The Zhitong Finance App learned that Guojin Securities released a research report saying that PCBs set the tone for restorative growth throughout the year, and it is recommended to focus on the boom in high-speed communication and the localization of carrier boards. 2023 is a year to fully absorb weak demand. After this full year of adjustment, cyclical pressure will be released, and 2024 will be a year of repair. According to CPCA quoted data forecast, global PCB output is expected to resume year-on-year growth in 2024, and the increase is expected to reach 4.1% year-on-year. Once the cycle pressure is relieved, the bank believes that the growth of PCBs will also be highlighted. In terms of segmentation, the bank is still optimistic about the opportunities for high-end PCB board expansion and domestic replacement of packaging substrates brought about by high-speed communication.

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Guojin Securities's views are as follows:

PCBs set the tone for restorative growth throughout the year, and the year-on-year increase is expected to return to 4%.

The PCB industry in 2023 seems to be growing together with the cycle. In fact, the main theme is the cycle. According to CPCA data, the decline in global PCB output reached 15.0% in 2023, the biggest year-on-year decline since 2001, and even surpassed the 14.5% year-on-year decline under the 2009 financial crisis. It can be seen that although global PCBs are innovative in 2023, they cannot resist the cyclical pressure faced by the entire industry. The bank believes that 2023 will be a year to fully absorb weak demand. After this full year of adjustment, cyclical pressure will be released, and 2024 will be a year of repair. The bank sees that IDC's shipments in key fields such as smartphones, PCs, and servers are expected to usher in a restorative growth in 2024, and the China Automobile Association also proposed a 3% growth rate for automobile sales in China. With the restoration of such basic needs, the PCB industry is also expected to usher in a recovery. According to CPCA quoted data forecast, global PCB output is expected to resume year-on-year growth in 2024, and the increase is expected to reach 4.1%.

In January, due to high demand for pre-holiday stocking, the year-on-year increase indicates that demand is recovering.

Since the Spring Festival holiday in February lasts more than a week, some customers will have pre-order behavior, that is, the boom rhythm reflected in the PCB industry chain's January revenue was disrupted by inventory preparation, which is distorted to a certain extent. However, the bank can see an improvement in demand in the industry from -19% of copper foil, +4% of electronic glass fiber cloth, +40% of copper clad plate, and +11% of PCB. Further considering the situation where the previous year's Spring Festival occurred at the end of January and pre-order behavior occurred in December, the bank compared and added in December 2022. With the bimonthly data for January 2023 and the bimonthly data for December 2023 plus January 2024, it was observed that copper foil was -18%, electronic glass fiber cloth +15%, copper-clad board +2%, and PCB -6%. Combined with the bi-monthly revenue data for different downstream sectors, the bank believes that the January data does reflect some supply demand, but the fact that the year-on-year decline in consumer products has narrowed and server/automobile demand actually changed year over year also means that the entire industry chain is being repaired.

High-speed communication: Cloud computing/AI is booming, and server & switch upgrades open up high-end PCB space.

Under the trend of AI and platform upgrades, server and switch PCBs are growing: 1) According to CPCA reference data, the server PCB market space is expected to reach 13.5 billion US dollars in 2027, and there is still room for 65% expansion compared to the market size of 8.2 billion US dollars in 2023; 2) According to IDC's switch market data, combined with the share of circuit boards in raw materials disclosed in Ruijie Network and Sanwang Communications prospectus, according to “PCB/Switch Market = PCB/Switch Raw Material Switch* Switch Raw Materials/Switch Operating Cost* (1- Switch Vendor) According to the “gross profit margin)” formula, the bank calculates that PCBs account for about 3% of the switch market (Ruijie Network average is 4%, Sanwang Communications average is 2%, and the average of the two is 3%). The bank calculates that the global switch PCB market with port rates of 400G and below will be US$1.49 billion by 2027. Considering the long-term market size of 800G and above that IDC has not disclosed, the bank believes that the long-term switch PCB market will also be broader.

Packaging substrates are an important component of packaging materials, and advanced packaging is driving rapid growth.

As a connecting layer between grade 1 package and grade 2 package, the package substrate accounts for 50% of advanced packaging costs (taking typical FCBGA as an example). Against the backdrop of rapid development of advanced packaging, the global package substrate market space is expected to reach 20 billion US dollars by 2027. Global packaging substrates are mainly monopolized by overseas manufacturers. In particular, the technologically difficult semi-addition method/improved semi-addition method is difficult to see domestic manufacturers. The bank estimates the revenue data of the two major domestic packaging board manufacturers that have already been listed in 2022. The localization rate of the global packaging substrate market is only in single digits. It can be seen that the localization rate is low and there is plenty of room for domestic replacement.

Risk warning: demand recovery falls short of expectations; high-end product launch progress falls short of expectations; competition intensifies.