(report producer/analyst: Caitong Securities Zhang Yimin)
focuses on high-end PCB, production capacity release and raw material prices turn downward are facing the turning point of performance focuses on high-end PCB, product structure optimization and copper clad prices turn downward are facing the turning point of performance.
In 2021, the company's revenue and net profit attributable to shareholders slowed down due to the epidemic and the slowdown in 5G base station construction.
company adjusted its product structure, focusing on switches, servers and automotive PCBs, revenue and profits entered the stage of accumulation. In addition, the price of raw material copper clad plates turned down and operating performance improved. In Q1 2022, the company's revenue was 1.917 billion yuan, year-on-year +9.77%, and net profit attributable to shareholders was 250 million yuan, up 13.04% year-on-year.
The company's capital investment continues to increase the average product layer and the output value of potential. With the boost of downstream market demand, the company's profits are expected to be further restored.
.1. The leading PCB company for communications and automotive boards
was founded in Kunshan in 1992. In the early days, it focused on consumer electronic components mainly on double-sided four-layer boards. It began to focus on PCB in 1997 and independently developed HDI technology in 2000. It established its subsidiary Shanghai-Li Microelectronics Expanded Automotive PCB in 2002. It was listed on the Shenzhen Stock Exchange in 2010. With the relocation of the old Kunshan factory in 2015, the production and supply of the company's factories has gradually stabilized. It has been selected as one of the top 100 global PCB companies released by industry research institutions such as Prismark and NTI for many years. In 2020, the company ranked 15th among the top 100 PCB companies in NTI with revenue of US$1.243 billion.
communication board main product is eternal, and the automotive board business is quite interesting.
PCB products are centered on communication equipment, data centers, and automotive electronics, supplemented by industrial equipment, semiconductor chip testing and other fields.
Enterprise communications market board dominates the company's revenue structure, accounting for about 65-70% of revenue in previous years. Affected by Sino-US trade frictions, the communications board achieved revenue of 4.823 billion yuan in 2021, accounting for 65.01% of the company's total revenue, a year-on-year decrease of 11.28%; in line with the trend of electrification and intelligence in the automotive industry, the company listed the automobile board as the company's key layout area, and the production capacity was quickly released, laying the foundation for the continuous expansion of revenue. In 2021, it achieved revenue of 1.682 billion yuan, accounting for 22.67% of the company's total revenue, an increase of 26.54% year-on-year.
Others, such as office and industrial equipment boards achieved revenue of 521 million in 2021, accounting for 7.03% of the company's total revenue, up 13.21% year-on-year; consumer electronic boards achieved revenue of 23 million in 2021, accounting for 0.30% of the company's total revenue, a year-on-year decrease of 14.75%
main customers include long-term cooperative relationships with industry leaders such as Huawei , ZTE , Cisco , Nokia Siemens , Mainland automotive electronics , Tesla, BYD and other industries.
.2. Capacity release and high-end product drive revenue and profitability to the next level
The company's operating performance after listing is divided into four stages:
Before 2015, affected by the construction of Kunshan factory moving and new factory, the net profit attributable to shareholders was once a loss.
2016-19 communication board business was booming, and the company's Qingsong factory and Huangshi Phase 1 have officially made efforts, and its performance has improved rapidly.
In the second half of 2020, due to the slowdown in the construction of 5G base stations, the price competition for related PCB products became increasingly fierce, the company's product structure began to adjust, and revenue and profit also entered the stage of accumulation of momentum. In 2021, due to the impact of the new crown pneumonia epidemic, the sharp rise in raw material prices and the tight chip supply, the company's revenue was 7.419 billion yuan, -0.55% year-on-year, and the net profit attributable to shareholders was 1.064 billion yuan, -20.80% year-on-year.
2022Q1, the price of raw materials represented by copper clad plate turned down, and the operating turning point began to appear. The company's revenue was 1.917 billion yuan, a year-on-year increase of 9.77%, and the net profit attributable to shareholders was 250 million yuan, a year-on-year increase of 13.04%. With the boost of downstream markets and the steady release of production capacity, the company's operating scale is still expected to grow steadily.
After the completion of Kunshan factory moving and Huangshi new factory construction in 2015, the gross profit margin and net profit margin entered an upward channel; since then, benefiting from the development of application businesses such as 5G base station construction, Internet equipment and data centers, the gross profit margin of the enterprise communication market board business has rapidly risen from 10.10% in 2015 to 32.25% in 2020, driving the company's comprehensive gross profit margin from 11.72% in 2015 to 30.37% in 2020, and the company's comprehensive net profit margin also rose from 0.16% in 2015 to 18.00% in 2020.
is affected by the increasingly fierce competition for PCB products (the gross profit margin of the enterprise communications market board in 2021 was 29.36%, a year-on-year decrease of 2.89pct) and the rise in the prices of major raw materials copper clad plates, the company's overall gross profit margin showed a gradual decline. The gross profit margins of 2021 and 2022Q1 were 27.18% and 25.95% respectively, and the net profit margins were 14.34% and 13.02% respectively.
