20220322-招银国际-深南电路-002916.SZ-Drivers_of_FY21_should_be_able_to_sustain_provide_a_stable_revenue_growth_for_FY22_4页_936kb

Shennan Circuits (002916 CH) Summary

Core Content Overview

Shennan Circuits (002916 CH) reported a strong performance in FY21 with revenue increasing by 20.2% year-over-year (YoY) to RMB13.9bn and net profit rising by 3.5% YoY to RMB1.5bn. The results were in line with forecasts, with revenue and net profit 6% and 4% higher than estimates respectively. Despite the overall macroeconomic challenges, the company's substrate and PCBA businesses outperformed its PCB segment, which saw slower growth due to a softening telecom market.

Main Points and Key Information

Revenue and Profit Growth

• FY21 Revenue: RMB13.9bn (+20.2% YoY)
• FY21 Net Profit: RMB1.5bn (+3.5% YoY)
• Revenue Growth: Expected to remain strong in FY22, driven by data center and auto clients, with a YoY growth of 18.3%.
• Net Profit Growth: Projected to grow by 30.4% in FY22, outperforming the consensus estimate of 3.68 RMB per share.

Business Segments

• PCB Revenue Growth: 5.1% YoY
• PCBA Revenue Growth: 67.2% YoY
• Substrate Revenue Growth: 56.3% YoY, driven by strong semi demand and the Wuxi factory entering mass production.
• Memory Orders: Grew 140% YoY in FY21.

Margins

• Gross Margin: Declined in FY21 to 23.7%, but improved in FY22 to 24.9% and further to 26.5% in FY23.
• Operating Margin: Increased from 11.6% in FY21 to 12.9% in FY22 and 14.9% in FY23.
• Net Profit Margin: Improved from 10.6% in FY21 to 11.7% in FY22 and 13.6% in FY23.

Key Drivers

• Data Center and Auto Demand: Strong growth in these sectors contributed significantly to revenue increases.
• Substrate Business: Continued to outperform, with package substrates being a leading growth driver in the PCB industry.
• Nantong Factory (Phase III): Expected to contribute new capacity as production lines ramp up.

Market and Industry Outlook

• Macro Environment: Overall remains challenging, but selected subsectors like data center and auto are expected to maintain strong demand.
• 5G Deployment: Overseas demand is anticipated to be stronger than domestic, with 600k 5G BTS expected in 2022 (vs. 654k in FY21 and 588k in FY20).
• Industry Rating: The China Technology Sector is rated as OUTPERFORM, indicating potential to outperform the broad market benchmark.

Valuation and Investment Recommendation

• Target Price (TP): RMB110.75 (unchanged from previous TP)
• Current Price: RMB97.80
• TP Relative to Current Price: +14.1% upside
• CMBIGM Rating: HOLD, indicating the stock is fairly valued with potential return of +15% to -10% over the next 12 months.

Financial Highlights

• Turnover (RMB mn): RMB13,943 in FY21, projected to reach RMB23,080 in FY24.
• Net Profit (RMB mn): RMB1,481 in FY21, expected to reach RMB3,128 in FY24.
• EPS (RMB): RMB3.02 in FY21, projected to rise to RMB6.39 in FY24.
• PE Ratio (12M forward): Ranged from 24.8 to 15.3 in FY22 to FY24.
• P/B Ratio (12M forward): Expected to decrease, reflecting growth in asset value.

Balance Sheet and Cash Flow

• Total Assets (RMB mn): RMB16,792 in FY21, projected to increase to RMB27,782 in FY24.
• Total Equity (RMB mn): RMB8,520 in FY21, expected to grow to RMB14,046 in FY24.
• Net Cash from Operating Activities: Increased from RMB2,342 in FY21 to RMB6,119 in FY24.
• Capital Expenditure (Capex): Decreased from RMB2,658 in FY21 to RMB1,181 in FY24.
• Net Change in Cash: RMB122 in FY21, projected to increase to RMB3,491 in FY24.

Shareholding and Performance

• Shareholding Structure: AVIC International Holdings owns 63.97% of the shares.
• Share Performance (12M): The stock has shown mixed performance, with a -9.9% 1-month return and a +6.6% 6-month return.
• Market Cap (HK$ mn): RMB50,262, with an average 3-month turnover of HK$382 million.

Analyst Notes

• Maintain HOLD: Due to limited incremental capacity in FY21 and strong performance from the substrate and data center/auto segments.
• Earnings Revision: CMBIGM's estimates show a 4% increase in revenue for FY22 compared to the old estimates.
• Key Ratios: The company has maintained a healthy current ratio and receivable turnover days, while inventory turnover days have remained stable.

Risk and Disclaimer

• The report is not tailored for individual investors and should not be used as investment advice.
• CMBIGM does not guarantee the accuracy or completeness of the information.
• There may be conflicts of interest due to CMBIGM's market-making activities.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.

Conclusion

Shennan Circuits is expected to benefit from continued demand in data center and auto sectors, as well as strong performance in its substrate business. However, the overall macroeconomic environment remains challenging, and the company's growth is constrained by limited new capacity in FY21. The stock is currently fairly valued, and the analyst recommends maintaining a HOLD position with an unchanged target price of RMB110.75.