Shengyi Technology is the world's second largest provider of electronic circuit substrates and is committed to providing customers with comprehensive and high-quality electronic circuit substrate solutions. Founded in 1985, the company is mainly engaged in the production of high-

(Report Producer/Analyst: Huatai Securities Huang Leping, Chen Xudong, and Hu Yuzhou)

Shengyi Technology : The global leader in copper clad laminates

Key points: Cloud computing and vehicle electrification drive company performance growth

Shengyi Technology is The world's second largest electronic circuit substrate provider, committed to providing customers with comprehensive and high-quality electronic circuit substrate solutions. Founded in 1985, the company is mainly engaged in the production of high-end electronic materials such as copper-clad laminates and adhesive boards (accounting for approximately 80% of 2021 revenue), and also operates the printed circuit board (PCB) business through its subsidiary Shengyi Electronics ( Approximately 17% of 2021 revenue). The company's products are mainly used in communications, automotive electronics, servers, consumer electronics, home appliances and other fields.

At present, the company's copper clad laminate products have been recognized by well-known international and domestic manufacturers such as Huawei , ZTE , Nokia , Inspur , Bosch , Lenovo , Sony , Philips , Gree and other well-known international and domestic manufacturers. , exported to Europe, the United States, Japan, South Korea, Africa and other countries and regions around the world; at the same time, the company's PCB products have also established stable cooperative relationships with Huawei, ZTE, Samsung and Inspur. According to data from Prismark, the company's total sales of rigid copper-clad laminates in 2019 have jumped to second place in the world.

Investment Points #1: Beneficiaries of cloud computing development and vehicle electrification

As a leading copper-clad laminate company with a complete product range and leading technical capabilities, Shengyi Technology will benefit from the continued construction of 5G base stations, the rapid development of cloud computing and Electrification of cars.

In terms of cloud computing, we see that cloud computing promotes the construction of ultra-large-scale data centers; at the same time, server platform upgrades drive the use of high-performance PCB/CCL.

In terms of vehicle electrification, we see that the electrification and intelligence of vehicles have brought more PCB/CCL application scenarios, such as electronic control systems, ADAS and smart cockpits for new energy vehicles.

Shengyi Technology is actively expanding its production capacity to meet these new demands, and plans to increase its overall copper-clad laminate production capacity by 30% during the "14th Five-Year Plan" period. With the launch of new production capacity, we expect the company's revenue CAGR to reach 11% in 2022E-2024E.

Investment Point #2: The product structure continues to upgrade, leading the domestic replacement of with high-end copper-clad laminates.

Shengyi Technology accelerates the layout of high-end copper-clad boards:

1) high-frequency and high-speed products have obtained customer certification, and product performance has also reached international leading levels. level;

2) Automotive millimeter wave 77GHz radar related technology has made breakthroughs, and has obtained certification from many well-known terminals in the fields of automotive high voltage resistance, thick copper and other fields;

3) The MiniLED substrate provided to major North American customers has achieved mass production;

4 ) packaging substrate and high-frequency and high-speed copper-clad laminate projects are expected to be put into production in 3Q22.

With the rise of domestic communication giants and server manufacturers, the company is expected to rely on the high cost performance of its products and the localization of production capacity to achieve domestic substitution in the field of high-end copper-clad laminates (for example, in the field of high-frequency boards, realize the domestic substitution of Rogers), and enhance the high-end Product revenue share. With the optimization of revenue structure, we expect the company's gross profit margin to increase to 27.4% in 2024E.

differs from the market's perspective in that we are more cautious in forecasting the company's profit performance. Although the company will benefit from the high prosperity of downstream application scenarios, the expansion of production capacity and the upgrade of product structure, we believe that the company will also face the pressure of falling product prices in the short term, so we predict that the CAGR of operating income from 2022E to 2024E will be 11%. Net profit attributable to shareholders will have a CAGR of 8.4% from 2022E to 2024E.

Profit Forecast: We estimate that the company’s net profit attributable to the parent company in 2022E-2024E CAGR will be 8.4%

Shengyi Technology’s main source of revenue is the sales revenue of copper-clad laminate & adhesive board products and printed circuit board products.We estimate that the company's operating income from 2022E to 2024E will be 21.2 billion yuan, 24.1 billion yuan and 27.3 billion yuan respectively, and the CAGR from 2022E to 2024E will be 11%. is mainly taken into consideration:

1) downstream application scenarios (G base station , servers and automobiles Electronics, etc.) high prosperity;

2) The company's new production base (including Songshan Lake Phase 8, Changshu Phase 2, Shaanxi Phase 3 and Jiangxi Phase 2) has been put into production;

and 3) high-end products (mainly including high-frequency Expansion of high-speed, HDI substrates and packaging substrates, etc.).

Looking forward to 2022, the industry's production capacity will continue to expand. The company's copper-clad laminate product prices are facing downward pressure, but raw material costs are still high. We expect the company's gross profit margin to fall by 0.7pp year-on-year to 26.1%, driving the company's net profit attributable to shareholders will be reduced to 2.48 billion yuan; with the further optimization of the company's product structure, we predict that the company's gross profit margin will also steadily increase by 26.7% and 27.4% in 2023E and 2024E, and the company's net profit attributable to the parent company will reach 3.60 billion yuan in 2024E ( 22E-24E CAGR: 8.4%).