The company's gross profit margin is better than that of comparable companies in peers. We selected Shiyun Circuit, Shennan Circuit , Jingwang Electronics, and Shenghong Technology as comparable companies in the industry. In 2021, the industry's average gross profit margin and net profit margin were 20.73% and 8.68%, while the company was 27.18% and 14.34%, which was at a relatively high level in the industry.
After research, we believe that it is mainly due to the company's emphasis on differentiated competition and focusing on producing products with high technical content and relatively high-end application fields. By listing the proportion of manufacturing expenses in the operating costs of each company, we can observe that in 2021, the proportion of company manufacturing expenses was 29.71% higher than the industry average of 22.50%.
Cost downward channel, gross profit margin is expected to stabilize and rebound. PCB is mainly composed of copper foil , glass fiber cloth and resin. At present, the prices of each product have fallen significantly from last year's highs: the copper price and processing fee that determines the price of copper foil have fallen from the end of March 2022, and the decline by about 30% as of mid-August (LME copper: 10450→8100 US dollars/ton; processing fee: 5.85→41,500 yuan/ton); the prices of epoxy resin and glass fiber electronic fabrics have fallen by more than 40% from the highs in 2021 by mid-August (epoxy resin: 37400→17750 yuan/ton; glass fiber electronic fabrics: 17000→9500 yuan/ton). The cost pressure of PCB manufacturers has gradually been lifted, and the company's gross profit margin is expected to stabilize and rebound.
All expense rates remain stable and have a downward trend. In 2021, the company's sales expense ratio, management expense ratio and financial expense ratio were 3.00%, 2.05%, and -0.98%, respectively, and the three expense ratios totaled 4.07%, an improvement of 0.88% over the same period in 2020. Among them, since nearly 70% of revenue comes from overseas, the appreciation of the US dollar has caused the company to generate large exchange returns in Q1 2022, and the financial expense rate reaches -1.29%.
.3. The equity structure is stable, the company is cohesive and has strong
Legend entrepreneur Mr. Wu Ligan established. Mr. Wu founded Nanzi Electronics (WUS) in Taiwan, China in 1972. When he was established in Kunshan in 1992, he was a wholly-owned enterprise for Taiwanese businessmen, and later gradually changed to a Sino-foreign joint venture. In order to pave the way for IPO on the Shenzhen Stock Exchange, the Wu Ligan family completely withdrew from Nanzi Electronics in 2009 and devoted themselves to the Shanghai Electric Co., Ltd.'s business.
As of the end of March 2022, the Wu Ligan family indirectly holds 20.39% of the company's shares by holding 100% of the equity of BIGGERING and 75.82% of the equity of HAPPY UNION. They are the actual controller of the company and their equity structure is relatively stable.
actively promotes stock and equity incentives, and has strong cohesion in interest binding. Company carried out stock and equity incentive plans in 2018 and 2020, covering more than 600 directors, senior management and backbone employees of the company. A sound long-term incentive mechanism will help attract and retain outstanding talents, fully mobilize the enthusiasm of management and backbone employees, combine shareholders, company and core personal interests, enhance performance certainty while helping the company's long-term and healthy development.
Digital and new energy vehicles start a new round of PCB upward cycle PCB market has experienced several economic cycles, and the switching of growth momentum has promoted the continuous expansion of scale.As a carrier for supporting and connecting electronic components, PCB has experienced four upward cycles led by different demands: from the popularization of home appliances, military equipment, and civil communication equipment from 1980 to 1990; to the upgrade of desktop computers from 1993 to 2000; followed by the popularization of feature phones and laptops from 2002 to 2008; and from 2010 to 2014, the construction of 3G/4G communications and iPhone4 opened the era of smartphones.
We are currently in the fifth growth cycle. The demand for massive data on the construction of communication networks, super-large data centers, and Model3 leading the new energy and intelligence of cars have become the core drivers of this upward cycle of the industry. According to Prismark's forecast, the CAGR of the global total PCB output value from 2021 to 26 is expected to be +4.7%, and will reach US$101.6 billion by 2026. The stock price of
has experienced several ups and downs in history.
Review the company's high growth in stock prices in 2018-20, the main driving force was the increase in PCB volume and price brought by 4G to 5G base stations. At that time, only four PCB companies with revenue in the communications sector accounted for more than 30% of the revenue were Shenzhen South Circuit, Shanghai Electric Co., Ltd., Jingwang Electronics and Chongda Technology.
Among them, Jingwang Electronics and Chongda Technology's customer concentration is relatively low, and Shenzhen South Circuit and Shanghai Electric Power Co., Ltd. benefit more. The company's corporate communications market board business revenue has increased from 2.9 billion in 2017 to 5.4 billion in 2020, and PCB products from 5G base station application field contributed 60% of the increase, with revenue of 1.532 billion in 2020.
The company's early performance was affected by the relocation and production. With the recovery of the profitability of the communication board of Kunshan's new factory and the sharp reduction of losses in Huangshi Factory, the worst time of the company's performance has passed. With the improvement of the production line yield, the performance continued to exceed expectations, and the company achieved Davis double-click.
