.

The product structure is continuously optimized, and it has gained momentum in the field of AI. In 2024, with the delocalization of products and the recovery of downstream demand for artificial intelligence, XR, consumer electronics, etc., Prismark predicts that the global electronics industry market output value will reach 2.55 trillion US dollars in 2024. The company has benefited from the layout of product certification in the previous two years and a firm grasp of phased market highlights such as consumer electronics, automotive electronics, energy products, and mining machinery. While the oversupply situation is still prominent, the company continues to optimize the product structure and adjust product prices to balance customer order demand and profits. At the same time, the marketing team is actively promoting product certification and project certification. The company's ultra-low loss products have passed the material certification of many domestic and North American terminal customers. Currently, it is actively cooperating with new product delivery and project certification for PCBs and terminal customers to ensure the steady growth of the main copper clad plate industry in the midst of fierce market competition.

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 1.823 billion yuan, 2.241 billion yuan, and 2,643 billion yuan in 2024-2026, corresponding to current PE stock prices of 26.28 times, 21.38 times, and 18.13 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.