Since 23Q3, the consumer electronics industry has begun to recover moderately. The wave of AI set off by LLM continues. The iteration of AI terminals such as AI phones and AIPC has begun a new cycle of consumer electronics innovation, and AI computing power infrastructure is still growing rapidly.
The Zhitong Finance App learned that Debon Securities released a research report saying that the components sector is upstream. Downstream demand covers various fields such as consumer electronics, automobiles, industry, and communications. The industry has strong cyclical characteristics and is highly correlated with the macroeconomy. Since 23Q3, the consumer electronics industry has begun to recover moderately. The wave of AI set off by LLM continues. The iteration of AI terminals such as AI phones and AIPC has begun a new cycle of consumer electronics innovation, and AI computing power infrastructure is still growing rapidly. After experiencing a downward cycle from 2022 to 2023, the component industry is expected to continue recovering in 2024.
Recommended attention: Shunluo Electronics (002138.SZ), Sanhuan Group (300408.SZ), Jiemei Technology (002859.SZ), Shanghai Electric Power Company (002463.SZ), Shennan Circuit (002916.SZ), Pengding Holdings (002938.SZ), Shenghong Technology (300476.SZ), Shengyi Technology (600183.SH), Jiantao Laminated Board (01888), etc.
The main views of Debon Securities are as follows:
Passive components: The moderate recovery in downstream consumer electronics led to a recovery in the passive component boom. Revenue and profit sides improved significantly year-on-year, inventory turnover accelerated, and profitability continued to recover. The performance of major A-share companies is fragmented, and companies mainly in the consumer electronics business have performed better than optical storage and new energy.
Growth capacity: A moderate recovery in downstream demand compounded by a recovery in industry sentiment, and the 24Q1 revenue and profit growth of the passive components industry continued to improve year-on-year. 1) Overall industry performance: CITIC/Shenwan Passive Components Industry Index's net profit growth rate for the 24Q1 quarter was +15.9%/+19.0%, respectively, a significant improvement from -27.6%/-31.7% in 23Q1, and maintained year-on-year growth for the third consecutive quarter.
2) The performance of major A-share companies: Sanhuan Group/Shunluo Electronics/Fenghua Hi-Tech performed well, with Q1 revenue growth rates of +31.5%/+22.9%/+13.3%, respectively, and net profit growth rates of +35.3%/+25.0% year-on-year, respectively; the PV energy storage and new energy businesses, which account for relatively high performance, Farah Electronics/Jianghai Co., Ltd., where the revenue growth rate for the Q1 single quarter was +5.5%/-11.1%, respectively, and the year-on-year growth rate of net profit to the mother was -6.8%, respectively. /-11.3 %; The recovery of passive component companies led to a continuous recovery in order volume from upstream supporting companies, and Jiemei Technology achieved year-on-year growth rates of 17.9%/69.2% in a single quarter of 24Q1 revenue and net profit, respectively.
Profitability: Gross margin/net margin continued to recover year on year, and consumer companies performed better than new energy. 1) Overall industry performance: CITIC/Shenwan Passive Components Industry Index 24Q1 had gross margins of 26.9%/26.7% respectively, +1.22pct/+1.67pct, month-on-month -1.47pct/-0.82pct, single-quarter net interest rates were 13.0%/13.1%, +0.48pct/+1.03pct, and -1.42pct month-on-month.
2) Performance of major A-share companies: Sanhuan Group/Shunluo Electronics/Fenghua Hi-Tech/Jiemei Technology 24Q1 gross margins were 40.1%/36.9%/16.8%/39.2%, respectively, +0.73pct/+4.77pct/+5.72pct/+6.81pct, net interest rates for the single quarter were 27.7%/15.6%/6.9%/14.7%, respectively, +0.78pct/+5.84pct/+0.35pct/+4.45pct, with significant year-on-year improvement in profitability; Farah The gross margin for the 24Q1 quarter of Electronics/Jianghai Co., Ltd. was 33.1%/23.6%, respectively, -4.54pct/-2.21pct.
Operating capacity: Inventory turnover has accelerated, accounts receivable turnover has decreased slightly, and the business cycle is shortening. 1) Overall industry performance: The CITIC/Shenwan Passive Components Industry Index 24Q1 inventory turnover days were 104.3 days/106.5 days respectively, down 11.5 days/11.8 days year on year. The number of accounts receivable turnover days was 114.4 days/116.6 days respectively, an increase of 7.2 days/8.1 days year on year. The decrease in accounts receivable turnover speed partially offset the increase in inventory turnover. The overall business cycle was slightly shorter than last year.