With the upgrade of RF chips, the requirements for PCB boards have been reduced, and more manufacturers have entered competition, and 5G base station-related products have fallen into a price war; at the same time, the company's core customer Huawei was sanctioned and fell into a chip shortage dilemma, and domestic investment and construction slowed down; the price increase of raw materials and the epidemic affected production, which repeatedly interfered with the company's operations.
is at the current point in time. This round of demand increases, on the one hand, data traffic increases, driving the increase in the construction volume of data centers; on the other hand, the upgrade and iteration of switches and server chips drive the difficulty of high multi-layer boards and the increase in value. Combined with the increase in PCBs of new energy vehicles, the company's raw material cost pressure has gradually eased, and its operation and valuation are expected to create new glory.
.1. Switch/server technology upgrade, high multi-layer board moves towards the second growth curve
Switch/server technology upgrade, high multi-layer board moves towards the second growth curve. Data is shifting to the cloud and showing an exponential growth trend. The total capital expenditure of the four major cloud computing manufacturers in 2022Q2 reached US$35.4 billion, an increase of 19.70% year-on-year, maintaining a high growth rate.
data center switch is expected to usher in the 400G/800G high-volume period, and PCIe5.0 generation CPU will become the mainstream after it is launched, driving the demand for high-frequency high-speed board materials and layers. Shanghai Electric Power has three major advantages in customer, background and technology research and development in the high multi-layer board market, which is expected to become the core beneficiary.
2.1.1. Cloud computing manufacturers have high-intensity capital expenditure to ensure high-speed digital PCB demand
data is transferred to the cloud and showing an exponential growth trend. With the development of cloud computing , big data, AI, Internet of Things and other fields, the global data volume has shown an exponential growth trend.
According to Cisco's forecast, the global per capita networked devices will increase from 2.4 units in 2018 to 3.6 units in 2023, and the total number of connected devices will increase from 18.4 billion to 29.3 billion; IDC data shows that the global data volume in 2020 is 59ZB, and is expected to increase to 163ZB by 2025. At the same time, the advantages of cloud service 's accessibility, extensibility and flexibility are highlighted. Enterprise digital transformation continues to improve the penetration rate of cloud services . According to IDC's forecast, the market size of infrastructure services IaaS will increase by 29.45% year-on-year to US$115.9 billion in 2022.
Cloud vendor capital expenditures maintain rapid growth. 2022Q2, the total capital expenditure of the world's four major cloud computing manufacturers, Amazon , Meta, Microsoft, and Google reached US$35.4 billion, an increase of 19.70% year-on-year, setting a new quarterly high.
Meta's capital expenditure has accelerated after its transformation into the metaverse. Capital expenditure in 2021/2022 was US$186/13 billion, and the latest annual capital expenditure guidance is US$29-34 billion, which is expected to grow the fastest among the leading cloud computing manufacturers.
High capital expenditure accelerates the construction of data centers, improves consumption of high-speed switches and servers, and increases the demand for high-speed PCBs.
2.1.2. The 400G switch market ushers in rapid growth point
IDC data verification data center high-speed switch market is growing rapidly.
Global Ethernet switch achieved sales of US$30.7 billion and US$7.6 billion in Q1 2021 and 2022, respectively, up 9.7% and +12.7% year-on-year.
Among them, the scale of data center switches in 22Q1 was US$3.5 billion, which exceeded the non-data center market year-on-year by 20.8%, significantly faster than the non-data center market, and its total market share increased from 42.6% in 2021 to 46.3%.
IDC has tracked the shipment of 200G/400G switches since 2021Q1, and the sales of 200G/400G switches in 2022Q1 are about 7.5 times that of 2021Q1.
Dell'OroGroup predicts that the global data center Ethernet switch market CAGR is close to double-digits in 2021-26, with a cumulative scale of nearly US$100 billion in the next five years, and 400G and higher-speed switches will account for half of the cumulative expenditure.
The construction plan for super-large data center is full.
Currently, all cloud computing manufacturers focus on super-large data centers with more advantages in computing, processing capabilities and energy efficiency. According to Synergy Research data, as of 2021Q3, the world's major cloud computing and Internet service companies have more than 700 super-large data centers, and the number has doubled in the past five years; it is currently known that the construction plans for 314 super-large data centers will exceed 1,000 within three years. The total capacity of data centers is growing faster, and it doubled in just four years.
is measured by capacity. The most leading companies are Amazon, Microsoft, Google, Facebook. American companies account for 49% of global data centers, and China accounts for 15% closely behind, representing companies such as ByteDance, Alibaba , Tencent , etc. are growing rapidly.
The large-scale data center has greatly increased the data traffic inside the data center, and the improvement of bandwidth capabilities requires the further upgrade of core equipment such as switches.
