The Zhitong Finance App learned that China Galaxy Securities released a research report saying that in the PCB industry, the first quarter was a low season, but benefiting from the rapid increase in PCB output value in the AI-driven server sector, the performance of some companies increased dramatically over the same period last year. Active equity public funds continue to increase their holdings in the PCB industry. Looking ahead to the second quarter, although TSMC lowered its annual growth forecast for global foundry, it also indicated that demand for AI is very strong. Some products of A-share PCB companies have entered the global supply chain system. They are expected to benefit from AI development in the future, and their performance will continue to grow at a high rate. At the same time, it is also firmly optimistic about the investment opportunities brought about by the localization of AI-related links.

Recommended attention: Shanghai Electric Power Co., Ltd. (002463.SZ), Shenghong Technology (300476.SZ), Pengding Holdings (002938.SZ), Shennan Circuit (002916.SZ), and Shengyi Electronics (688183.SH).

The main views of China Galaxy Securities are as follows:

The overall performance of listed companies in the PCB sector in 2023 is under pressure

In 2023, listed companies in the SW printed circuit board sector achieved revenue of 198.102 billion yuan, a year-on-year decrease of 3.71%; net profit to mother was 12.132 billion yuan, a year-on-year decrease of 29.39%; net profit after deduction was 10.405 billion yuan, a year-on-year decrease of 32.39%. In 2023, overall demand in the consumer electronics industry, represented by mobile phones and PCs, was weak, PCB demand fell short of expectations, and industry competition intensified. According to Prismark statistics, the global PCB output value in 2023 was about 69.517 billion yuan, a year-on-year decrease of 14.96%, while the PCB output area fell only 4.7%. Compared with the output area, the sharp drop in PCB output value highlighted serious price erosion.

The revenue of listed companies in the 2024Q1 PCB sector increased 15% year-on-year, and profitability increased

As the “mother of electronic products,” in the medium to long term, demand from artificial intelligence, high-speed networks, and automotive electronics will continue to support the growth of market segments such as high-end HDI, high-speed high-rise, and packaged substrates, which is expected to bring a new growth cycle to the PCB industry. Prismark expects global PCB output to be US$72,971 billion in 2024, an increase of 5% over the previous year. The total revenue of listed companies in the 2024Q1SW printed circuit board sector was 49.257 billion yuan, up 15.17% year on year; net profit to mother was 3.62 billion yuan, up 38.05% year on year; net profit after deduction was 2,956 billion yuan, up 52.84% year on year. The overall revenue of listed companies in the 2024Q1 PCB sector picked up, and their profitability increased.

2024Q1 market accelerates concentration on leading companies

By counting the financial data of 142 listed PCB companies in 2024Q14, it can be found that the trend of the industry concentrating on leading companies is becoming more and more obvious. Compared with the revenue and net profit of the top 10 and bottom 10 companies, the average revenue and net profit growth rates of the top 10 PCB companies in 2024Q1 were 34.09% and 74.15%, respectively, and the average revenue and net profit growth rates of the 10 PCB companies with lower revenue rankings were -4.90% and -4.64%, respectively, and the market share of leading companies expanded rapidly.

2024Q1 active funds increase PCB industry holdings

According to the public fund's 2024 quarterly report, China Galaxy Securities counted the heavy holdings of ordinary equity funds, partial share hybrid funds, balanced hybrid funds, and flexible allocation funds in the PCB industry. Since actively allocated public funds are more flexible in style and more responsive to the market, they can become a trend vane for the market to a certain extent. Driven by AI, the performance of some PCB companies increased significantly in the first quarter of 2024, which enabled active equity funds to increase their holdings in the PCB industry. The share of active fund holdings on PCBs in 2024Q1 was 0.61% of the market value of the fund's stock investment, up 0.15% from 0.44% in 2023Q4, and the share of holdings reached a new high since 2022. Among them, the company with the highest market capitalization in the PCB sector is Shanghai Electric Power Co., Ltd.

Risk warning: 1) the risk of AI development falling short of expectations; 2) the risk of declining profit margins due to industry competition; 3) the risk that rising prices of upstream raw materials will erode PCB companies' profits.