2) The performance of major A-share companies: Sanhuan Group/Farah Electronics/Shunluo Electronics 24Q1 inventory turnover days was about 172.5 days/89.2 days/103.3 days, down 58.6 days/22.3 days/12.0 days, Fenghua Hi-Tech/Jianghai Corporation/Jiemei Technology 24Q1 inventory turnover days was about 73.0 days/122.8 days/162.7 days, up 0.6 days/5.1 days/15.1 days.
PCB: Demand recovery is driving up the industry cycle. The year-on-year profit growth rate in Q1 was significantly restored, and profit levels improved month-on-month. AI computing power infrastructure is expected to continue to drive the rapid growth of server PCBs, the rise in raw material prices such as upstream copper-clad plates in the short term or difficult to be transmitted downward, and changes in factors such as the extent of price increases need to be observed in the medium to long term.
Growth capacity: Looking at the industry as a whole, net profit from the CITICIT/Shenwan PCB Industry Index achieved year-on-year growth rates of 58.8%/34.8% in the 24Q1 single quarter, respectively, which is a significant recovery from -33.9%/-28.7% in 23Q1. From 2022 to 2023, due to factors such as weak consumer electronics demand, overall demand in the PCB industry weakened. Prismark forecast data shows that in 2023, the global PCB market output value was about US$69.517 billion, down 15.0% year on year.
Net profit from the CITIC/Shenwan PCB Industry Index in a single quarter declined year-on-year for 4 consecutive quarters in 23 years. In 2024, it is expected that the size of the PCB industry will continue to rebound as consumer electronics recovers moderately and demand grows in emerging fields such as automobiles and new energy sources. Among the major A-share companies, Shanghai Electric Power Co., Ltd. and Shennan Circuit, which are highly related to the AI server business, all achieved good performance. Net profit to mother increased by 157.0%/83.9% year-on-year in the 24Q1 single quarter, respectively.
Profitability: The 24Q1 CITIC/Shenwan PCB Industry Index achieved gross margins of 20.4%/19.2% in a single quarter, +0.84pct/-0.25pct year on year, +2.26pct/+0.35pct month-on-month, and 7.3%/6.6% year-on-year, +1.63pct/+0.91pct, and +5.91 pct month-on-month. Due to the low profitability of the PCB industry in Q4 in '23, the profitability of 24Q1 improved significantly month-on-month, but the year-on-year was basically the same as 23Q1. Among the major A-share companies, Shanghai Electric Power Co., Ltd. performed the most impressive, with 24q1 gross margin/net margin increasing by 8.13 pct/8.94 pct year-on-year, respectively, due to rapid revenue growth in AI servers and HPC-related PCB products.
Operating capacity: The CITIC/Shenwan PCB Industry Index 24Q1 inventory turnover days were 75.6 days/73.1 days respectively, down 7.5 days/9.5 days year on year, and the number of accounts receivable turnover days was 107.7 days/96.7 days respectively, up 3.2 days/down 5.1 days from year to year, respectively. Supply-side improvements and the recovery of downstream demand are driving the PCB industry boom from the bottom of the cycle to an upward stage, and operating capacity is expected to maintain an upward trend.
Influence of fluctuations in upstream raw materials: Since the beginning of the year, copper prices have risen sharply. The spot settlement price of LME copper has risen from US$8,430 per ton in early 2024 to US$9737 per ton on May 3. The rise in copper prices has led to a passive rise in the prices of important PCB raw materials such as copper-clad sheets, copper foil, and copper balls. In late March, copper-clad board manufacturers such as Jiantao Laminate, Willy Bond, and Jinbao Electronics all issued price increase letters. Electronic glass fiber manufacturers such as China Jushi, Shandong Glass Fiber, and Changhai Co., Ltd., which are upstream copper-clad plates, also issued product price increase letters before the end of March, which may further boost the price of copper-clad plates. According to customs statistics, the average unit price of CCL exports for PCBs in China has risen from 5.61 US dollars/kg in July 2023 to 6.39 US dollars/kg in March 2024, an increase of about 13.9%.
Other raw materials for copper-clad panels, such as epoxy resin, have not seen a significant increase in price at present. Debon Securities believes that there are many competitors in the PCB industry, and the industry pattern is scattered, but demand from 2022 to 2023 is insufficient, so the PCB industry's supply-side production capacity has improved to a certain extent. Judging from the past few rounds of raw material price increases, if the increase in raw material prices in this round is small, the PCB process may be difficult to transfer downward, but the profitability of PCB companies is squeezed or relatively limited; if a high increase in raw material prices is observed later, after experiencing improvements on the production capacity side, PCB companies are expected to further transfer price pressure to downstream terminal manufacturers.
Risk warning: Risk of macroeconomic performance falling short of expectations; risk of industry competition increasing risk of exceeding expectations; risk of downstream market demand falling short of expectations; risk of upstream raw material price fluctuations exceeding expectations.