Strong 1H24 results w/ double-digit growth across segments & meaningful margin expansion

（以下内容从招银国际《Strong 1H24 results w/ double-digit growth across segments & meaningful margin expansion》研报附件原文摘录）
深南电路(002916)
SCC released 1H24 results. Revenue went up by 38% YoY to RMB8.3bn, withdouble-digit growth across all segments (PCB/Substrate/PCBA: 25%/94%/42%YoY). NP increased by 108% YoY to RMB987mn, on higher GPM (26.2% in 1H24vs. 22.9%/23.8% in 1H/2H23) and cost optimization. SCC delivered strong 1H24results, driven by 1) strong AI demand, 2) Eagle Stream upgrades, 3) robust autoorders, 4) inventory restocking on consumer electronics market, and 5) marginexpansion. However, we expect demand in the consumer electronics market tobecome softer in 2H and estimate 1H24 revenue/NP to be 52%/56% of our FY24Eforecast (vs. 45%/34% in 1H23). SCC’s share price is currently trading at ~30x 2024EP/E, which is fair in our view. Maintain HOLD, with TP unchanged at RMB106.4.
A very solid 1H24 with margin expansion surprise. By segment, PCB (58%of 1H24 sales) grew by 25% YoY/16% HoH to RMB4.9bn, with strong growthin DC and auto sales. Telecom was stable with greater contribution from wiredcommunication, including switches, routers and optical-related sales (100%YoY growth). Wireless side and industrial/medical sectors remained weak.Substrate revenue (19% of 1H24 sales) grew by 94% YoY/7.4% HoH toRMB1.6bn, driven by recovering demand with low inventory in the channel.PCBA business (15% of 1H24 sales) also grew 42% YoY to RMB1.2bn,benefitting from higher PCB sales. GPM increased to 27.1% in 2Q, up from22.8%/25.2% in 2Q23/1Q24, benefitting from a favourable product mix.
Expect SCC’s FY24E revenue to be 1H weighted. In our previous sectorreport (report), we pointed out 7 out of the 16 leading PCB manufacturers inChina have announced profit alerts, with an avg. 75%-105% YoY and 21%-43% QoQ increase in NP for 2Q24. This supported a strong momentum forPCB sector as the market expected a meaningful recovery in end-marketdemand. We maintain our view that the sector is recovering from the cyclicaltrough with modest growth in 2024E (5.0% YoY). However, the growth won’tbe evenly distributed across end markets. We expect SCC’s revenue will be1H weighted this year on weaker consumer demand in 2H due to fewer rushorders and inventory restocking behavior. This will also put pressure on ASP,which could limit revenue growth. We estimate 2H24 revenue to grow by 3.2%YoY but decline by 7.1% HoH from 1H24 to RMB7.7bn.
Maintain HOLD, with TP at RMB106.4. We revise up 2024/25E NP forecastsby 5%/2% on higher GPM and lower R&D expenses. We expect GPM toreturn to ~25% level in 2H24 (vs. 27.1% in 2Q), considering weaker demandand higher material costs. R&D expenses are projected to decline QoQaccording to mgmt. Our TP of RMB106.4 implies a 30.8x 2024E P/E, whichis 5% below 5-year historical avg. forward P/E (32.5x). Key risks include: 1)volatility in raw material prices, and 2) weaker consumer sentiment andslower-than-expected demand recovery.