Core views

The third quarter of 2024 achieved operating income of 10.36 billion yuan, up 16.14% year on year and 60.89% month on month; net profit to mother of 1.19 billion yuan, up 15.26% year on year, up 314.66% month on month; net profit after deducting non-return to mother of 1.173 billion yuan, up 13.71% year on year and 365.37% month on month. Looking at the third quarter, revenue was in line with expectations, but gross margin increased significantly from month to month, mainly due to major customers picking up new products, increased company operating rate, and optimized product structure. As a result, net profit for the third quarter increased sharply month-on-month even when bearing large exchange losses. Looking forward to the future, the company is still expected to maintain rapid growth in the field of automotive electronics and servers. Under the wave of end-side AI, processes and performance indicators such as PCBs will continue to improve, and the company's communication board, consumer electronics and computing board business will also gain momentum for continuous growth. We are firmly optimistic about the company's future development.

occurrences

The company released the results report for the third quarter of 2024

In the first three quarters of 2024, the company achieved operating income of 23.487 billion yuan, an increase of 14.82% year on year; net profit to mother was 1.974 billion yuan, up 7.05% year on year; net profit after deducting non-return to mother was 1.929 billion yuan, an increase of 8.89% year on year.

The third quarter of 2024 achieved operating income of 10.36 billion yuan, up 16.14% year on year and 60.89% month on month; net profit to mother of 1.19 billion yuan, up 15.26% year on year, up 314.66% month on month; net profit after deducting non-return to mother of 1.173 billion yuan, up 13.71% year on year and 365.37% month on month.

Brief review

Benefiting from major customers picking up new products, gross margin increased dramatically from month to month

In terms of revenue, the company achieved revenue of 13.126 billion yuan in the first three quarters of 2024, an increase of 14.82% over the previous year. On a quarterly basis, the third quarter of 2024 achieved revenue of 10.36 billion yuan, up 16.14% year on year and 60.89% month on month. The year-on-year increase is impressive. We believe that on the one hand, we are benefiting from the recovery of the downstream smartphone and other consumer electronics industries. On the other hand, the company is deeply involved in major customers. With the support of its own market strategy, the client share is still increasing. In addition, the company's automotive electronics and server business is growing rapidly.

On the profitability side, the 24Q3 comprehensive gross margin was 23.62%, up 0.78 pct year on year and 8.14 pct month on month, a significant increase from month to month. We believe that on the one hand, due to major customers picking up new products, the company's production line operating rate is high, diluting fixed costs, and in addition, product structure optimization also contributed to a certain extent. On the net profit side, net profit to mother was 1.19 billion yuan, up 15.26% year on year, up 314.66% month on month; net profit without return to mother was 1.173 billion yuan, up 13.71% year on year, up 365.37% month on month; the month-on-month increase in net profit was mainly due to a sharp increase in gross margin. The year-on-year increase in net profit was lower than the increase in revenue mainly due to exchange losses on the 24Q3 financial expenses side and an increase of more than 0.1 billion yuan year on year in R&D expenses. Looking forward to the future, Q4 is usually the peak season for consumer electronics such as smartphones. The company's operating rate is expected to stabilize. The company will continue to make efforts to further increase its client share and optimize the product structure. We expect the company's revenue and profitability to perform well in the fourth quarter.

The consumer electronics and computing business continued to pick up, and the communication board business accelerated month-on-month. According to the company's semi-annual report data, 2024H1, the company's communication board business achieved revenue of 8.73 billion yuan, an increase of 3.68% over the previous year, while the consumer electronics and computer board business achieved revenue of 3.931 billion yuan, an increase of 36.57% over the previous year. The third quarter was the launch period for mobile phone products for major customers. The company's new products were sold to major customers, and the overall price pressure was relieved compared to 24H1. We expect the company's 24H2 communication board business to grow well. The communication board business has a similar logic to the consumer electronics business. They all focus on major customer A and continue to expand non-A customers. High-end flagship models for 24H2 non-A customers have been released, and demand for ultra-high density circuit boards such as SLP is continuously expanding, and it is also expected to continue to increase revenue from the communication board business.