Review the penetration rhythm of 100G switches, and the shipment volume of high-speed optical modules has increased rapidly with the price reduction, promoting the upgrade and replacement of switches. Cisco, a leading manufacturer of
switch, released the data center 100G switch as early as 2012, but it was not until 2018 that 100G truly became mainstream. This period was a process of gradual maturity in technology and decreasing investment costs. For data center operators, the update is not only for the increase in bandwidth and power, but also for the reduction of unit cost and supply chain costs. The price of
switches with optical module has a clear annual decline. According to Lightcounting statistics, the average price of 100G optical modules decreased by about 40% in 2018. During the same period, 100G switches began to increase in volume. According to IDC data, the market size of 100G switches was US$230 million and US$1.08 billion in Q3 2016 and Q3 2018 respectively, and the market penetration rate of the entire Ethernet has ranged from 3.6% to 14.8%.
switch upgrade to 400G to enable the increase in volume.
optical module manufacturers have deployed 400G in 2019, but the commercialization process is slow. The main reasons are that the power is too high and the price is too high. At the end of 2019, the mainstream server connection was still 25G, with 100G uplink, and there were multiple 100G in the Leaf-Spine connection, but some network content providers (ICP) have begun deploying higher data rates.
installation includes 50G server-to-ToR connections and 2×100G and 2×200G and 400G-LR8 two forms of 400G implement Leaf-Spine and Spine-super Spine connections. ICP bandwidth demand is driving the development of optical devices in data centers and the demand for 400G.
As the annual cost drop of 400G optical modules reaches a sweet spot, 400G switches are expected to usher in a stage of increasing volume. According to LightCounting statistics, from 2020 to 21, the shipment of high-speed Ethernet optical modules of 200G/400G/800G will reach 370,000-2.22 million, and it is expected to reach 6 million in 2022, an increase of about 170% year-on-year. The 400G switch is expected to reappear in the period when the penetration rate of 100G switches increased rapidly from 2017 to 18.
800G will take over 400G and become the new engine of the switch market in 2025.
In 2021, some optical module manufacturers have completed the sample delivery test of the 800G series of products and entered the small batch supply stage. Dell'Oro Group predicts that the market size of 800G switches will become the new engine of the switch market starting from 2025.
high-speed circuit boards require adaptive material levels and complex design and production processes.
, the world's leading substrate manufacturer, , Lianmao Electronics, , divides its materials into 6 levels according to the dielectric loss factor (Df). High-speed boards need to have the characteristics of low signal transmission loss and small impedance : Mid Loss is an entry-level high-speed board; Low Loss is suitable for digital circuits with an upper limit of 10Gbps, using RTF copper foil with a roughness of about 3μm on the roughness of the bristle and gloss surface; Ultra Low Loss is suitable for digital circuits with an upper limit of 50Gbps; Super Ultra Low Loss boards require the use of Super Ultra Low Loss boards with a roughness of within 2μm on the roughness of the bristle and gloss surface.
When producing high-frequency and high-speed PCB boards, the choice of other auxiliary materials also has a great impact on product performance. For example, the use of NE-Glass fiber cloth can effectively improve impedance fluctuations, and the use of low-loss ink for solder resist ink can reduce the loss value of the outer line by about 10% to 20%. The demand for blind/buried vias, mircrovias and build-up in process process has increased significantly. The upgrade of
100G to 400G switches corresponds to the increase in PCB value. The channel rate of a 100G switch is 25Gbps, while the channel rate of a 400G is 56Gbps or 112Gbps. It corresponds to the requirements of PCB boards and needs to be upgraded from Ultra Low Loss to Super Ultra Low Loss. In addition, the PCB for 400G switches will reach 28 layers, making the design and production more difficult, and PCB manufacturers can obtain a higher proportion of premium . 800G switches put higher requirements on PCB materials and processes, and the number of layers will continue to increase to 32 layers, and PCB manufacturers will usher in new challenges and opportunities.
2.1.3. Upgrading to Pcie5.0 will drive a new round of iteration cycle of servers
server market has undergone multiple tests and is expected to accelerate growth in the later period. The server market ushered in a wave of growth in the context of the outbreak of mobile Internet traffic from 2016 to 18. Since then, the industry has entered a period of inventory digestion, and the growth rate has slowed down significantly. In 2020 to 22, the industry has experienced multiple tests.
(1) The new crown epidemic continues, and corporate budgets have become cautious, and the demand for server procurement is temporarily suspended.
(2) The chip supply is tight, affecting server shipments.
(3) Intel's new generation CPU was postponed, and the intention to purchase data centers was delayed.
As supply chain tension gradually eases, the corporate market that was previously affected by the epidemic is expected to usher in a recovery. According to IDC's forecast, global server shipments will exceed 14.78 million units in 2022, with increasing by 59.2% year-on-year; the market size reached US$117.7 billion, an increase of 18.6% year-on-year.
forward indicators have shown a turning point, and the server industry is expected to usher in an upward cycle.
Xinhua, as the leading server BMC chip market share, exceeds 70%, so monthly revenue can be used as a priori indicator of the prosperity of server and cloud computing. Judging from Xinhua's monthly revenue indicators, revenue has been increasing since August 2021, from NT$304 million NT$5 to NT$505 million in June 2022, demand in the server industry has accelerated its recovery.
