The heat of PCB and the cool of Kingboard baseboard

- Dec 02, 2019-

The "heat" of PCB and the "cool" of Kingboard baseboard

Content summary: The strong demand for PCB products in the communications industry has been determined. After all, the Shanghai shares of A shares from the low point of last year, the stock price has risen nearly ten times so far. Profits also increased sharply by 168%, and share prices resonated with performance.


As the raw material of copper clad PCB, its investment value has also been tapped by the market with the rise of PCB. The most representative is the A-share Shengyi Technology, which has the largest increase nearly three times this year.


After Shengyi Technology surged, its rival Kingboard Laminates (01888) also performed. Starting from the low of 5.32 Hong Kong dollars per share during the year, as of the close of September 16, the stock has recorded a nearly 40% increase. However, compared with Shengyi Technology, the growth rate is significantly behind.




According to data from Prismark Partners LLC, Kingboard's global market share in 2018 was 14%, and it has ranked first in the global copper laminate market for 14 consecutive years. It also produces copper-clad laminate products, and Kingboard's laminate market share is greater than that of Shengyi Technology, but the stock price growth rate is far behind. Is there any investment opportunity worth exploring?


Price reduction after product demand declines


As early as September 2, Kingboard Laminated Board released the first half of 2019 performance report. The company's revenue during the reporting period was HK $ 7.631 billion, a year-on-year decrease of 21.2%. The sharp decline in revenue was mainly due to changes in the external operating environment.


Due to the fluctuation of the trading environment and the impact of the slowing economic growth on the electronics industry, the demand for electronic products such as automobiles and home appliances has weakened, resulting in a decline in the overall market demand for copper clad laminates, and the unit price of some products has declined.


The Zhitong Finance APP found that in the first half of 2019, although the average monthly shipment of Kingboard laminates was 9.47 million square meters, which was flat compared to the same period last year, but due to the decline in unit price of products, the revenue of copper clad panels fell by 22%.


After the unit price of the product decreased, the gross profit margin of Kingboard laminates also declined. During the reporting period, the gross profit margin of Kingboard's laminates was 24.23%, a decrease of nearly 4 percentage points from 28% in the same period in 2018.


In the case of a decline in gross profit margin, due to the doubling of financing costs compared to the same period in 2018, the net profit rate attributable to mothers has decreased from 18.36% in the same period in 2018 to 14.18%, a decline of more than 4 percentage points.


In addition, due to the decline in market demand, the inventory of Kingboard laminates also increased. During the reporting period, the company's inventory was 1.913 billion yuan, a year-on-year increase of 11.81%. At the same time, relevant indicators indicate that the pressure on inventory has increased. The company's inventory turnover cycle has increased from 41 days in 2018 to 60 days, and the turnover cycle of net working capital has increased from 63 days to December 31, 2018 to In 93 days, the turnover of funds was slow for nearly a month.


It can be seen that in the first half of 2019, due to the sluggish demand for automobiles and consumer electronics, Kingboard laminates reduced the price of some copper-clad laminate products, but even so, the company's inventory still had a certain backlog. Sluggish operating turnover.


Disadvantages of Low and Mid-end Product Positioning


Is there any eggs under the nest? The changes in the external operating environment have not only affected the Jiantao laminates, but Shengyi Technology has also been affected. Shengyi Technology has two major businesses, namely copper clad laminates and adhesive sheets, and printed circuit board business. Among them, Shaanxi Shengyi Factory and Suzhou Shengyi Factory produce copper clad laminates and adhesive sheets, and Shengyi Electronics Factory produces printed circuit boards.


In the first half of 2019, the number of copper clad laminates sold by Shengyi Technology increased by 4.02% year-on-year, and the number of prepregs sold increased by 2.13% year-on-year. However, the total sales revenue of the two major products fell by 2.32% year-on-year, and the price of products also dropped The phenomenon.