In terms of product types, the company's revenue mainly comes from the sales of copper clad laminates & adhesive sheets and printed circuit boards. Among them, the sales revenue of copper-clad laminates & adhesive sheets in 2021 is 16.2 billion yuan, accounting for 80% of the total revenue; the sales revenue of printed circuit board in 2021 is 3.5 billion yuan, accounting for 17% of the total revenue.

Copper-clad laminates & adhesive boards Copper-clad laminates & adhesive boards are the company's basic products.

benefited from:

1) the commissioning of the company’s new production bases (including Songshan Lake Phase 8, Changshu Phase 2, Shaanxi Phase 3 and Jiangxi Phase 2);

2) downstream application scenarios (mainly 5G base stations, data centers and automotive electronics) High prosperity;

and 3) optimization of product structure, we predict that the company's copper clad laminate & adhesive board business revenue will reach a CAGR of 10% from 2022E to 2024E.

Considering that industry production capacity will continue to expand in 2022, the company's copper clad laminate products will face downward pressure on prices. We predict that the company's gross profit margin of copper clad laminate & adhesive board products will decline to 26.0% in 2022E; at the same time, the company continues to upgrade its copper clad laminate products , the product revenue structure will continue to improve. We predict that the company's copper clad laminate & adhesive laminate products' gross profit margin will increase to 26.3% and 26.6% in 2023E-2024E.

Printed Circuit Board The company mainly conducts PCB business through its subsidiary Shengyi Electronics.

Affected by the price adjustment of base station PCB products, the company's printed circuit board business revenue fell by 1.2% year-on-year in 2021.

At present, the price decline trend of the company's base station PCB products has eased. With the expansion of Shengyi Electronics' production capacity and the high prosperity of downstream application fields (mainly the server field and automotive electronics field), we predict that the company's printed circuit board business revenue will reach a CAGR of 13% from 2022E to 2024E. At the same time, the company's printed circuit board business will benefit from the decline in copper-clad laminate product prices in the short term, and we expect the company's gross profit margin to rebound to 20.0% in 2022E.

In terms of expense ratio, the company has maintained stable R&D investment (the proportion of revenue in 2020 and 21 was 4.8%), and controlled sales expenses and administrative expenses at a low level (the proportion of revenue in 2021 was 1.1% respectively) and 4.5%).

Looking forward to 2022E-2024E, we expect that the company will still maintain stable investment in R&D to consolidate its competitiveness, and continue to exert good cost control capabilities to control the overall operating expense rate (sales, management and R&D) at a level of 10.4% .

Copper-clad laminate is the core material for making PCB. It is mainly used in the communication field and server field.

In the copper-clad laminate industry chain, the upstream of copper-clad laminate mainly consists of copper foil , wood pulp , fiberglass yarn and synthetic resin. Basic raw materials such as are directly downstream of PCB, and PCB will be applied to different fields such as communications, servers, consumer electronics, and automotive electronics. According to Prismark, the global PCB market reached US$61.3 billion in 2019. Among them, the communication field and the server field are the two largest application fields of PCB, accounting for 33.0% and 28.6% of the global market respectively.

Copper-clad laminate, as the core material for making PCB, is a plate-shaped material made by impregnating electronic fiberglass cloth or other reinforcing materials with resin, covering one or both sides with copper foil and hot pressing.

According to different reinforcing materials, copper clad laminates can be divided into fiberglass cloth based copper clad laminates, paper based copper clad laminates and metal based copper clad laminates.

copper clad laminate is closely related to the quality and performance of PCB. Its supply level and production technology have a significant impact on PCB manufacturing, accounting for approximately 30%-70% of the cost of PCB raw materials (data source: Shengyi Electronics Prospectus, a subsidiary of Shengyi Technology manual).

The copper clad laminate industry is highly concentrated, and the company has strong bargaining power.

The copper clad laminate industry is highly concentrated, while the downstream PCB industry is relatively dispersed.

According to Prismark, the world's top five copper-clad laminate manufacturers (including Kingboard, Shengyi Technology, Nanya Plastics, Panasonic and Taiwan Optoelectronics) had a combined market share of 51% in 2019, while the top five PCB manufacturers (including Zhending, Xinyi Xing, Qisheng, Dongshan Precision and Schindler Technology) have a combined market share of only 22%.

In addition, each copper-clad laminate manufacturer focuses on different product categories. After going through the Duolun cycle, they have accumulated good technical levels and stable customer resources. The homogeneous competition faced by copper-clad laminate manufacturers is also far away. Weaker than PCB manufacturers.

Therefore, copper-clad laminate manufacturers have stronger bargaining power when facing their downstream customers, PCB manufacturers. We believe that good bargaining power will help CCL companies smoothly transfer the pressure of rising costs to downstream manufacturers. Valuation of

: Using the PE valuation method, we give a target price of RMB 21.4 for

. We use the PE valuation method.

Considering the company's: 1) leading position in the field of copper clad laminates; 2) active expansion of production capacity; and 3) continuous optimization of product structure (the revenue share of high-end products such as high-frequency and high-speed, packaging substrates and HDI substrates continues to increase), we are optimistic The company's long-term development is given a 2022E target PE of 20.0x (vs the 2022E PE of domestic comparable companies: 15.0x), and the corresponding target price is RMB 21.4 yuan.

