深南电路Corp Day Takeaways:Company’s operation remains normal,little impact from COVID_股票频道

We hosted an investor call with Shennan during our Technology Corporate Day. There is limited impact from COVID (mainly in logistic) and the Company’s operation is normal. We maintain our outlook and previous forecasts for the Company. The utilization rate and production ramp up status are in line with our estimates. Due to limited new capacity added this year, we maintain HOLD rating. TP is RMB102.

PCB: Limited capacity added in 2022. PCB revenue breakdown by market are 50-60% from Telecom, 13-14% from data center, 10% from industrial/healthcare and 5% from auto. Total utilization rate is ~80%. Domestic telecom business remains weak in 1H22, but is expected to have HoH growth in 2H22, driven by resumed demand for 5G BTS and favorable policy on new infrastructure investments. We expect overseas telecom business to have higher growth but smaller contribution, and remain neutral on telecom PCB segment. For auto PCB, Nantong phase III factory is ramping the production, with ~30% utilization rate. Full capacity is expected to contribute ~RMB1.5bn revenue in late 2023/24E.

Substrate: demand is strong but new capacity to contribute after 2022. Shenzhen and Wuxi phase I factories are expected to contribute RMB1.0bn- 1.2bn and RMB1.3bn with full capacity. Wuxi phase II and Guangzhou factories are planned to begin production by the end of 2022 and 2023. Overall utilization rate for substrate production line is reaching maximum, suggesting continuous high demand. We think the full utilization status will maintain in 2H22. For memory-used substrate (>30% of segment rev.), there is limited new capacity added during the past years across the industry. But the demand for memory is growing, especially driven by data center expansion.

Maintain HOLD, with unchanged TP of RMB102. There is limited impact from COVID (mainly in logistic) and the company’s operation is normal. We maintain our previous rating and TP of RMB102. Potential upside: 1) sooner-than-expected ease of chip shortage, 2) stronger recovery in consumer demand and 3) material cost and logistic overhang removed.