Domestic copper clad plate production capacity ranks high, benefiting from the increase in the price of FR-4 copper-clad plates, which covered the “buy” rating for the first time
The company mainly produces FR-4 copper-clad plate products, with an annual output of over 38 million sheets, ranking among the top three domestic copper-coated plate manufacturers. We expect the company's revenue for 2020-2022 to be 38.0/71.1/8.88 billion yuan, respectively, net profit of 2.3/11.9/1.16 billion yuan respectively, and EPS of 0.32/1.63/1.59 yuan. The current stock price corresponding to the 2020-2022 PE is 34.3/6.7/6.9 times, and PB is 2.8/2.0/1.5 times. The copper clad industry has entered a boom cycle. Upstream raw materials and downstream demand have jointly pushed the price of FR-4 copper clad to surpass historical highs. The company mainly has a small to medium customer base and strong bargaining power. It is expected that it will fully benefit from the profit flexibility brought about by the price increase of copper clad plates. The medium to long term is optimistic that the company will vertically integrate glass fiber cloth production upstream to achieve a decline in costs. First coverage, giving a “buy” rating.
FR-4 copper clad plate is undergoing a new round of price increase cycle. The company benefits from FR-4 price increases. The flexible copper-clad business is the main component of the company's revenue and gross profit. The company's operating income and net profit are clearly cyclical with changes in the price of copper plate products. Since 2020Q4, the PCB boom combined with rising raw material prices has pushed copper-coated plates into a new cycle of price increases. This round of general increases in the three major raw materials meant that FR-4 costs were higher than in 2017, and FR-4 product pricing is also expected to surpass the previous round. The company's business model, which mainly focuses on small customers, has stronger bargaining power compared to peers in the copper-coated plate price increase cycle. The company mainly has domestic small and medium-sized customers. The concentration of the top five major customers in 2019 was only 4.8%, which is lower than that of comparable companies. As the price of copper-clad plates continues to rise, the company's gross margin and net interest rate will continue to increase month-on-month in a single quarter.
Starting vertical integration of production capacity, the Ningguo project will gradually increase the vertical integration of product-level companies upstream and expand the production capacity of electronic glass fiber cloth. In 2014-2016, the company expanded the production capacity of electronics-grade glass fiber cloth. In this round, glass fiber prices rose due to a recovery in demand. The company is expected to increase profits through vertical integration. The company has entered a product upgrade cycle and invested in a high-grade copper-clad plate project. It is estimated that after the Ningguo project reaches production capacity of 30 million high-grade copper-clad plates per year, achieving annual sales of 3 billion yuan.
Risk warning: The accelerated rise in raw material costs led to a decline in the company's gross margin; the improvement in the company's product structure fell short of expectations; the decline in downstream PCB prosperity led to a decline in the price of the company's copper-coated plate products; competition in the copper-coated plate industry intensified.