Stock Price Review Reviewing the company's stock price trend since its listing, we can see that before 2017, the company's stock price was strongly correlated with the upstream raw material price cycle (price) and the downstream PCB output value cycle (volume). After 2017, the stock price cycle attributes have changed. reduce.

According to the evolution history of mobile communication networks, the company's stock price trend can be roughly divided into four stages.

1) The first stage is since its listing - 2003: During this period, the explosion of demand for 2G feature phones and the development of the Internet and data processing technology drove the global PCB output value to reach a CAGR of 12.07% from 1998 to 2000, and the company's stock price increased due to downstream demand Catalyzed by high growth, it rose correspondingly;

2) The second stage is from 2003 to 2008: with the start of the 3G construction cycle, the global PCB output value reached a CAGR of 7.78% from 2003 to 2007. At the same time, the price of upstream raw materials continued to hit new highs, driving the overturn. With the price of copper plates rising and both volume and price rising, the company's stock price has risen accordingly;

3) The third stage is from 2009 to 2016: mobile communication networks have entered the 4G era, and consumer electronics such as 4G smartphones have become new highlights in downstream demand, but during this period Affected by factors such as the fall in the price of upstream raw materials and the overcapacity of the copper-clad laminate industry itself, the price of copper-clad laminates has also fallen significantly. Under the combined effect of price and demand, the company's stock price has gone out of two cyclical trends;

4) The fourth The stage is from 2017 to the present: G infrastructure construction officially started in 2019 (the market has already expected it in 2017). However, during this period, the intensification of Sino-US trade friction, US sanctions on Huawei, and the outbreak of the new crown epidemic have all created a relatively large impact on downstream demand. There was a huge suppression, and at the same time, the price of copper clad laminates also entered a downward cycle, causing the prosperity of the entire industry to decline.

However, the company is seizing industry opportunities such as the expansion of 5G communication orders, vehicle electrification, and server platform upgrades. The high-end products laid out in the early stage of R&D have begun to grow in volume. Coupled with the efficiency improvement brought by refined management, the cyclical nature of the stock price has decreased. Get out of the countercyclical market in 2018-2020.

equity structure: The state-owned background is expected to provide more resource support.

has a relatively loose equity structure, and the state-owned background is expected to provide more resource support. According to the 2021 annual report, the company's largest shareholder Guangxin Holdings holds 24.76% of the shares, the second largest shareholder Dongguan Guohong Investment holds 13.89%, and the third largest shareholder Tang Yingnian holds 12.76%. No shareholder holds any shares. The shareholding ratio exceeds 30%, and the ownership structure is relatively loose.

It is worth noting that Guangxin Holdings and Dongguan Guohong Investment are backed by the Guangdong Provincial State-owned Assets Supervision and Administration Commission and the Dongguan Municipal State-owned Assets Supervision and Administration Commission respectively. With the support of the state-owned assets background, the company is expected to undertake more national technology research and industrial research projects, and in terms of funding, Gaining advantages in resources and other aspects will help it continue to consolidate its leading position in the industry.

In 2020, the company spun off its subsidiary Shengyi Electronics and listed it on Science and Technology Innovation Board . On February 25, 2021, Shengyi Electronics was issued and listed. Currently, the company still holds 62.93% of the total share capital of Shengyi Electronics.

Cloud computing and vehicle electrification promote rapid business development

According to Prismark data, PCBs are mainly used in communications, servers, consumer electronics, automotive electronics, aerospace, industrial electronics, and medical equipment. Among them, communications, servers, consumer electronics and automotive electronics are the four most important application areas, accounting for 33%, 29%, 15% and 11% of the global PCB market share in 2019 respectively.

Shengyi Technology's copper-clad laminate products are also mainly used in communications, automotive electronics, servers, consumer electronics and other fields.

We believe that Shengyi Technology will benefit from the continued construction of 5G base stations, the rapid development of cloud computing and the electrification of cars.

5G base station construction: PCB/copper clad laminate value may exceed that of the 4G era

Compared with 4G base stations, the 5G base station architecture has undergone major changes: the 4G base station architecture mainly includes passive antennas, remote radio frequency units (RRU) and baseband processing Unit (BBU); in the 5G era, passive antennas, RRUs and part of the physical layer will evolve into active antenna units (AAU), while BBU will be split into distributed units (DU) and centralized units (CU).

Among them, each 5G base station contains 3 AAU and 1 BBU (CU+DU). The following components mainly require the use of PCB:

1) AAU: The antenna base plate in the antenna system is mainly a high-frequency PCB, which is the antenna The carrier of the vibrator, while the antenna vibrator is composed of plastic, metal coating and PCB. At the same time, the radio frequency system uses a multi-layer PCB as the carrier (usually 12-16 layers), on which the intermediate frequency chip, filter , power amplifier, etc. are arranged.

2) BBU aspect: The structure of 5G BBU has not changed significantly compared to 4G. It still uses the external structure design of G, but replaces the baseband board and central control board.

