20220822-招银国际-深南电路-002916.SZ-3Q_could_be_lower_despite_satisfactory_2Q_results_4页_960kb

Shennan Circuits (002916 CH) Company Update Summary

Core Content

Shennan Circuits (002916 CH) is a company operating in the PCB and substrate markets, with its financial performance and outlook analyzed by CMB International Global Markets (CMBIGM). The report highlights the company's performance in the second quarter of 2022, forecasts for the full year, and key financial metrics.

Main Points

• Second Quarter Performance:

  • Revenue and net profit to shareholders grew by 15.8% / 33.1% YoY and 10.3% / 16.2% QoQ, respectively.
  • Gross margin (GPM) stabilized at 26.2% in 2Q22, up from 24.6% in 2Q21, due to easing material cost pressures and product structure adjustments.

• Market Outlook for 2022:

  • The PCB market is expected to grow by 4.2% YoY, a slowdown from the 24.1% YoY growth in 2021.
  • Substrate market is projected to lead the growth.
  • Shennan Circuits is expected to see 8.8% growth in PCB sales and 18.9% in substrate sales, driven by capacity expansion and auto market demand.
  • Total revenue growth for 2022 is estimated at 7.7%.

• Challenges Identified:

  • Domestic 5G telecom capex slowdown.
  • Delayed upgrade of the Eagle stream platform.
  • Soft consumer demand.
  • These factors have led to a cautious outlook for the company's PCB segment.

• Investment Recommendation:

  • CMBIGM maintains a HOLD rating.
  • Target price (TP) is RMB96.6, a reduction from the previous TP of RMB102.00.
  • The TP is equal to 23x FY23E P/E, which is approximately 1 standard deviation below the average 2-year historical forward P/E.

Key Financial Highlights

• Revenue Growth (YoY):

  • FY20A: 10.2%
  • FY21A: 20.2%
  • FY22E: 7.7%
  • FY23E: 16.0%
  • FY24E: 15.2%

• Gross Margin:

  • FY20A: 26.5%
  • FY21A: 23.7%
  • FY22E: 26.3%
  • FY23E: 26.1%
  • FY24E: 26.2%

• Net Profit (YoY):

  • FY20A: 16.0%
  • FY21A: 3.5%
  • FY22E: 16.8%
  • FY23E: 18.8%
  • FY24E: 17.3%

• EPS Forecasts:

  • FY20A: 3.00
  • FY21A: 3.02
  • FY22E: 3.54
  • FY23E: 4.20
  • FY24E: 4.93

• Earnings Revisions:

  • FY22E EPS is lowered by 9% from previous estimates.
  • FY23E EPS is lowered by 12%.
  • The TP is reduced due to these revisions.

• Potential Upsides:

  • Stronger consumer demand recovery.
  • Resumed 5G deployment.
  • Eagle stream platform upgrade.

Financial Ratios and Metrics

• Key Ratios (FY22E):

  • Gross margin: 26.3%
  • Operating margin: 12.6%
  • Net margin: 11.5%

• Balance Sheet Highlights:

  • Net debt/total equity is 1.2% (FY22E), indicating a relatively low debt burden.
  • Current ratio is 1.4x, suggesting good short-term liquidity.
  • Total equity is expected to grow to RMB12,263 million in FY22E, up from RMB7,444 million in FY20A.

• Profitability:

  • ROE is 14.1% (FY22E), up from 19.2% in FY20A.
  • ROA is 8.4% (FY22E), down from 10.2% in FY20A.

• Share Performance:

  • 1-month return: 4.0%
  • 3-month return: -2.1%
  • 6-month return: -13.7%

• Stock Data:

  • Market Cap (HK$ mn): 48,298
  • 52-week High/Low (HK$): 123.74 / 84.8

Shareholding Structure

• AVIC International Holdings: 63.97%
• HK Securities Clearing: 2.69%
• China Asset Management Co: 0.85%

Analyst Certification

• The analyst certifies that the views expressed in the report reflect personal opinions and are not influenced by compensation.
• The analyst has not traded in the stock covered in the report within 30 days prior to its release and will not do so within 3 business days after release.
• No conflicts of interest are disclosed that could affect the report's objectivity.

Risk and Disclaimer

• The report is not tailored to individual investors and is for informational purposes only.
• Past performance does not guarantee future results.
• Investors are advised to consult with a professional financial advisor before making investment decisions.
• CMBIGM is not liable for any loss or damage incurred from reliance on the report.

Additional Information

• CMBIGM Ratings:

  • HOLD: Potential return of +15% to -10% over the next 12 months.
  • BUY: Potential return of over 15%.
  • SELL: Potential loss of over 10%.

• Industry Outlook:

  • OUTPERFORM: Industry expected to outperform the market.
  • MARKET-PERFORM: Industry expected to perform in-line with the market.
  • UNDERPERFORM: Industry expected to underperform the market.

• Distribution Restrictions:

  • This report is intended for specific investors in the UK, US, and Singapore.
  • In the US, it is only for major institutional investors.
  • In Singapore, it is distributed by CMBISG, an exempt financial adviser.

Summary

Shennan Circuits reported strong performance in 2Q22 with revenue and net profit growth, driven by the auto electronics and telecom markets. Despite the positive results, the company faces challenges including the slowdown in 5G capex, delayed platform upgrades, and weak consumer demand. CMBIGM maintains a HOLD rating and reduces the target price to RMB96.6, reflecting a more cautious outlook. The report provides detailed financial data and highlights key ratios, while emphasizing the importance of investor due diligence and the potential for recovery in key sectors.