Hard board production capacity continues to expand, and the automobile and server market volume is growing. Automobile and server products are expected to continue to grow quarter by quarter this year due to the low revenue base and the continuous expansion of the company's products and customer types. In the automotive sector, the company's radar operation board and autonomous driving domain control board products continue to grow in volume. Related products have cooperated with many domestic tire1 manufacturers, and have also obtained certification from international Tier 1 customers. Mass production and shipment of 24H2 is expected to begin. In the server sector, thanks to significant growth in AI server shipments and significant growth in 2024H1's related business products, the company will still actively seize AI server market development opportunities. On the one hand, it will promote 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, and on the other hand, it will speed up the construction process of the Thai park in the direction of benchmarking the highest-grade server products. Looking forward to the future, the automotive electronics and server PCB market will continue to grow rapidly. As the company continues to expand production capacity in Huai'an and Thailand and the continuous introduction of customers, the company's automobiles and servers are expected to continue to grow rapidly.

Profit forecasting and investment advice

We expect the company's 2024/2025/2026 revenue to be 36.196/43.504/47.419 billion yuan, with year-on-year growth rates of 12.9%/20.2%/9.0%, respectively, and net profit to mother of 3.428/4.506/4.985 billion, with year-on-year growth rates of 4.3%/31.4%/10.6%, corresponding to 2024/2025/2026 P/E of 25.4/19.3/17.5 X, maintaining a “buy” rating.

Risk analysis

1. The risk that global macroeconomic fluctuations will increase and that industry recovery will fall short of expectations. The global macroeconomic situation in 2024 is complex and volatile. Growth in some developed economies is weak, facing pressure from inflation and rising interest rates, and consumption and investment have been curtailed to a certain extent. Although international trade has recovered, it is still affected by geopolitics and trade protectionism. Uncertainty in the global economy challenges the recovery of the downstream electronics industry, thereby affecting the PCB industry.

2. Exchange rate fluctuation risk. The company's main customers and suppliers are overseas companies. The company's exports and imported raw materials are mainly settled in US dollars, resulting in the company continuing to hold large amounts of US dollar assets (mainly US dollar monetary funds and operating receivables) and US dollar liabilities (including operating liabilities, bank loans, and other loans). As the scale of production and sales expands, the amount of the company's raw material imports and product exports will continue to increase, and the amount of foreign exchange settlement will continue to increase. Currently, due to multiple factors, there is great uncertainty in the foreign exchange market, so the company still faces the risk of exchange rate fluctuations.

3. The risk of further intensification of international trade frictions. The company's main customers are overseas companies. Currently, there is still great uncertainty about the international economic environment, especially Sino-US relations. If international trade frictions intensify and escalate in the future, it will have an impact on the overall economic operation and upstream and downstream industrial chains. The global market will inevitably be affected by this systemic risk. As a large enterprise operating globally, the company will also inevitably be affected, which in turn will adversely affect business performance.

4. Raw materials/energy shortages and the risk of rising prices. The company's PCB products use electronic components, copper foil substrates, steel sheets, adhesives, coating films, gold salts, semi-cured sheets, ink, copper balls and copper powder as the main raw materials. Fluctuations in raw material prices will have a certain impact on the gross margin level of the company's products; at the same time, the company requires a large amount of electricity in production, and electricity supply and electricity prices are also affected by fluctuations in energy supply and energy prices. Since 2024, global energy prices and commodity prices have fluctuated, and the company faces certain risks brought about by rising raw materials and energy prices.

5. The risk of rapid changes in the industry and increased competition in the market. The main downstream fields of the company's products are communication electronics, consumer electronics and computer products. They have the characteristics of strong fashion, fast product performance updates, and many brands. Consumer preferences for different products of different brands change rapidly, so the structural change cycle of the product market share of different brands is relatively shorter than in other traditional industries. If the company's main customers are at a disadvantage in market competition, the company's technology and production capacity cannot meet the customer's new product requirements, or the customer temporarily changes, delays or suspends the new product technology route, or the company is unable to develop new customers in a timely manner, the company's performance will be adversely affected.