20211028-招银国际-生益科技-600183.SH-Solid_3Q21__Cost_pressure_ahead_9页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content and Key Points

Company Overview

• Company: Shengyi Technology (600183 CH)
• Rating: Maintain BUY
• Target Price (TP): RMB 30.50 (36% upside from current price of RMB 22.41)
• Main Business Segments: CCL (Copper Clad Laminate) and PCB (Printed Circuit Board)

3Q21 Results

• Revenue: RMB 5.547 billion (+45.5% YoY)
• Net Profit: RMB 925 million (+93.9% YoY)
• Gross Margin: ~26.2% (down from 29.3% in 1H21)
• PCB Revenue Growth: +26.8% QoQ
• PCB Gross Margin: 21.3% (up from 16.0% in Q2, but still lower than 29.6% in 3Q20)
• CCL Revenue Growth: +56.6% YoY
• CCL Gross Margin: ~26% (down from 29.3% in 1H21)

Key Insights

• Shengyi's strong performance in 3Q21 reflects robust demand in CCL and PCB sectors.
• CCL Segment: Driven by pent-up demand from auto and consumer markets. However, limited room for ASP (Average Selling Price) increase due to high material costs.
• PCB Segment: Showed recovery in 3Q21 with improved GPM, supported by resumed 5G deployment and new capacity in Ji'an factory.
• Cost Pressure: High material prices, especially copper, have negatively impacted gross margins, although net margins have improved.
• Capacity Expansion: New CCL capacity expected to begin production in 2022 (Changsu, Jiangsu; Dongguan, Guangdong; Shanxi), and new PCB capacity in 2H22.

Sector Outlook

• CCL and PCB Sectors: Positive outlook due to strong demand and economic recovery, despite short-term challenges like power shortages.
• Prismark Forecast: Raised 2021E full-year growth forecast for PCB industry to 18.2%, with China and Japan expected to outperform globally.
• Material Prices: Remain at high levels due to global economic recovery, low Chinese copper inventory, and government intervention.

Valuation

• Target Price: RMB 30.50, based on a 22.5x FY22E P/E multiple.
• Current Valuation: Trading at 16.6x FY22E P/E, considered attractive.
• Peer Comparison: Shengyi's valuation is in line with its peers, with a lower target multiple than previous estimates.

Risks

• Material Cost Transfer: Uncertainty remains on the ability to pass on rising costs to downstream clients.
• Market Demand: Potential shortfall in demand may impact growth.
• Power Shortage: Could worsen in late 3Q21 and affect operations.

Financial Highlights

• Revenue Growth: Expected to grow from RMB 20.758 billion (FY21E) to RMB 26.276 billion (FY23E).
• Net Profit Growth: Projected to increase from RMB 3.038 billion (FY21E) to RMB 3.525 billion (FY23E).
• Net Margin: Steadily improving, from 13.2% (FY20A) to 14.6% (FY21E) and 13.4% (FY22E).
• Operating Margin: Increased from 16.2% (FY20A) to 17.4% (FY21E) and slightly declined to 16.2% (FY22E).

Share Performance

• Market Cap: RMB 61,522 million
• Share Price Performance:
  • 1-month: +11.3%
  • 3-month: +16.3%
  • 6-month: +16.6%
• Shareholding Structure:
  • Guangdong Guangxin Holdings: 22.65%
  • Dongguan Guohong Invest.: 14.94%
  • Weihua Electronics: 14.17%

Summary of Key Metrics

Outlook

• Positive: Shengyi is expected to maintain strong performance due to its leading position in CCL and ongoing PCB recovery.
• Uncertainty: Short-term challenges such as cost pressure and potential power shortages may affect results.
• Conclusion: Despite these challenges, the company's strong fundamentals and growth potential justify the BUY rating with a revised target price.