We believe that the value of PCB/copper clad laminate of 5G base stations will exceed that of 4G base stations. The main reason is:

1) G base stations have more :

5G After the base station operating frequency band is increased, the penetration of band is reduced, and more needs to be used. Multiple base stations are used for signal transmission and relay. The density of 5G base stations will be significantly greater than that of 4G base stations. The total number of base stations is expected to achieve a breakthrough in volume, which will in turn drive the growth of PCB usage.

2) Single-site PCB usage area is larger:

i) Since the internal connections of AAU are more in the form of PCBs, the number of single-site PCBs in the 5G period will increase significantly compared with the 4G period; ii) Due to the addition of intermediate circuits between DU and CU In the transmission part, 5G base stations have increased the demand for transmission components (such as optical modules and optical fiber );

3) 5G base station PCB prices are higher:

i) Considering the increase in 5G base station transmission power, the working frequency band is also higher, Therefore, 5G RF circuit boards also put forward higher requirements for the high-speed performance and high-frequency performance of materials, thereby pushing up the price of single boards; ii) Considering that the antennas of 5G base stations have 64, 128 or even 256 channel numbers, the BBU needs to have Higher data processing capabilities will lead to greater usage of high-speed PCBs, thereby pushing up the price of single boards.

According to data from the Ministry of Industry and Information Technology, as of the end of 2021, China has built and opened a total of 1.425 million 5G base stations; of which, 654,000 5G base stations were added in 2021, building the world's largest 5G network.

Huatai Communications team predicts that by 2025, the total number of 5G base stations will reach 3.67 million, corresponding to an average annual construction of 561,000 per year from 2022E to 2025E. We estimate that the entire 5G construction cycle (2019-2025E) will drive the value of PCB to 42.5 billion yuan and the value of CCL to 8.8 billion yuan.

cloud computing: server platform upgrade drives the usage of high-performance PCB/CCL

server is the second largest application field of PCB. We believe that Shengyi Technology will benefit from a new round of server upcycle, mainly considering:

1) Benefiting from the rapid development of cloud computing, the market demand for servers is further highlighted;

2) Server upgrades have driven the demand for high-frequency, high-speed and other high-speed servers. Performance PCB and copper clad laminate needs.

Benefited from the rapid development of cloud computing, the market demand for servers has been further highlighted.

With the rapid development of cloud computing in recent years, the global data volume and data flow have shown a blowout growth, which has also increased the demand for data center construction. We have noticed that global cloud computing companies have continued to increase their capital expenditures since 2019. Among them, the capital expenditure of major manufacturers in China and the United States (including Amazon , Microsoft , Google , Facebook , Apple , Baidu , Alibaba and Tencent ) in 1Q19 was US$18 billion. , while expenses in 3Q21 have grown to US$38.2 billion, an increase of 112%.

A large amount of capital investment will also drive the construction of data centers. As the largest component of the data center cost structure, servers account for 60-70% of the overall cost and will also benefit significantly from this round of capital investment.

The market share of Chinese server manufacturers continues to increase. According to data from IDC, the global market share of Chinese server manufacturers continues to rise, from 0.8% in 2010 to 23.9% in 2020; the local market share of Chinese server manufacturers has increased even more significantly, from 6.1% in 2010 to 77.2% in 2020. The

server upgrade has increased the performance requirements for PCBs, which are mainly reflected in performance requirements such as high frequency and high speed. Currently, 90-95% of the world's servers use the Intel x86 architecture.

As Intel upgrades its server platform, the structure and material properties of the PCB used by the server will also change accordingly.

Generally, low-end servers use PCB layers of 8-12 layers, mid- to high-end servers use PCB layers of 12-20 layers, and ultra-high-end servers use PCB layers of more than 20 layers.

We noticed that Intel has upgraded its server platform from Purley to Whitley in 2021, and is expected to further upgrade to Eagle Stream this year. The PCIe interface levels corresponding to these three server platforms have been upgraded in sequence, to PCIe 3.0, 4.0 and 5.0.

With the improvement of PCIe interface level, the transmission efficiency of PCB used by servers also needs to be improved accordingly, which also drives the demand for high-frequency and high-speed copper-clad laminates.

According to our industry survey, PCB generally accounts for about 9% of server raw material costs.

We assume that the server manufacturer's gross profit margin is 10% (refer to the server leader Inspur Information 's 21-year gross profit margin of 11.4%), and raw materials account for 95% of the server manufacturer's operating costs (refer to Zhongke Shuguang 's 21-year raw material revenue share Revenue ratio is 95%), PCB manufacturers' gross profit margin is 20% (refer to the average gross profit margin of the PCB sector in 2020 of 23%), raw materials account for 65% of PCB manufacturers' operating costs, and copper-clad laminates account for 40% of PCB raw material costs.

With the development of cloud computing, we predict that global server construction will drive the cumulative value of PCB to US$60.6 billion during 2019-2025E, and the cumulative value of CCL will reach US$12.6 billion.

Automobile electrification: Improve the electronic content of automobiles and create more PCB/CCL application scenarios

Traditional automobiles have a low degree of electronics and a small amount of PCB. The electrification and intelligence of automobiles will bring about an increase in automobile electronics content and PCB Growth in usable area.

