生益科技：PCB outperformed CCL in 3Q; margin improved sequentially

Investment Rating - Maintain BUY rating with an adjusted target price of RMB28.75, reflecting a 25.5x 2025E P/E, close to its 3-year historical forward P/E [1][3] Core Views - Shengyi Tech's 3Q24 revenue was RMB5.1bn, up 14.5% YoY but down 1.7% QoQ, in-line with Bloomberg consensus [1] - Gross profit margin (GPM) improved to 22.9%, up 1.1ppts from 2Q24, driven by favorable product mix and lower material costs [1] - Net profit (NP) was RMB440mn, up 27.8% YoY but down 18.6% QoQ, missing Bloomberg consensus by 26% due to SBC cost of RMB150mn (~2.9% of revenue) [1] - Revenue growth is expected at 20%/16% YoY in 2024/25E, with improved margins at 22.1%/23.6% [1] PCB Segment - PCB revenue in 3Q24 was RMB1.2bn, up 49.3% YoY and 10.8% QoQ, driven by strong AI demand, particularly in server revenue (42.5% of PCB sales) [1] - Overseas market outperformed with a 32.1% YoY sales increase [1] - GPM recovered to 24.9% from 20.4%/14.2% in 3Q23/2Q24, and NPM rose to 7.5% vs. -3.4%/6.4% in 3Q23/2Q24 [1] - PCB sales projections raised by 5%/1% for 2024/25E, with expected growth of 35%/20% in 2024/25E [1] CCL Segment - CCL revenue increased YoY but declined QoQ (est. 5-6% lower) due to weaker-than-expected demand in non-AI markets, suppressing ASP recovery [1] - Margin slid sequentially as copper prices remained high (avg. price in 3Q24: ~US$9.9k/t), though Shengyi offset some material cost impacts through pre-procurement activities [1] - Inventory increased by 8% QoQ (RMB365mn) [1] - CCL sales forecasts cut by 8%/6% for 2024/25E, with expected growth of 14%/15% in 2024/25E [1] Financial Projections - Revenue is projected to grow at 19.6%/15.6% in 2024/25E, reaching RMB19.8bn/RMB22.9bn [2][9] - Gross margin is expected to improve to 22.1%/23.6% in 2024/25E [2][9] - Net profit is forecasted to grow at 55.4%/51.4% in 2024/25E, reaching RMB1.8bn/RMB2.7bn [2][9] - EPS is projected to grow at 48.9%/51.4% in 2024/25E, reaching RMB0.74/RMB1.13 [2][9] Valuation - Current P/E stands at 26.5x for 2024E, expected to decrease to 17.5x in 2025E [2][12] - Target price of RMB28.75 implies a 45.8% upside from the current price of RMB19.72 [3] Growth and Profitability - Revenue growth is expected to rebound to 19.6% in 2024E after declines in FY22 and FY23 [12] - Gross profit margin is projected to recover to 22.1% in 2024E, up from 19.2% in FY23 [12] - Return on equity (ROE) is expected to improve to 12.6% in 2024E, rising further to 17.9% in 2025E [12]