20210318-招银国际-深南电路-002916.SZ-Near-term_cost_pressure_remains_overhang__Maintain_HOLD_5页_1mb

Shennan Circuits (002916 CH) Company Update Summary

Core Content

Shennan Circuits, a Chinese company with significant exposure to the 5G technology sector, has been analyzed in a recent equity research update by CMB International Securities. The report outlines the company's financial performance, future growth expectations, and valuation metrics, while also highlighting key risks and maintaining a HOLD rating with an updated target price.

Main Points

Financial Performance (FY20)

• Revenue: RMB11.9bn, up 10% YoY
• Net Profit: RMB1.4bn, up 16% YoY
• EPS: RMB3.00, up 14.5% YoY
• Gross Margin: 26.5%, stable YoY
• Operating Margin: 14.0%, up 4ppt YoY
• Net Margin: 12.3%, up 5.2ppt YoY

Segment Performance

• PCB/PCBA:
  • PCB revenue grew 8% YoY, while PCBA declined 4% YoY
  • Weak growth attributed to slower 5G BTS build-out in the second half of 2020
• IC Substrate:
  • Revenue increased by 33% YoY, driven by strong demand and supply constraints
  • Expected to continue growing at 19% YoY in 2021

Revenue and Profit Forecasts (FY21E–FY23E)

• Revenue: Expected to grow by 14.8% in FY21E, 13.6% in FY22E, and 14.7% in FY23E
• Net Profit: Projected to increase by 8.7% in FY21E, 17.5% in FY22E, and 17.0% in FY23E
• EPS: Expected to rise to RMB3.26 in FY21E, RMB3.83 in FY22E, and RMB4.48 in FY23E

Earnings Revisions

• CMBIS has revised down FY21E–FY22E EPS by 14–18% due to lower ASP and margin assumptions
• Target Price (TP) revised to RMB97.8 from RMB129.1, based on a 30x FY21E P/E

Key Information

Revenue Mix

• PCB: 72% of total revenue in FY20
• PCBA: 10% of total revenue in FY20
• IC Substrate: 13% of total revenue in FY20

Valuation Metrics

• P/E (12M forward): 28.4 (FY21E), 24.1 (FY22E), 20.6 (FY23E)
• P/B (12M forward): 5.3 (FY21E), 4.6 (FY22E), 3.9 (FY23E)
• Dividend Yield: Expected to increase from 1.0% in FY20 to 1.6% in FY23E

Share Performance

• 1-Month Return: -13.8%
• 3-Month Return: -14.0%
• 6-Month Return: -16.6%

Shareholding Structure

• AVID International: 67.05%
• HKSCC: 3.50%
• China Asset Mgmt. Co.: 1.03%

Financial Highlights

• Net Cash from Operating Activities: Increased to RMB2,842mn in FY21E
• Capex: Expected to remain at RMB2,884mn in FY21E
• Net Debt/Total Equity: 26.1% in FY21E
• Current Ratio: 1.1 in FY21E
• ROE: Expected to remain at 19% for FY21E–FY23E

Risks and Catalysts

Risks

• Price Pressure: On PCB de-spec for 700MHz 5G BTS
• Laminate Cost Increase: Starting from late 1Q21E
• Lower 5G CAPEX: From telecom operators
• Raw Material Cost Hike: Potential impact on margins

Catalysts

• 3rd Phase of 5G BTS Tenders: Expected in Mar–Apr 2021
• Telecom and Datacom Capex Recovery: Positive outlook for 2021
• Capacity Expansion: Nantong plant expected to reach full capacity this year
• Improved Product Mix: Auto and server demand remains strong

Analyst Recommendations

• Rating: HOLD
• Target Price: RMB97.8
• Current Price: RMB92.46
• Up/Downside: +6% from current price

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Disclaimer and Disclosures

• CMBIS has investment banking relationships with the issuers covered in the report
• The research analyst certifies that the views expressed are their personal views
• The report is for the use of intended recipients only and may not be reproduced without written consent
• No investment advice is provided, and investors are encouraged to consult a financial advisor

Conclusion

Shennan Circuits is a key player in the Chinese 5G technology sector, with strong growth in the IC substrate segment and potential recovery in the PCB segment. However, near-term cost pressures and price challenges are expected to affect its performance. The HOLD rating and reduced target price reflect these concerns, but long-term growth prospects remain positive due to improving product mix and strong demand from the auto and server markets.