PCIe.0 is expected to become the mainstream choice in the server CPU market.
PCIe is a high-speed serial computer extended bus standard.
was released from PCIe1.0 in 2003. Every three to four years, PCI-SIG will release a new generation of standards, double the I/O bandwidth of the PCIe specification. The evolution of the PCIe bus standard promotes the upgrade and iteration of the CPU platform.
Improves signal integrity and mechanical properties by changing the electrical design, the new PCIe 5.0 standard reduces latency and reduces signal attenuation for long-distance transmission. Compared with PCIe 4.0, the signal rate of PCIe 5.0 reaches 32GT/s, which can better meet the growing demands of high-performance devices with high throughput requirements, such as data centers, edge computing , machine learning, AI, 5G networks and other scenarios. The
PCIe 6.0 specification standard has been issued, and commercial implementation is still in its early stages. CPUs that support PCIe5.0 are expected to quickly increase penetration after release and become a new market mainstream.
PCIe protocol upgrade promotes the upgrade of server PCB materials and improves process difficulty.
According to the PCIe5.0 standard, the transmission rate is upgraded to 32GT/s. The BER needs to be kept within 10-12 and operated with losses of up to 36dB. The high-speed plate level corresponding to PCIe5.0 is Very Low Loss, which is a significant improvement compared to the Mid Loss required by the previous mainstream platform 3.0 era.
In addition, the number of PCB layers of PCIe 3.0 is generally 8-12 layers, 4.0 is 12-16 layers, and 5.0 platforms are in layers 16-20, thereby optimizing the electronic circuit design layout, reducing interference between signals, and realizing high-speed transmission.
According to Prismark data, the price of 8-16-layer boards in 2021 is US$456/square meter, while the price of 18-layer boards is US$1,538/square meter, and the value of PCB increases significantly.
As the server market recovers, it supports the mass production of PCIe5.0. Corresponding to PCB, it uses higher-level boards and auxiliary materials, the process complexity is improved, the number of layers increases, and the value of a single terminal is expected to continue to increase.
According to our estimates, the market size of server PCBs is expected to exceed US$14 billion in 2024, and the CAGR from 2021 to 24 is about 30.44%.
2.1.4. The global multi-layer PCB market is scattered, and Shanghai Electric has obvious advantages in the high-end market
According to Prismark statistics, the global multi-layer (4+ layer) PCB market size in 2021 was US$31 billion, accounting for 38.4% of the entire PCB market.
Among the multi-layer PCBs, the sales and sales area of 4-6 layers reached 61% and 86% respectively, respectively, accounting for the largest proportion. Due to its low barriers, players in the entire multi-layer PCB industry are relatively scattered. The largest manufacturer TTM only accounts for 5% of the market, with about 3% of Shanghai Electric ranked fifth, and about 34% of CR10.
high multi-layer board is the main growth point in the future of the multi-layer board market.
High-layer circuit boards are thicker, have more layers, have denser lines and vias, have larger unit sizes, thinner dielectric layers, and have stricter requirements for inner space, interlayer alignment, impedance control and reliability.
Prismark predicts that the compound growth rate of mid-to-high-end PCB products 8-16L and 18+L in the next five years is expected to reach 4.4% and 3.9%, of which the compound growth rate in China is expected to be higher, at 5.2% and 4.9%, respectively, both higher than the 4-6L market.
Company's R&D investment continues to increase, and continues to promote process improvement and technological innovation. The company's R&D expense ratio has continued to increase since 2015, and the company's R&D expense ratios were 5.54% and 5.72% in 2021 and 22Q1. For a long time, the company has actively carried out in-depth cooperation with domestic and foreign end customers in multiple fields, and directly or indirectly participated in the research and development of new products, new processes and new projects, so that the developed products can be successfully introduced into the mass production stage.
Company has the leading technology in high multi-layer boards and has made smooth progress in the corporate communications market. The company strategically focuses on producing differentiated products with high technical content and relatively high-end application fields, and continues to lead the market in terms of the highest production layers of back panels, wire panels and HDI boards.
Company card switch and server core products.
Company has conducted years of research in the fields of communications, high-speed network equipment, data centers, etc., in the field of high-speed materials testing and evaluation and development, signal integrity performance improvement research, mixed pressure technology, and high-density integration technology, and product progress is consistent with customer needs.
In 2019, the batch delivery of 400G switches and HPC PCB has been achieved; in 2021, the company's next-generation server platform PCB has entered the customer sample proofing stage; the PCB used in Pre800G switch has completed technical testing and small-scale production, and the 800G switch product based on 112G switch chip is being developed and tested.
company has won the trust of customers with its solid R&D foundation, excellent quality control capabilities, reasonable production layout, and experienced production line employees. It has cooperated with major equipment manufacturers in the communication market such as Huawei, Cisco, ZTE, Nokia - Siemens , Ericsson and other communication markets for more than 10 years. In this process, it has formed a tacit understanding with customers in design fields, quality standards, production plans and other aspects.
data center upgrades from 400G to 800G and 1.6T networks, and the PCIe standard continues to be improved, bringing the demand for high-multi-layer high-speed PCBs. The company is expected to become a core beneficiary again with its three major advantages in customer, background and technology research and development.