The use of PCBs in traditional fuel vehicles is mainly distributed in power control systems, body electronic systems, safety control systems and on-board electronic systems.

The electrification and intelligence of automobiles will bring about an increase in the electronic content of automobiles. According to Gasgoo data, the automobile electronic value content of traditional economical fuel vehicles is about 15%, and that of new energy vehicles will reach 47%-65%; Prismark It is predicted that the value of single-vehicle automotive electronics will grow at a CAGR of 5% from 2018 to 2022 to US$2,715. As an important function-bearing component of automotive electronics,

PCB will greatly benefit from the increase in automotive electronics content brought about by the development of automotive electrification and intelligence, which is specifically reflected in the following aspects.

Automotive Electrification #1: New energy vehicles have significantly increased the demand for PCBs due to their unique power systems.

According to different power structures, new energy vehicles can be divided into two categories: pure electric vehicles and hybrid vehicles. Among them, pure electric vehicles (battery electric vehicles, BEV) are completely driven by motors, while hybrid electric vehicles (hybrid electric vehicles, HEV ) will introduce a new electric drive system while retaining the traditional automobile fuel engine.

Whether it is BEV or HEV, the adoption of electric drive systems will bring about a new increase in PCB area based on the PCB usage of traditional fuel vehicles. According to data from electronic enthusiasts, the three major components of the new energy vehicle electronic control system, VCU, are , MCU and BMS will generate a total of 3.42-5.42 square meters of new PCB demand, and bring an increase in the value of bicycle PCB by about 2,000 yuan.

Automotive Electrification #2: FPC accelerates the replacement of traditional wiring harnesses in power batteries and drives demand for its own growth.

Due to the many excellent properties of FPC itself and the rapid cost reduction brought about by large-scale mass production, its use in the automotive field will gradually spread, but the largest increase will come from the replacement of traditional wiring harnesses in the power battery field. The traditional copper wires used in

power batteries in the past need to be matched with the wiring harness when the battery pack current signal is large, occupying a lot of space, and the degree of automation during the Pack assembly process is low. According to Gasgoo, if a car uses FPC The flexible flat wire harness replaces the traditional wire harness, which can reduce the overall weight of the wire harness by about 50% and the volume by about 60%. If the electronic module, switch and FPC wire harness are integrated, the use of connectors and accessories can be reduced, further reducing costs. .

At present, the use of FPC power batteries represented by Tesla has been recognized by the market. In the future, with the joint promotion of power battery and FPC manufacturers, FPC is expected to be introduced into the industry in large quantities.

Automotive Intelligence #3: Millimeter wave radar and lidar , as key components to achieve ADAS, will drive the development of automotive PCB boards into high-end products with greater value. The realization of

ADAS system functions requires the cooperation of various sensors such as cameras, millimeter wave radar , lidar, and ultrasonic radar to form the perception layer of the car.

Currently, mainstream models on the market that support L2-L3 level ADAS functions are generally equipped with around 23 sensors. According to Yole, to achieve L5 level ADAS, the number of sensors must reach at least 38 or more.

As can be seen from the disassembly diagrams of Bosch MMM1Crn millimeter wave radar, Valeo SCALA lidar and ZF S-CAM4 trinocular and monocular cameras, all types of sensors require PCBs as carriers, especially millimeter wave radar and lidar. , high-frequency PCB boards and high-density HDI boards, which are more difficult to process and have higher value, will also be used.

In the future, as ADAS develops to higher levels, the increase in the number of sensors used will lead to a massive growth in high-end PCBs.

According to data from Toubao Research Institute, PCB accounts for about 10% of the cost of millimeter wave radar. The current prices of 24GHz (SRR) and 77GHz millimeter wave radar (LRR) are about 300 yuan and 400 yuan respectively. According to Yole It is predicted that as ADAS system functions transition from L2/L3 level to L4/L5 level, the SRR and LRR required for bicycles will increase by 2 and 1 respectively, which will bring an increase in PCB value of about 100 yuan. In terms of

lidar, the current average price of vehicle-mounted semi-solid LiDAR is around US$1,000, which is the biggest obstacle to its large-scale application.

LiDAR manufacturer Avea believes that large-scale mass production requires pushing the unit selling price below US$500. Industry benchmark Velodyne has stated that its future LiDAR target price will be around US$500, while Huawei's 96-line automotive-grade LiDAR launched in 2020 is only It costs US$200 and will be reduced to less than US$100 in the future.

The continued decline in costs will drive the application and promotion of lidar in ADAS systems, thereby further increasing the value of bicycle PCBs.

Automotive Intelligence #4: The development of smart cockpits will also drive the demand for automotive HDI boards.

The smart cockpit is the key to realizing full-scenario interaction between people and vehicles, and the on-board display is the main interface responsible for interactive functions.

Currently, vehicle-mounted displays are showing a trend of high-end, large-screen, and multi-screen linkage. For example, the E-HS9 launched by Hongqi at the end of 2020 is equipped with 8 screens, and the HiPhi X produced by Human Horizons in 2021 is equipped with 9 screens. Screen; Xingyue L's center console is equipped with a 1-square-meter IMAX screen, Ford EVOS center console is equipped with a 27-inch 4K display, and the Cadillac Lyriq launched in 2022 will be equipped with a 33-inch integrated display.

