The continuous improvement of the prosperity of the copper clad laminate industry has attracted market attention since the fourth quarter, and we have recently invited the leaders of Jiantao laminate company to follow up and communicate on the cycle problems of the industry. We believe that the industry will maintain an upward trend, while Kingboard has the ability to vertically integrate upstream and downstream and will benefit from this cycle of price increases.

Copper clad Laminate tracking: since Q4 entered the uplink cycle, it is expected that the 21Q1 price increase is higher than expected. After 16-17 years of price rise in the copper clad laminate industry, due to the decline in demand and additional production expansion in the industry, 18H2-20H1 is in a price downward cycle, especially due to the double impact of the epidemic on supply and demand in the first half of this year, the industry price fell to the bottom area. Review the reasons for the price increase in 16-17: 1) the production capacity of main materials such as copper foil / electronic cloth / resin is in gap due to various factors, and the price rise promotes the price rise of copper clad laminate; 2) the economic recovery drives the recovery of demand in the downstream industry of copper clad laminate to provide the core driving force for price rise. Similarly, since 20Q3, the price of upstream main materials has risen sharply from the bottom, and the recovery of downstream non-communication demand such as automobiles, NB and home appliances has led to a rise in the price of copper clad laminate. the current price level has returned to the position at the beginning of the year, and the prices of some small and medium-sized factories have increased by about 20% relative to the mid-to-low point of the year. We judge based on the investigation of the middle and high-end market industry. Industry prices are still expected to rise more than expected (by more than 5%) in January. Considering the reduction of the impact of the overall production expansion of the industry on the supply side next year, the demand for NB/ household appliances remains in good condition in the short term, as well as the phased recovery of communications / server demand, the demand for cars is better than this year and the introduction of new products is intensified, the upward trend of the copper clad laminate industry is expected to continue.

Upstream raw material tracking: the price rise in the second half of the year is fierce, persistence still needs to be further tracked. Reviewing the price increase in 16-17 years, the prices of copper foil, electronic glass cloth and resin have soared and continued for several quarters. The underlying reasons include the clearing of supply and supply-side reform in the early low-profit state of these industries. Fiberglass cloth kiln maintenance cycle, and demand side with the overall improvement of economic recovery. Since the beginning of 18 years, the production capacity of raw materials has been greatly increased, the demand of the superimposed industry has reversed and declined, and the prices of the three major raw materials have continued to fall sharply. Under the influence of the epidemic in the first half of 2020, the profitability of raw material manufacturers has fallen to the lowest position in history. However, since the second half of the year, driven by the rise in the prices of commodities such as copper and oil, the superimposed demand for new energy has driven up copper foil processing fees, and the prices of copper foil, glass cloth, and resin have begun to rise sharply, of which copper foil processing fees have increased by more than 50% compared with the first half of the year. The prices of glass cloth and resin products have also risen sharply. However, we have observed this week that the quotation of liquid epoxy resin is 5% lower than the previous week and 27% lower than the high value of November this year. We believe that the essence of the price increase of the three main materials is not that the industry is in a state of shortage. However, after several years of low profit reshuffle, driven by the marginal improvement of supply and demand and the superimposed commodity price rise cycle, manufacturers began to periodically raise prices to improve their profitability. Therefore, the continuity of the follow-up price increases of the three main materials still need to be further tracked.

Jiantao laminate: vertically integrated layout, benefit from the price cycle of the industry. Jiantao laminate is mainly engaged in copper clad laminate and upstream raw materials, some real estate business. In 2019, the company had revenue of HK $18.38 billion and a net profit of HK $2.49 billion belonging to its shareholders. It was revealed that the CAGR of both revenue and profit in 2003-2009 was about 12%. Revenue structure of the company in 2019: FR4 accounts for 58%; paper-based copper clad laminate accounts for 11%; upstream materials account for 13%; real estate accounts for 9%; others account for 9%. At present, the company realizes self-supply of the three major raw materials needed for the production of copper clad laminate, and exports a small part of the rest. This vertically integrated business model is conducive to earning profits brought by the price increases of upstream and downstream at the same time. In terms of production capacity, the company currently has a full capacity of copper clad laminate with a monthly output of nearly 12 million pieces (the output at the beginning of the year is about 5 million, and it will add about 800000 pieces per month at the beginning of 21), of which home appliances / cars / NB/ communications / consumption / other income each accounts for about 15%, 20%, 20%, 20%, 15%, 10%. In terms of prices, the company's copper-clad laminate prices have risen by about 25-30% from their first-half lows in December, copper foil processing fees have doubled since the beginning of the year, and the prices of glass cloth and resin have also increased by nearly 50%. The company expects the price of copper clad laminate to continue to rise in the first quarter of next year, and the price of raw materials remains to be seen. In terms of profitability, the current monthly profit level of the company has greatly improved compared with the beginning of the year, but the profit improvement is mainly due to the advantages of raw materials, and the contribution of the price increase of copper clad laminate is still low. with the landing of the price increase of copper clad laminate products, the company's 21Q1 profit level is expected to improve.

Investment advice. We believe that next year, the downstream of the industry is expected to usher in multiple demand resonance, to provide support for the rise in copper clad laminate prices, especially next year Q1 copper clad laminate link to improve the adaptability of upstream main material price increases, while the price increase of their own products is more sufficient, is expected to usher in profit elasticity. Kingboard realizes the vertical integration of copper foil, glass cloth, resin and copper clad laminate, and the follow-up performance is also worthy of attention.

Risk factors: the industry demand is not up to expectations, the industry competition is intensified, and the profitability is lower than expected.