.2. New energy and intelligence drive the automotive PCB business to open up a new situation
2.2.1. The trend of electrification and intelligence of automobiles continues, and the growth momentum of PCB is sufficient
0 policy guidance for various countries 2030 goals, and the penetration rate of new energy vehicles has increased rapidly.
The major global automobile consumer markets have set a goal of exceeding 50% in the sales penetration rate of new energy vehicles in 2030/2035, and traditional car companies and new forces have invested a lot of resources in new energy vehicle models. In 2021, the global sales of new energy vehicles were about 6.75 million, with a penetration rate of about 8%; in 2021, China's sales of new energy vehicles were about 3.52 million, with a penetration rate of about 13%.
In the first half of 2022, China's new energy vehicle sales were about 2.6 million, an increase of 115% year-on-year, with a penetration rate of more than 20%. It is expected that the annual sales will be around 5.5 million vehicles, with a strong growth momentum.
New energy vehicle Electronic costs account for much higher proportion of the cost of the whole vehicle than traditional cars.
When developing new models or improving vehicle performance, the vehicle manufacturers continue to improve the application of automotive electronic equipment in terms of safety, environmental protection and connection communication, which has led to a rapid increase in the proportion of automotive electronics costs; while the increased electric drive system of new energy vehicles has further increased the proportion of automotive electronic costs compared with traditional cars.
The cost of automobile electronics accounts for 15%, 28%, 47%, and 65% of traditional compact cars, mid-to-high-end cars, hybrid cars, and pure electric cars, respectively. Therefore, the higher the penetration rate of new energy vehicles, the larger the automotive electronics market. By 2030, the proportion of automotive electronics in the cost of complete vehicles is expected to further increase to 50%, and the number of incremental demand for PCBs continues to be generated.
intelligence continues to develop, and sales volume equipped with ADAS will continue to rise.
Yole predicts that the sales of L0-class light vehicles that do not have intelligent driving functions in 2021 will be about 34 million, accounting for nearly 50%. By 2030, the sales of L0-class cars will be reduced to 14 million vehicles, accounting for less than 15%, and will continue to decrease in the future. IDTechEx also predicts that the number of L2 and higher-level smart vehicles will increase from 55 million in 2019 to 223 million/400 million in 2030/2040. The new vehicles will be mainly L1/L2 before 2025, and after 2025, L3/L4/L5 will gradually become the mainstream choice in the market.
With the advancement of intelligent driving technology, the number of various perception sensors is increasing, increasing the demand for the number of PCBs. With the upgrade of ADAS functions, different models of various car companies generally adopt solutions to increase the number of sensors:
(1) Camera of each car: 1 to 5 to 10 to 15, pixels of on-board CMOS image sensors: from VGA, 1 million to 2 million, or even 8 million;
(2) Millimeter wave radar: L1 level 0 to 1, L2/L3 level increases to 3 or 5, and L4/L5 level increases to more than 7. The demand for PCBs in bicycles will increase as the number of sensors increases.
domestic L2+ rapid penetration, and the growth prospects of millimeter wave radar are broad.
According to Zosi Automotive statistics, the assembly volume of Chinese passenger cars L2 and above intelligent driving reached 1.428 million in Q1 in 2022, with an assembly rate of 30.1%, a significant increase of 12.7pct compared with 21Q1. In 2020, the L1/L2 ADAS produced a total of 8.19 million millimeter-wave radar installations in the Chinese passenger car market. The CAGR is expected to be 30.7% from 2020 to 25, and the installation volume of millimeter-wave radars is expected to exceed 31 million in 2025.
mm wave radar PCB requires the use of ultra-low loss boards and complex processes, which are of high value.
vehicle-mounted millimeter wave radar mainly has two working frequency bands: 24GHz and 77GHz. The 77GHz radar will be used to obtain more applications in the future due to its advantages in detection distance, volume size, resolution, etc.
PCBs of high-frequency millimeter wave radar require ultra-low loss boards and high-end copper foil to reduce circuit losses and increase antenna radiation. The PCB processing process is difficult and has high value. Taking Tesla Model 3 as an example, the PCB value of its ADAS sensor is between 536-1364 yuan, accounting for 21.4% to 54.6% of the total PCB value of the vehicle 2,500 yuan.
Automobile board market is in a stage of accelerated development.
Automobile PCB is the core supporting component of automotive electronics, and its market size is affected by both car sales and degree of automotive electronicization. In 2020, the new crown epidemic hit the global economy, and automobile sales reached a low point in recent years, and the automotive PCB market performed sluggish in 2019-20. The automobile market rebounded in 2021, and the penetration rate of new energy vehicles and intelligence accelerated. The scale of the automobile board market increased by 24.07% year-on-year to US$8.192 billion, far exceeding the automobile sales by 6.05%.
