Many brokerages emphasized that next year's 5G mobile phone motherboard upgrade will leave a 20% gap in production capacity. These few domestic A-share companies have domestic substitution opportunities▎Point 1: Why is HDI popular? Consumer electronics is the largest application

Many brokerages strongly emphasized that next year’s 5G mobile phone motherboard upgrade will leave a 20% gap in production capacity. These few domestic A-share companies have domestic substitution opportunities

▎Point 1: Why is HDI popular?

Consumer electronics is the largest application market for HDI, with mobile phone terminals accounting for 66%. The thinning and miniaturization of smart terminals has continuously increased the requirements for motherboards to be "light, thin, short and small". mobile phone motherboards have a clear transition from mid- to low-end HDI motherboards to Anylayer HDI and SLP motherboards.

The internal components of 5G mobile phones have doubled. The AnylayerHDI motherboard has become the mainstream solution for Android . The current 5G models released by Huawei, OPPO and VIVO all use 12-layer AnylayerHDI motherboards.

4G mobile phone motherboards are also moving towards high-end, and domestic mainstream mobile phone brands are accelerating. In 2020, 4G mobile phones will mainly use 10-layer and level 3 or above HDI motherboards.

Through the history of 4G replacement cycles, the penetration rate of 5G mobile phones is expected to accelerate in 2020H1, and the demand for HDI will usher in explosive growth.

The combination of capital, technology, and environmental protection has created high barriers to the HDI industry, which is limited by the industry's profitability. Foreign-funded and Taiwan-funded companies are relatively cautious in expanding production, and some overseas companies have even withdrawn from the market. It will be difficult to increase HDI output value on a large scale in the next two years.

According to third-party research and industry survey data, 5G mobile phone shipments may reach 300 million units in 2020, driving the HDI market to bottom out. The trend of mobile phone motherboard upgrades is obvious, and the stand-alone value of HDI motherboards will increase accordingly.

According to conservative estimates, the mobile phone HDI motherboard market size in 2020 is 51.5 billion yuan, with room for growth of 21.18% compared with 2019. At present, the market share of domestic enterprises is relatively low, and the market space is huge under the wave of domestic substitution.

▎Point 2: Overseas leading prices have skyrocketed, and products are in short supply.

Judging from the current industry situation, demand exceeds supply and price increases are expected. According to the industry chain survey of China National Finance Securities, some manufacturers have already made demands for price increases. The price increase of will most likely occur with .

Overseas Xinxing and Huatong are the top two HDI suppliers in the world. In 2019, as the stocking of 5G smart terminals gradually expanded and the demand for high-end HDI increased rapidly, the supply and demand of high-end HDI in the industry became tight. , supplier quotations began to gradually turn optimistic.

The evolution trend of the industry's prosperity can also be seen from the operating profit margin performance and stock price performance of Xinxing and Huatong.

And due to the expansion of demand, Huatong has restarted its plan to increase HDI production capacity at its second factory in Chongqing. The new high-end HDI production capacity is expected to be put into production in the first half of 2021 at the earliest.

Xinxing also said that with the arrival of the 5G stocking period, the demand for high-end HDI has entered a period of heavy volume.

▎Focus on

HDI Although it is occupied by overseas manufacturers, local manufacturers in mainland China are growing rapidly. In addition, overseas major manufacturers have very little capital expenditure on high-end HDI production lines, giving local HDI companies opportunities.

A few companies in China, including Multek (a subsidiary of Dongshan Precision) and Ultrasonic Electronics , have the manufacturing capabilities of Anylayer HDI. In 2020, some high-end Anylayer boards are expected to see the presence of these domestic manufacturers.

Dongshan Precision : Dongshan (Multek) has previously entered the OV mid-to-high-end mobile phone motherboard supply chain, and is expected to enter the HW flagship motherboard supply chain in the future. Considering that the company's technical level is at the top level of the non- Apple supply chain, it is expected to further benefit the industry next year. The trend of profit elasticity brought about by upgrades.

Ultrasonic Electronics : The company's Shantou No. 2 Factory has been providing core support for and for many years, and has the production capacity for any layer of HDI.

entered the Apple SLP connection board interposer supply chain as early as 2017, with a share of about 40%. In 2020, the area and unit price of the Apple SLP system will increase, and the company's interposer board business will also benefit.

Jingwang Electronics

Jingwang Electronics main business is rigid circuit board (RPCB), flexible circuit board (FPC, including mounting) and metal-based circuit board (MPCB) . From the perspective of gross profit margin, the company's gross profit margin remains at around 30%, and its net profit margin remains above 15%.

The future growth path of China's PCB comes from three aspects: 5G communication deployment leads to the growth of downstream applications; PCB production capacity is transferred to China; foreign PCB production capacity is transferred to Chinese PCB companies.

Jingwang Electronics has a comprehensive and relatively balanced layout in the industrial chain. The company also made efforts on the mobile phone in 2019, making the product layout more comprehensive.

Jingwang Electronics will receive some mid-to-high-end mobile phone orders from Samsung starting from 2019, with the amount reaching 200 million yuan, which is expected to more than double in 2020; in addition, the company will establish a high-end soft board processing and manufacturing factory in Zhuhai , and is expected to enter more International customer supply system, FPC revenue will achieve rapid growth.

▎ Logic 1: Plans to invest in HDI to adapt to the high-end needs of 5G mobile phones

The company plans to invest about 2.7 billion to build a new high-end HDI (including mSAP technology) production line, forming a high-density interconnection printed circuit board production capacity of 600,000 square meters. The

project has a planning period of 4.5 years. Construction will begin in the fourth quarter of 2019. It is planned to be fully completed in the first quarter of 2024 and reach production in 2025.

Jingwang Electronics itself has FPC capabilities, and is expected to fully cover on mobile phone motherboards and soft boards, further enhancing industry competitiveness.

▎Logic 2: Toyama integration temporarily drags down profits, which is expected to improve

One of the difficulties that plagues Jingwang’s stock price is profit , because the Toyama Division (win-win) lost about 88 million in the first three quarters, and the Q3 single-quarter loss after consolidation was about 2,250. million impact on profits.

's losses this time mainly come from the elimination, new purchase and running-in of equipment that are not suitable for the business characteristics of Jingwang Electronics' in the early stage, as well as temporary losses such as recruitment, downsizing and training of personnel. is expected to gradually enter the right track .

In fact, the company's revenue has increased quarter by quarter during the year, and Q4 revenue is expected to rise steadily from the previous quarter. In the context of industry demand gradually coming out of the trough, on-hand production capacity is expected to continue to be digested next year.