Since the backlight module of the display screen requires the use of a large number of PCBs, and its lightweight and thin appearance development also requires higher PCB board wiring density and narrower line width and line spacing, the development of smart cockpits is expected to promote high density The HDI board market is further expanding. (Report source: Yuanzhan Think Tank)

With the electrification and intelligence of cars, we predict that the growth of domestic car sales will drive the cumulative value of PCB to 153.2 billion yuan and the cumulative value of CCL to 31.9 billion yuan during 2019-2025E.

Shengyi Technology: Copper-clad laminate production capacity continues to expand, and the PCB business has obvious high-end characteristics.

Copper-clad laminate business: The leading domestic copper-clad laminate company, production capacity continues to expand.

Shengyi Technology is a leading domestic copper-clad laminate company. According to Prismark data, the company ranked second in the world in market share of rigid copper-clad laminates in 2018, second only to Kingboard base laminates.

From the revenue side, Shengyi Technology’s revenue from 2017 to 2021 is second only to Kingboard Laminated Board, and far exceeds other local copper-clad laminate companies; its gross profit margin is also at a high level of 27%.

From the perspective of R&D investment, Shengyi Technology’s R&D investment far exceeds that of other local companies, and it continues to increase investment in this area; the company’s R&D expenses as a proportion of operating income have also been stable at 4.4%-4.8%, leading the industry level.

We believe that the company's continued investment in R&D will further consolidate the company's technological moat and increase its competitiveness.

Six major production bases bring production capacity guarantee: The company currently has six major production bases in Guangdong, Shaanxi, Suzhou , Changshu, Nantong (Jiangsu Shengyi), Jiujiang (Jiangxi Shengyi), and has realized the production capacity of East China. , regional coverage in southern China and central and western regions. As of the end of 2021, the company has a total rigid copper-clad laminate production capacity of approximately 105 million square meters/year, a flexible copper-clad laminate production capacity of approximately 15 million square meters/year, and an adhesive sheet production capacity of approximately 160 million meters/year.

continues to increase capital expenditures and aims to increase total production capacity by 30% from 2021 to 2025. The company will continue to expand production in the past five years. Shengyi Technology's capital expenditures are significantly ahead of its peers and are growing rapidly during 2017-2021.

company plans to increase its total production capacity by 30% from 2021 to 2025.Currently, the company has three expansion projects under construction, including 1) Songshan Lake Phase 8: high-frequency, high-speed substrate and high-density packaging carrier board project for 5G; 2) Changshu Phase 2: high-performance copper-clad laminate project; and 3) Shaanxi Shengyi Phase III: FR-4 copper clad laminate project. In addition, Jiangxi Shengyi Phase II project has started construction in 4Q21. According to the current plan, the company's copper-clad laminate production capacity is expected to exceed 144 million square meters in 2023, and its adhesive sheet production capacity is expected to exceed 248 million square meters.

PCB business: The products have obvious high-end characteristics and are actively expanding production capacity.

Shengyi Technology mainly conducts PCB business through its subsidiary Shengyi Electronics. Shengyi Electronics will be split and independently listed in February 2021. Shengyi Electronics' PCB products are mainly used in communications, networks, servers and other fields, and have obvious high-end characteristics.

Among them, communications, network and server are the three largest application areas, accounting for 49%, 27% and 13% of Shengyi Electronics' revenue in 2019 respectively. At the same time, the company's products have obvious high-end characteristics, with high-speed boards and high-frequency boards accounting for 62% and 15% of its revenue in 2019 respectively.

Communication PCB belongs to the high-end field and has high thresholds both in terms of customers and technology.

Communication PCB The downstream communication equipment market is a highly concentrated market. The top five communication equipment manufacturers (including Huawei, Nokia, Ericsson, ZTE and Cisco) accounted for more than 75% of the market share in 2020 (data source: Dell'Oro Group) and has established a very stable supply chain through long-term technical verification.

Therefore, the competition pattern of the communication PCB market has been very stable over the past few years. The global communication PCB manufacturers mainly include Shennan Circuit, Shengyi Electronics and Shanghai Electric Co., Ltd. in mainland China, and Fengfeng Communications, Jinxiang Electronics and Hanxiang Electronics in Taiwan. Yubode, South Korea's ISU and Daede Electronics, and the United States' TTM, Multek and Sanmina.

Currently, Shengyi Electronics has become the main PCB supplier for Huawei, ZTE and Samsung. Among them, Huawei, Samsung and ZTE accounted for 65% of Shengyi Electronics’ revenue in 2019.

Shengyi Electronics continues to expand production capacity and scale of production to meet the increasing market demand. As of the end of 2019, Shengyi Electronics’ total production capacity reached 808,400 square meters. By raising funds from the listing to invest in the construction of new production capacity, Shengyi Electronics is expected to add 348,000 square meters of high-speed and high-density printed circuit board production capacity in the 5G application field, and 535,300 square meters of multi-layer printed circuit board production capacity.

product performance continues to upgrade, leading the domestic replacement of high-end copper clad laminates

FR-4 is the mainstream copper clad laminate product, and the market share of special substrates continues to rise.

copper clad laminate product pattern: FR-4 is the mainstream product in the market, but in recent years, the market share of special copper clad laminates The rate keeps rising. There are many types of copper-clad laminates, which can be divided into two categories: rigid and flexible according to mechanical strength. According to the different reinforcing materials used, rigid copper-clad laminates can be further subdivided into paper-based, glass-based, composite-based and special substrate categories, among which , special substrates mainly include IC packaging substrates, high-speed, high-frequency (radio frequency/wireless) copper clad laminates, etc.