With the increase in penetration rate of new energy vehicles and the upgrade of intelligent automobile technologies, the automotive PCB market has brought continuous growth momentum. According to our estimates, the automotive PCB market size is expected to reach US$12.4 billion in 2025, and the CAGR from 2021 to 25 is about 12.19%.
2.2.2.2. The automotive board has accumulated a deep accumulation in the field of automobile boards, and the product layout is towards electrification and intelligence
Automobile boards have high reliability requirements and strict product certification.
The working environment of the automobile board faces many challenges such as excessive working hours, extreme high and low temperature changes, multiple frequency vibrations, and long-term power-on. Car companies have particularly strict requirements on safety-related product quality, and the verification cycle for PCB suppliers will take at least 2-3 years. Therefore, overseas manufacturers have certain first-mover advantages in the relatively closed traditional automobile supply chain. Japan's CMK, NOK, Meiko, the United States' TTM, and Taiwan's Jingpeng's revenue in automobile board products is the first echelon in the industry.
new additions of automotive electronics bring major opportunities, and domestic production is expected to accelerate.
As Tesla's domestic factory output increases, new forces such as NIO, Xiaopeng, and Ideal have expanded in scale. Driven by the Automotive Electronics Extension Branch, the originally closed supply chain accelerates the verification of domestic PCBs and enters mass procurement. Shanghai Electric's automobile board revenue in 2021 was approximately US$260 million, with a global automobile board market share of 3.2%. As the company's advanced research and release products enter shipments, its share is expected to further increase in the future.
automotive boards have accumulated a deep accumulation in the field, and the product layout is towards electrification and intelligence.
In 2010, the company's automotive board PCB was mainly used in traditional electronic functions such as automotive control devices, sensors, electronic keys, automotive multimedia, ABS devices, electronic control units, etc., and has been supplied to Tier1 manufacturers such as mainland China and Bosch for more than ten years.
As the company and its customers continue to invest in joint research and development, it has begun to mass supply more new energy vehicles and high-value PCB products for intelligent driving. Currently, PCBs in the fields such as BMS, 24/77GHz millimeter wave radar, 4D vehicle-mounted radar, autonomous driving domain controller, smart cockpit domain controller and other fields have achieved mass production and supply.
The company has a close cooperation with Schweizer, a leader in RF PCB, and the capital increase is expected to accelerate the implementation of embedded power pack technology into products. After signing a cooperation framework agreement with Schweizer Electronic, Germany, an important manufacturer of RF PCB in the automotive field, the company has increased its stake in it many times. The two parties have established a good cooperative relationship in the process of active range measurement radar product technology transfer and joint development, laying the foundation for the company to break through the 24/77GHz millimeter wave radar PCB.
Shengweice is the production base of Schweizer embedded power chip packaging integration technology (p2Pack). In 2022, the company increased its direct shareholding ratio to 12.82%. The p2Pack technology is still in a running-in period. Shengweice has not yet made a profit, but Schweizer has in-depth cooperation with Infineon, a leading power semiconductor manufacturer, on chip embedding technology. Shanghai Electric's capital increase is expected to replicate the process of mass production of millimeter-wave radar PCBs, and accelerate the implementation of p2Pack technology PCBs, which has advantages in power density, heat dissipation efficiency and other aspects in hybrid power, pure electric vehicle drive systems, etc.
Kunshan base products are high-end, Huangshi factory volume increases and price increases Kunshan base takes high-end as the development direction, and Huangshi factory has a margin of production capacity design.
The current production base of the company is mainly composed of Kunshan Qingsong, Huli Microelectronics, Huangshi Phase I and Phase II. Interactive Easy Disclosure shows that Kunshan's Qingsong and Huli Microelectronics' design annual production capacity is 2.2 million square meters per year respectively. Affected by the wastewater discharge policies in Kunshan, the two major production bases will focus on high-end products in the future rather than continuing to expand production capacity.The current design annual production capacity of Huangshi Phase I and Huangshi Phase II is 750,000 square meters. The Huangshi Factory has fully coordinated with the local government in sewage treatment planning, and has the potential to further expand its production capacity to a total of 3 million square meters in the long term.
Huangshi Factory is upgrading during the transfer, increasing volume, price increase and profit increase further improves.
When Huangshi Factory was established, it was mainly responsible for liberating the production capacity of the two Kunshan bases, such as PCB products below 10 floors of Qingsong Factory and non-safety automotive board products of Shanghai Li Microelectronics. After several years of operation, the production technicians and management team of Huangshi Factory gradually matured. After the equipment suitable for less than 16 floors was in place, the production scope of Huangshi Factory began to expand to the mid-range, and the automobile board special line of Huangshi Factory No. 2 set up a safety-level automobile board production line. The company is currently accelerating the transfer of PCB products below the 16th floor of Qingsong Factory and the medium and low-end automotive PCB products of Shanghai Li Microelectronics to Huangshi Factory. Huangshi Phase I and Phase II is expected to enjoy volume increase and price increase at the same time, and profits will be further improved.
