20220617-招银国际-深南电路-002916.SZ-Corp_Day_Takeaways__Company_s_operation_remains_normal,_little_impact_from_COVID_3页_828kb

Shennan Circuits (002916 CH) Company Update Summary

Core Content Overview

This document provides an equity research update on Shennan Circuits (002916 CH), focusing on its operational status, market performance, financial outlook, and investment rating. The analysis is conducted by CMB International Global Markets and highlights the impact of the pandemic, sector trends, and company-specific developments.

Key Insights and Main Points

Operational Status

• The company's operations have remained largely normal despite limited impact from COVID-19, primarily affecting logistics.
• The utilization rate and production ramp-up status are in line with previous estimates.
• No significant new capacity was added in 2022, leading to a HOLD rating with an unchanged target price (TP) of RMB102.

Market Segments and Revenue Breakdown

• PCB (Printed Circuit Board):

  • Revenue from telecom accounts for 50–60% of total PCB revenue.
  • Data center contributes 13–14%, industrial/healthcare 10%, and auto 5%.
  • Domestic telecom demand was weak in 1H22 but is expected to show HoH growth in 2H22 due to resumed 5G BTS demand and favorable policies.
  • Auto PCB is growing, with the Nantong phase III factory at ~30% utilization and full capacity expected to contribute ~RMB1.5bn by late 2023/24E.

• Substrate:

  • Demand is strong, but new capacity will only start contributing after 2022.
  • Shenzhen phase I and Wuxi phase I factories are expected to generate RMB1.0–1.2bn and RMB1.3bn, respectively, at full capacity.
  • Wuxi phase II and Guangzhou factories are set to begin production by end of 2022 and 2023, respectively.
  • Utilization rate for substrate production lines is reaching maximum, indicating high and sustained demand.
  • Memory-used substrate (over 30% of segment revenue) faces limited new capacity additions but is experiencing increased demand, especially from data center expansion.

Financial Outlook

• Earnings Summary:

  • Revenue is projected to grow from RMB11,600m (FY20A) to RMB23,080m (FY24E), with steady YoY growth of ~10–19%.
  • Net profit is expected to rise from RMB1,430m (FY20A) to RMB3,054m (FY24E), with YoY growth of ~16–31%.
  • EPS is projected to increase from RMB3.00 (FY20A) to RMB6.24 (FY24E).

• Valuation Metrics:

  • PE ratio is expected to decrease from 31.2 (FY20A) to 14.9 (FY24E).
  • Net profit margin is rising from 10.6% (FY21A) to 13.2% (FY24E).
  • ROE is projected to increase from 17.4% (FY21A) to 18.6% (FY24E).

Investment Rating and Potential Upsides

• Rating: HOLD.
• Target Price (TP): RMB102, with an up/downside of +9.1%.
• Potential Upside Factors:
  1. Sooner-than-expected easing of chip shortages.
  2. Stronger recovery in consumer demand.
  3. Material cost and logistics overhangs being resolved.

Financial Summary Highlights

Income Statement

• Revenue grows steadily from RMB11,600m (FY20A) to RMB23,080m (FY24E).
• Gross profit increases from RMB3,071m (FY20A) to RMB6,090m (FY24E).
• Operating profit is expected to grow from RMB1,606m (FY20A) to RMB3,339m (FY24E).
• Net profit is projected to rise from RMB1,430m (FY20A) to RMB3,054m (FY24E).

Cash Flow

• Net cash from operating is expected to increase from RMB1,800m (FY20A) to RMB5,625m (FY24E).
• Net cash from investing decreases from RMB2,635m (FY20A) to RMB1,187m (FY24E).
• Net cash from financing fluctuates, with positive inflows in FY22E due to share issuance.

Balance Sheet

• Total assets are projected to grow from RMB14,008m (FY20A) to RMB29,324m (FY24E).
• Total liabilities increase from RMB6,563m (FY20A) to RMB12,897m (FY24E).
• Total equity rises from RMB7,444m (FY20A) to RMB16,427m (FY24E).

Key Ratios

• Gross margin is expected to improve from 23.7% (FY21A) to 26.4% (FY24E).
• Operating margin is projected to increase from 11.6% (FY21A) to 14.6% (FY24E).
• Net profit margin is expected to rise from 10.6% (FY21A) to 13.2% (FY24E).
• Current ratio increases from 1.2 (FY20A) to 1.8 (FY24E).
• Inventory turnover days are relatively stable at ~80.
• Receivable turnover days are ~63–65.
• Payable turnover days are ~58–62.

Share Performance and Market Data

• Market Cap: HK$47,949m.
• Average 3-month turnover: HK$202m.
• 52-week high/low: HK$126.66 / HK$85.5.
• Total issued shares: 512.9mn.
• Share performance (1-yr): -15.2% absolute, +3.0% relative.

Analyst Information

• Analysts: Lily Yang, Ph.D., Alex Ng, Lana Lin.
• Contact Details:
  • Lily Yang: (852) 3916 3716, lilyyang@cmbi.com.hk
  • Alex Ng: (852) 3900 0881, alexng@cmbi.com.hk
  • Lana Lin: (852) 3761 8912, lanalin@cmbi.com.hk

CMBIG Ratings

• HOLD: Potential return of +15% to -10% over the next 12 months.
• BUY: Potential return of >15% over the next 12 months.
• SELL: Potential loss of >10% over the next 12 months.
• NOT RATED: Stock not rated by CMBIGM.

Important Disclosures

• The report is for informational purposes only and does not constitute investment advice.
• Risks are involved in trading any securities, and past performance does not guarantee future results.
• Conflicts of interest may exist due to CMBIGM's potential market-making activities.
• The report is not suitable for all investors, and distribution is restricted to certain categories of investors in different jurisdictions.

Legal and Regulatory Information

• The report is not an offer or solicitation to buy or sell any securities.
• Legal responsibility is limited to the extent required by law.
• Distribution restrictions apply in the UK, US, and Singapore, depending on the investor category.