According to Prismark statistics, from 2014 to 2019, the market share of epoxy fiberglass copper-clad laminates (FR-4, including conventional FR-4, high Tg FR-4, halogen-free FR-4, etc.) has always remained at 50% Above, but the value is constantly shrinking. Benefiting from the gradual spread of high-frequency and high-speed scenarios such as 5G, Internet of Things, and data centers, the market share of special copper-clad laminates has increased from 16.52% in 2014 to 29% in 2019.

Shengyi Technology ranks second in the world's copper-clad laminate market share, but it still lags behind leading companies in the high-end market. The copper-clad laminate market structure: the industry is highly concentrated. Shengyi Technology ranks second in the world in market share, but the total share of mainland companies is still relatively large. There is little room for improvement in local copper-clad laminates. As the basic material of the electronic information industry, copper-clad laminates have high barriers in terms of technology, capital, and market, and have formed a relatively concentrated market structure.

According to Prismark statistics, the top six manufacturers in the rigid copper-clad laminate market each accounted for more than 6% of the global total output value in 2018, with a total market share as high as 58%.Among them, Shengyi Technology has a market share of approximately 12%, making it the second largest manufacturer in the industry.

According to the prospectus of Nanya New Materials, the current copper-clad laminate production in mainland China accounts for more than 70% of the global copper-clad laminate production, but the total market share of domestic manufacturers is only about 20%, and my country's copper-clad laminates are still to a large extent Relying on foreign capital or factories opened by foreign capital in my country, from the perspective of strategic layout of related industries, local copper-clad laminate companies still have a lot of room for improvement. The competitive landscape of

high-frequency and high-speed boards: Mainland China manufacturers account for a small proportion, and a few overseas giants monopolize the market.

At present, the high-frequency and high-speed market is generally dominated by companies from Japan, the United States, and Taiwan. Among them, the high-speed copper-clad laminate market is set by Panasonic of Japan as the industry benchmark, and the high-frequency copper-clad laminate market is represented by Rogers of the United States. The two occupy the global high-speed market respectively. It has a large market share in the fields of boards and high-frequency boards.

According to Prismark statistics, Panasonic's market share in the high-speed copper clad laminate market reached 20%-25% in 2018, followed closely by Chinese Taiwan-funded enterprise Taiyao Technology, with a share between 20%-25%. Shengyi Technology Ranked 10th, with a market share of less than 5%; Rogers has a market share of 60-65% in the high-frequency copper-clad laminate market. Mainland Chinese companies Zhongying Technology and Shengyi Technology ranked third and fourth respectively. However, the total market share is less than 15%, and the remaining shares are basically occupied by overseas and Taiwan-funded enterprises.

The rise of domestic communication equipment and server manufacturers has helped local copper-clad laminate companies realize domestic substitution of 5G base stations:

The rise of domestic communication giants, combined with huge domestic 5G investments, has brought about import substitution for domestic upstream high-frequency and high-speed PCB companies and high-frequency and high-speed copper clad laminate companies. opportunity.

In the field of civilian high-frequency communications industry, Chinese local companies led by Huawei and ZTE have entered the international leading ranks. According to Dell'Oro Group statistics, Huawei and ZTE's market share among global telecommunications equipment suppliers from 2018 to 2020 The rankings are firmly ranked first and fourth respectively, and the market share continues to expand.

At the same time, China’s 5G construction continues to accelerate, and investment in related infrastructure is still increasing. According to the Ministry of Industry and Information Technology's "2021 Communications Industry Statistical Bulletin", the total number of 5G base stations in China will reach 1.425 million in 2021, with more than 654,000 new 5G base stations built throughout the year, and 5G investment reaching 184.9 billion yuan, accounting for 45.6% of the total investment in the communications industry.

According to CCID predictions, the annual investment in China's 5G industry will increase to 2,216 yuan in 2024, and the number of 5G base stations in China will reach 15 million by the end of 2030.

The rise of domestic communication giants and the continuous strengthening of domestic 5G investment will bring localized demand for upstream high-frequency and high-speed PCBs and high-frequency and high-speed copper-clad laminates, forming a strong impact on domestic high-frequency and high-speed PCB companies and high-frequency and high-speed copper clad laminate companies. Import substitution opportunities.

server: The rise of mainland server manufacturers, coupled with the continued growth of the domestic server market, also brings development opportunities to local high-frequency and high-speed copper-clad laminate manufacturers.

According to IDC data, after a long period of catching up, the three domestic server brands Inspur/Huawei/Lenovo have continuously improved their product strength and market position. Their combined share in the global server market has increased from 1.98% in 2010 to 17.22% in 2021. , which has had a certain impact on the market structure that has long been dominated by foreign companies.