It is worth noting that although the unit price of products has declined, the gross profit margin of Shengyi Technology's copper clad laminate and adhesive sheet business has increased, up 4.4 percentage points year-on-year to 22.96%. The main reason for the increase in gross profit margin was the decrease in raw material costs and the proper control of unit manufacturing costs, and some 5G high-frequency copper clad laminate products were shipped in the first half of the year.


Although the gross profit margin is still lower than 24.23% of Kingboard Laminates, this is because Kingboard Laminates is backed by Kingboard Group (00148), creating a vertical supply chain for copper-clad laminates, forming a synergistic effect with upstream raw materials , In the control of raw material costs even better.


Of course, Shengyi Technology's advantages are also obvious. The company's copper-clad laminates are positioned at high-end, and the gap between the technology and the high-frequency leader Rogers of copper-clad laminates is narrowing, and the possibility of domestic substitution is further strengthened.


Kingboard laminates rely on the cost advantage of raw materials to position the product as a low-end + large-volume development route. This also explains that in the first half of 2019, Shengyi Technology's copper clad laminate and adhesive sheet business revenue fell by only 2.13%, but Kingboard laminates recorded a 22% drop in revenue while flat sales. The reason is that low-end products lack competitiveness, and when the supply-demand gap narrows, it is difficult to raise prices.


Mainland funds have become a driving force for stock price rebound?


Therefore, Shengyi Technology under the heat has its own logical support. First, the high-end copper-clad products meet the needs of the future development of the industry. The technical barriers are relatively high. It is expected that 5G construction will replace domestic high-frequency copper-clad laminates. Second, Shengyi Technology's circuit board printing business, driven by the needs of the communications industry, achieved rapid revenue growth. In the first half of 2019, Shengyi Technology's printed circuit board business revenue was 1.255 billion yuan, an increase of nearly 30% year-on-year, and the gross profit margin increased by 9 percentage points to 32.73%. The business prosperity of this business has been established.


Due to different product positioning, the logic of rising stock price of Kingboard Laminates is slightly different from that of Shengyi Technology. According to Citi data, in the first half of 2019, revenue from household equipment, automobiles and smartphones accounted for 75% of the total revenue of Kingboard's laminates, and Kingboard's laminates currently do not have a large-scale 5G High-frequency copper-clad laminate layout. Therefore, in the short to medium term, the performance of Kingboard's laminates is mainly driven by the needs of three major fields: household equipment, automobiles and smart phones. In the first half of 2019, the worst deterioration in demand is in the automotive industry.


However, the automotive market has improved expectations. On August 27, the General Office of the State Council issued the "Opinions on Accelerating the Development of Circulation to Promote Commercial Consumption", which pointed out that the requirements for the release of automobile consumption potential, and the implementation of restrictions on automobile purchases should be combined with the actual situation, and gradually reduce or cancel specific purchase restrictions. . Affected by this news, the Hong Kong stock auto sector index has rebounded by more than 10%.


Based on this expectation, the automotive market is expected to pick up in the second half of the year, which will drive the demand for Jiantao's laminate products to rise, thereby achieving profitable growth. The company is expected to have a net profit of HK $ 1.2 billion in the second half of the year, and the net profit for the full year of 2019 will be HK $ 2.28 billion. The current market valuation of the PE corresponding to 2019 is 9.82 times, which is already at the average level of historical valuation. If there are no subsequent events that exceed expectations, the stock price of Kingboard Laminates during the year may have no chance of trend, and there is limited room for growth.


However, after the A-shares have been buzzing with Shengyi Technology, the mainland funds have been particularly fond of Kingboard. The data shows that since August 16, 2019, mainland funds have accelerated the purchase of Kingboard's laminated board stocks through the Hong Kong Stock Connect. They have bought 20 times within a month and have not sold them. The ratio of domestic shares to outstanding shares has changed from 1.82. % Rose to 3.58%, nearly doubling. It can be said that behind the rise of the stock price of Kingboard's baseboards by nearly 40%, there is a lot of credit for going south.


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