【行业研究报告】深南电路-FY23 results beat helped by better 4Q

18Mar202418Mar2024CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateShennanCircuit(002916CH)FY23resultsbeathelpedbybetter4QShennanCircuitreleaseditsFY23earnings,withrevenuedown3.3%YoYtoRMB13.5bn(5%/2%higherthanourforecast/consensus)andnetprofitdown14.8%YoYtoRMB1.4bn(11%/5%higherthanourforecast/consensus).TheCompanybeatestimatesthankstoastronger-than-expected4Q.Thequarterlyrevenue/NPaccountedfor30%/35%offullyearresults.4Qrevenueincreasedby15.9%YoY/18.6%QoQtoRMB4.1bn,andnetprofitincreasedby6.6%YoY/12.8%QoQtoRMB490mn.GPMroseinthreeconsecutivequartersto24.2%in4Q(vs.22.8%/23.4%in2Q/3Q).WeexpectShennantohaveamodestrecoverythisyear,aswebelievethePCBsectorhasreachedtheendofthetroughin2H23.2024revenuegrowthisprojectedtobe12.5%fromalowbasein2023,givenutilizationratesofbothPCBandsubstratebusinessesareup.However,wedonotexpectafullrecoveryforShennan,atleastnotin1H24,consideringongoingpriceerosioninPCBproductsandweakdemandintelecommarket.Meanwhile,weareconservativeinNPgrowth(10%in2024),duetoapotentialincreaseincopperprice.MaintainHOLDwithTPadjustedtoRMB79,basedon27x2024EP/E,higherthanprevious25xgiventhecurrentpositionofthecycle,butlowerthan5-yearhistoricalof32xaschallengesremain.Thestockiscurrentlytradingat28.5x24EP/E,whichisfair.Bysegments,inFY23,PCB/substraterevenuebothdeclinedby8.5%YoYtoRMB8.1bn/RMB2.3bn,whilePCBAsalesrose21.5%toRMB2.1bn.2H23resultsweremuchstronger,with8.0%/49.2%/80.8%increasefrom1H.Substratesalesgrewasdownstreaminventorydigestionhasalmostendedandutilizationratewasbackto80%in2H.PCBgrowthwasmainlydrivenbyauto/energymarket,partiallyoffsetbyongoingweaknessintelecom/datacenter.AIdemandbroughtincrementalrevenue,however,thecontributionwasnotlarge.GPMforPCBandsubstratebusinesseswere26.6%and23.9%,declinedby1.57pptsand3.11ppts,respectively.2H23GPMwasimprovedfrom1Hforbothsegments(1.36pptsand7.87ppts).Despiteindustryheadwinds,wethinkShennanispoisedforfuturegrowthastheCompanyachievedasignificantmilestoneinitsFC-BGAproductionlines.WuxiphaseIIandGuangzhoufactoriesarerampingupcapacity,whichwillbenefitShennaninthelongrun.However,intheshortterm,thesetwoprojectsarelikelytoweighonmargins(R&Dexp.up31%inFY23).Apotentialincreaseincopperprice.WesawcopperconcentratesTCindexreachedhistoricallowatUS$11/tonneinMarch.Inaddition,FedmaycutratesinJune2024.Thesecatalystsmayfavorajumpincopperpriceinthenearterm,whichwillhurtPCBsuppliers’GPM.QTargetPriceRMB79.00(PreviousTPRMB72.00)Up/Downside-11.2%CurrentPriceRMB88.92ChinaSemiLilyYANG,Ph.D(852)39163716lilyyang@cmbi.com.hkKevinZHANG(852)37618727kevinzhang@cmbi.com.hkStockDataMktCap(RMBmn)45,607.1Avg3mthst/o(RMBmn)393.152wHigh/Low(RMB)98.86/49.27TotalIssuedShares(mn)512.9Source:FactSetShareholdingStructureAVICInternationalHoldingsLtd64.0%HKSCC3.1%Source:HKExSharePerformanceAbsoluteRelative1-mth59.7%41.9%3-mth27.2%31.0%6-mth32.2%42.4%Source:FactSet12-mthPricePerformanceSource:FactSetEarningsSummary(YE31Dec)FY22AFY23AFY24EFY25EFY26ERevenue(RMBmn)13,99213,52615,21217,46119,850YoYgrowth(%)0.4(3.3)12.514.813.7Netprofit(RMBmn)1,641.21,398.11,537.81,970.52,467.5YoYgrowth(%)10.8(14.8)10.028.125.2EPS(Reported)(RMB)3.22.73.03.84.8P/E(x)27.632.729.723.218.5ROE(%)13.4%10.6%10.8%12.5%14.0%Source:Companydata,Bloomberg,CMBIGMestimates