20210817-招银国际-生益科技-600183.SH-CCL_upcycle_to_continue__Maintain_BUY_6页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

Shengyi Technology (600183 CH) reported strong 1H21 results with revenue of RMB9.8bn (43% YoY) and net profit of RMB1.4bn (71% YoY), aligning with preannounced earnings. The results indicate a continued upcycle in the CCL (copper-clad laminate) segment, while the PCB (printed circuit board) segment faced pressure due to rising raw material costs, which partially offset growth in the CCL segment.

The company's CCL/pregreg segment showed significant growth in revenue and net profit, with YoY increases of 62% and 171%, respectively. However, the PCB segment experienced declines in both revenue and net profit, with YoY drops of 25% and 66%. The CCL segment's gross margin remained flat at 29.3% in 2Q21, while the PCB segment's gross margin continued to decline to 16.0%. The blended gross margin for 2Q21 dropped to 25.7%, reflecting the impact of the PCB segment's deteriorating margins and limited upside from the CCL segment due to cost pressures.

The research team maintains a BUY rating and has revised the target price (TP) to RMB31.90, which represents a 21% upside from the current price of RMB26.35. This adjustment is based on higher earnings forecasts and a lower 25x FY22E P/E ratio compared to the previous 30x. The stock currently trades at 23.2x/20.7x FY21/22E P/E, and the analysts believe it remains attractive despite potential risks such as limited cost transfer to downstream clients and demand uncertainty.

Key Financial Highlights

• Revenue (RMB mn): FY19A: 13,241, FY20A: 14,687, FY21E: 19,740, FY22E: 22,234, FY23E: 26,039
• Gross Profit (RMB mn): FY19A: 3,528, FY20A: 3,933, FY21E: 5,483, FY22E: 6,098, FY23E: 7,184
• Net Profit (RMB mn): FY19A: 1,449, FY20A: 1,681, FY21E: 2,600, FY22E: 2,923, FY23E: 3,437
• EPS (RMB): FY19A: 0.66, FY20A: 0.74, FY21E: 1.13, FY22E: 1.28, FY23E: 1.50
• P/E Ratio: FY21E: 23.2x, FY22E: 20.7x
• P/B Ratio: FY21E: 4.8x, FY22E: 4.3x
• ROE (%): FY21E: 20.4, FY22E: 20.7, FY23E: 22.1

Outlook

• The analysts expect another strong quarter in 3Q21, driven by the peak season and high order visibility.
• They believe the auto market will continue to be a key driver for CCL growth.
• Telecom equipment demand is expected to pick up with the resumption of 5G deployment, offering stable gross margin and average selling price (ASP).
• However, the 4Q21 may face higher uncertainty due to increased demand pressure from downstream clients.
• The 2H21 revenue growth is expected to be similar to 1H21 due to limited room for CCL ASP increases and uncertainty in downstream demand.

Key Risks

• Less-than-expected transfer of material costs to downstream clients.
• Less-than-expected market demand.

Valuation Comparison

Share Performance

Key Ratios

• Revenue Mix:
  • CCL: 79% (FY21E), 71% (FY22E), 68% (FY23E)
  • PCB: 19% (FY21E), 27% (FY22E), 30% (FY23E)
• Gross Margin (%): FY21E: 27.8, FY22E: 27.4, FY23E: 27.6
• Operating Margin (%): FY21E: 16.2, FY22E: 16.2, FY23E: 16.4
• Net Profit Margin (%): FY21E: 13.2, FY22E: 13.1, FY23E: 13.2
• ROE (%): FY21E: 20.4, FY22E: 20.7, FY23E: 22.1
• Net Debt/Total Equity (%): FY21E: 13.1, FY22E: 16.0, FY23E: 20.0
• Current Ratio (x): FY21E: 1.6, FY22E: 1.5, FY23E: 1.4
• Receivable Turnover Days: FY21E: 101, FY22E: 101, FY23E: 96
• Inventory Turnover Days: FY21E: 76, FY22E: 79, FY23E: 79
• Payable Turnover Days: FY21E: 84, FY22E: 84, FY23E: 84
• BPS (Book Value per Share): FY21E: 5.56, FY22E: 6.15, FY23E: 6.89

Analysts

• Lily Yang: (852) 3916 3716, lilyyang@cmbi.com.hk
• Alex Ng: (852) 3900 0881, alexng@cmbi.com.hk

Research Team

• BUY Rating: Indicates a potential return of over 15% over the next 12 months.
• HOLD Rating: Indicates a potential return of +15% to -10% over the next 12 months.
• SELL Rating: Indicates a potential loss of over 10% over the next 12 months.
• NOT RATED: Indicates the stock is not rated by CMBIS.

Disclosures

• The research analyst certifies that the views expressed in the report accurately reflect personal views and that no compensation is directly or indirectly related to the specific views in the report.
• The analyst confirms that no trading or dealing in the stock covered in the report occurred within 30 days prior to the report's issue.
• The report is not intended for all investors and should not be construed as an offer or solicitation to buy or sell securities.
• CMBIS provides the information on an "AS IS" basis and is not liable for any loss, damage, or expense incurred from relying on the report.
• The report is for the use of intended recipients only and may not be reproduced, reprinted, sold, or published without prior written consent.

Additional Information

• The report is based on analyses and interpretations of publicly available information.
• The information is subject to change without notice.
• CMBIS may issue other reports with different conclusions and assumptions.