The company announced the 24-year restricted stock incentive plan (draft) on the evening of the 21st and held a 2024 investor exchange meeting on the 22nd. Based on the exchange meeting and recent developments in the industry and company, our comments are as follows:

The company is positive and optimistic about the medium- to long-term development of the CCL industry. The company's products and technology are leading, and it is expected to usher in a new round of development opportunities. At the exchange meeting, the company believed that the CCL industry has now broken out of the bottom and entered the upward channel, and showed that its core technology progress in various materials fields can fully match international peers. Among them, 1) AI development puts forward higher technical requirements for high-speed materials, and server-side demand for CCL is expected to grow rapidly in the next 3 years. The company has server system product solutions, including AIGPU (UBB/OAM), data center Switch (400G/800G/1.6T) and Server (MB); 2) Future trends in AI energy products Including high system integration, thinness, high conversion efficiency and low voltage and high current, the company has relevant AI server power supply and module product solutions; 3) the 5G-A network will usher in a 5-year construction cycle, and the base station scale is expected to be released year by year, and the company has achieved mass production and shipment of corresponding products in 24; 4) 6G communication's technical demand for materials has been developed early and the layout is perfect. It has material solutions for advanced packaging. The related product SIF film is also expected to be shipped in overseas markets this year. Domestic replacement of key materials. The company has a deep layout in high-end products and cutting-edge segments, and is expected to usher in a new round of development opportunities in the future.

In the short term, the company's operating rate continues to improve. Product price increases were implemented one after another in May, and the combination of customer structure optimization and product upgrades promoted the continuous restoration of profitability. According to our close follow-up and understanding, along with the gradual recovery of downstream demand, PCB factory inventory demand has increased. The company's Q2 orders are currently visible for a long time, the operating rate remains at a high level, production capacity is tight, and the company's market strategy continues. The product structure will be further optimized, and profitability will be steadily improved in quality. Furthermore, we have observed that since the beginning of the year, upstream copper prices have risen by more than 27%, and that the price of glass fiber cloth has also increased. The CCL industry has also begun to see price increases one after another, pushing the industry into a profit-side improvement channel. We learned that in May, the company also began to push product price increases to downstream customers one after another, and the company's gross margin will continue to rise upward.

Looking ahead to 24 years, the CCL industry has entered an upward channel. The company's high-end products continue to make new progress and breakthroughs, and the resonance of cycle and growth drives new space for performance growth. We judge that the CCL sector has now entered an upward channel, and the profit side of the industry will continue to improve. In terms of high-end products, the company's M7/M8 materials have been certified by overseas N customers and domestic H customers, and are expected to gradually be launched in the second half of the year and next year, and domestic computing power demand is expected to continue this year. The company has card position advantages in the domestic core customer supply chain; the penetration rate of traditional EGS server platforms is rapidly increasing, and demand for M6 materials continues to be released to drive high-end product structure upgrades; ABF carrier board base film (SIF film) has been verified by major domestic customers. It is currently progressing well and is expected to usher in batch shipments this year. Moreover, the company has obvious card advantages in high-end products such as automobile boards, digital communication boards, and Weitong boards, and is expected to continue to gain strength, bringing additional growth momentum. Furthermore, Shengyi Electronics has gradually broken through leading overseas cloud vendor customers in the digital communication field, obtained large AI orders, and continued to release new production capacity, which is expected to contribute flexibly to Shengyi Technology.

The three-year incentive binds the medium- to long-term interests of core management and is expected to open a new chapter of development. The company plans to grant 589.39 million restricted shares at one time, accounting for 2.5% of the total share capital. The incentives target the company's directors, senior management, middle management, and core key employees, for a total of 738 people, accounting for 6.39% of the company's total number of employees at the end of 2023. Incentive target: Based on net profit deducted from non-return to mother in '23, net profit after deducting non-return to mother increased by no less than 25%/44%/66% in 24/25/26. According to estimates, the company's incentive target for 24-26 deducted non-net profit was 13.65/15.72/1,813 billion, with year-on-year growth rates of 25.0%/15.2%/15.3%, respectively. Grant price: 10.49 yuan/share; total amortization cost of this equity incentive:

It is estimated to be approximately 610 million, with amortization of 2.0/2.7/1.1/0.3 billion for 24-27 years, respectively. Based on our judgment on the industry and company, we believe that the company's performance expectations for the next three years will clearly exceed the current incentive performance target. Furthermore, the number of employees stimulated this time accounts for 6.4% of the total number of employees in the company, covering core management and key employees, which will lay a solid talent foundation for the company to enhance its medium- to long-term core competitiveness.

Maintain a “Highly Recommended” investment rating. We believe that high-end product upgrades of the company are expected to continue to be realized, and there is potential to exceed expectations in the medium to long term. We expect 24-26 revenue of 193.2/222.9/25.44 billion, net profit to mother of 18.5/22.1/2.65 billion, corresponding EPS of 0.78/0.94/1.12 yuan, corresponding to the current stock price PE of 25.3/21.2/17.6 times, and PB of 3.2/2.8/2.5 times. We are optimistic about the company's product matrix, management capabilities and medium- to long-term business development space, and maintain a “Highly Recommended” rating.

Risk warning: raw material prices fluctuate, industry competition intensifies, demand falls short of expectations, technology upgrades fall short of expectations.