In the domestic market, the market share of domestic brands has gradually increased in recent years and has continued to squeeze out the share of foreign companies such as Dell/HPE/IBM. According to IDC data, Inspur/New H3C/Lenovo/Huawei respectively accounted for 29.29 in 2021 %/13.90%/7.77%/6.41%, accounting for a total of 57.37%.

In addition, according to IDC predictions, China's server market size will rise from US$25.731 billion to US$41.029 billion in 2021-2025, with a CAGR of approximately 12.50%. The rise of mainland server manufacturers and the growth of the domestic server market are also expected to drive demand for domestic high-frequency and high-speed copper-clad laminates.

Shengyi Technology: actively deploying high-end copper clad laminates, and high-frequency and high-speed products have reached the international leading level

Shengyi Technology actively deploying high-end copper-clad laminates, and has made breakthroughs in many aspects:

1) 5G base station & server application fields: high-frequency and high-speed products Already obtained customer certifications;

2) Automotive electronics application fields: breakthroughs in automotive millimeter wave 77GHz radar related technologies, and has obtained certifications from many well-known terminals in automotive high voltage resistance, thick copper and other fields;

3) Active investment in packaging carrier board materials R&D;

4) North American major customers: The company provides MiniLED substrates for major North American customers and has now achieved mass production;

and 5) 3Q22 Songshan Lake Phase 8 packaging substrate and high-frequency high-speed copper-clad laminate projects are expected to be put into production. The company has been in the field of high-frequency and high-speed products for many years and has an annual production capacity of 1.5 million high-frequency communication substrates.

Since 2013, Shengyi Technology has begun to cooperate with Japan's Chukoh Chemical Co., Ltd. (Chukoh) in the development of high-frequency/radio frequency substrates. Chukoh Chemical Co., Ltd. is a large-scale fluorine products manufacturer in Japan and the largest manufacturer of PTFE copper-clad laminates in Japan. one.

In 2016, through the acquisition of a complete set of processes, patents and equipment solutions for Zhongxing Chemical's PTFE products, the company achieved a leapfrog upgrade in the manufacturing technology of high-frequency and high-speed PTFE sheets; and in December of the same year, it established a production base in Nantong, Jiangsu (Jiangsu Sheng) Benefit) specializes in the production of high-frequency and high-speed products (annual production capacity of high-frequency communication substrates: 1.5 million square meters, annual output value of approximately RMB 650 million).

's complete product range layout builds the company's core advantages and is expected to benefit from the trend of PPO and PCH replacing PTFE products in the future. The high-speed and high-frequency copper-clad laminate preparation process is similar to the conventional product process, but the dielectric constant and dielectric loss are mainly affected by raw materials, process formulas, and process control. The above three major factors require long-term downstream application product verification and experimental experience accumulation. It builds the core barriers for high-speed and high-frequency copper-clad laminate manufacturers.

Since 2016, Shengyi Technology has invested a lot of research and development costs to develop new products on the basis of fully absorbing Zhongxing Chemical Technology and Technology. In the field of high-frequency copper-clad laminates, it has PTFE series, thermosetting resin series and hydrocarbon series in reserve; high-speed copper-clad laminates There are also different levels of products in the field such as medium dielectric loss, low dielectric loss, ultra-low dielectric loss, etc., with a relatively complete range of products.

In addition, currently, PTFE high-end substrates have many entrants and are more expensive. Materials that thermosettingly modify other engineering plastics (such as PBD, PS, PPO) and blend them with Epoxy have been verified by the market. There is a trend to partially replace PTFE materials, and the company's technological accumulation in PPO and PCH will help it seize industry trends and increase market share. The key parameters of

high-speed and high-frequency products have reached the international advanced level. The high cost performance and geographical advantages help the company benefit from the general trend of domestic substitution. We selected some classic products of Rogers and Taikanli, the leaders in the international high-frequency board industry, and Panasonic Electric and Lianmao Electronics, the leaders of high-speed boards, as reference to compare the differences in the two key indicators of Dk and Df between the company's products and the former.

It can be seen from the results that under similar uses/loss levels and similar basic materials, the performance parameters of some Shengyi Technology products are relatively close to those of internationally recognized leading products. On the basis that the product strength reaches a certain level, the geographical advantages, price advantages and service advantages of the company's products relative to imported products will gradually become more prominent. Under the general trend of domestic substitution, the cost-effective products provided by the company can respond to downstream local demand in a timely manner and quickly supply goods, which is beneficial to its own performance development.

Risk warning

Industry competition is intensifying. will usher in the release of new production capacity from its peers in 2022, as well as the rising prices of energy resources and high prices of raw materials. The company's operations will be under greater pressure. Suppressed by various uncertain factors, if there is no corresponding growth in the total market demand, there may be local, certain varieties, and a certain period of surplus, that is, there will be a market capacity digestion period, and price cuts may occur. When it comes to grabbing orders, the competition will be extremely fierce.

raw material prices fluctuate.The main raw materials of company include copper, resin, glass cloth, etc. Affected by commodity prices, raw material price fluctuations and supply and demand imbalances bring greater uncertainty risks to the company's production costs and production operations.

production capacity ramping and technology upgrades are slower than expected. If the company's production scale cannot be effectively expanded and product quality and performance cannot be effectively improved, the company will face greater market competition risks, which will have an adverse impact on production and operations.

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