Thailand base is planning to ease concerns about geopolitical risks for overseas customers.
Company plans to invest US$280 million to build a new production base in Thailand, and plans to establish a Thai subsidiary in the second half of 2022, and achieve a certain scale of mass production in the first half of 2025, so as to better explore and respond to the needs of overseas customers in the future.
Kunshan factory products continue to achieve high-end products, and the average number of product layers continues to increase.
The production capacity of the company's PCB products has the characteristics of changing with product development and product structure upgrading. This is mainly because high-end products are more difficult to manufacture and consume more capacity.
According to the environmental impact report of the Qingsong factory's annual production circuit board 2.25 million square meters project, the company has maintained the annual production capacity of 4.5 million square meters by improving the equipment precision and automation level, and increased the processing capacity of the inner circuit board by 10.5 million square meters, corresponding to the average number of layers of the HDI board 4.3 layers, which has not been reflected in the nominal production capacity of 2.25 million square meters.
In recent years, the company has focused on transferring mid- and low-end products from Kunshan to Huangshi. With the nominal production capacity remains unchanged, the two production bases in Kunshan are expected to continuously improve the average product layer and output value potential by increasing the production of high-speed products in the Shutong market.
Profit forecast and valuation .1. Profit forecast assumptions are split with business
Kunshan Qingsong and Huangshi Factory 1: Although 5G construction has slowed down, the capital investment in the data center industry has been continuously invested. In addition, PCIE5.0 will be used in Intel and AMD's next-generation server processors, and switches and servers are expected to start a new round of rising cycle.
company mainly handed over high-end communications and digital communication products such as HPC/AI servers to Kunshan Qingsong for production, while Huangshi Factory No. 1 undertakes the production of communication boards for low- and medium-level enterprises below 16 levels, such as PCIe5.0 generation server boards.
We assume that the production capacity of the first plant in Qingsong and Huangshi, Kunshan is 2.2 million and 750,000 square meters per year respectively. As the number of internal floors of the two plants continues to increase, ASP has grown steadily. From 2022 to 24, the two plants have a total revenue of 4.992/6.588/8.401 billion yuan.
Shanghai Li Microelectronics and Huangshi Factory 2:Shanghai Li Microelectronics mainly produces automotive boards, and Huangshi Factory 2 is a dedicated line for automotive boards, and also undertakes the task of medium and low-level automotive boards of Shanghai Li Microelectronics. Among them, Shanghai Li Microelectronics was temporarily suspended due to the impact of the Shanghai epidemic in April 2022, which had a certain impact on the annual capacity utilization rate.
Benefiting from the increased demand for multi-layer automotive panels and high-end automotive HDI products, Huangshi Factory No. 2 has steadily climbed its production capacity. From 2022 to 24, the two factories achieved a total revenue of 2.801/3.133/3.784 billion yuan.
In summary, we expect the company's total revenue to reach 7.794/9.722/12.184 billion yuan in 2022-24, a year-on-year increase of 5.06%/24.74%/25.33%, and the comprehensive gross profit margin is 28.31%/29.33%/30.51%.
.2. Valuation Analysis
Select Shenghong Technology, Jingwang Electronics, Xingsen Technology and Shennan Circuit as comparable companies. According to Wind's consistent forecast data, the industry average PE in 2022-24 will be 22.13/17.74/14.52 times respectively.
company focuses on high-end PCBs and focuses on communication boards and automotive boards as its main target areas.After the subsequent market expectations for the IDC industry prosperity are restored, the increase in the efficiency of the switch, automobile business, Huangshi, and the pressure on raw material costs will gradually ease. The four major factors are expected to bring a dual repair of performance and valuation to the company.
is expected to be 1.222/1.651/2.266 billion yuan in 2022-24, respectively, with an EPS of 0.64/0.87/1.19 yuan, and a corresponding PE of 20.37/15.07/10.98 times, respectively.
Risk warning downstream demand has weakened. After the continued interest rate hike in Europe and the United States, the risk of economic recession increases. If cloud computing manufacturers experience performance problems, they may slow down the pace of capital expenditure, which will adversely affect the demand for high-speed digital communication products; if automobile sales, especially new energy vehicles, are hit, the automobile board market will also be under pressure.
The risk of repeated epidemics. sudden outbreak of the epidemic may disrupt the company's production plan or customer procurement plan. If the efficiency of the transportation link is greatly hindered, it will also increase the company's operating costs.
geopolitical risks. The company's export revenue accounts for 2/3. Against the backdrop of geopolitical tension, the conflict may involve trade sanctions policies, which have a negative impact on the company's product competitiveness and profitability.
——————————————————————————————————————————
Please pay attention to the latest industry analysis reports every day! The report belongs to the original author and we do not make any investment advice! If there is any infringement, please send a private message to delete it, thank you!
For more selected reports, please log in to [Yuanzhan Think Tank Official Website] or click: Yuanzhan Think Tank - a useful knowledge platform for 300 million people | Strategic Report | Management Documents | Industry Research Report | Selected Report | Yuanzhan Think Tank
