Talking about the PCB Industry Chain in the Convertible Bond Market
Introduction to the industry chain: CCL is the upstream core material of PCB, accounting for about 35% of the cost. PCBs are mainly divided into rigid boards, flexible boards, HDI boards, IC package substrates, and metal substrates. The current rigid board still dominates, and multi-layer boards and HDI boards are the future development directions. The downstream of the PCB is relatively stable. AI, automotive electronics and 5G communication are in the ascendant, and it is a new field of rapid growth in the downstream.
The status quo of the industrial chain: From the perspective of industry structure, the CCL is relatively mature, and the industry concentration is high. The major manufacturers are all Asian companies and basically complete the industrial migration. While the PCB is still in the process of concentration improvement and industrial migration, the scale of domestic PCB manufacturers is smaller than that of global leaders, and the domestic market concentration is low. From 2017 to 2020, the global PCB industry's compound growth rate is about 3.2%, and the domestic market is around 4%. The growth rate has declined compared with the previous period. Under the blessing of 5G and the Three-Year Action Plan for Expanding and Upgrading Information Consumption (2018-2020), communication is the most noteworthy downstream demand in the domestic PCB industry. At present, due to rising raw material prices, the downstream PCB import substitution process continues, capacity expansion is obvious, and the PCB industry chain maintains a boom. However, in the first half of 2018, PCB manufacturers faced a shortage of consumer electronics shipments and complex forms of international trade, and CCL purchases were less than expected. During this period, the gross profit margin of CCL manufacturers declined, but the gross profit margin of PCB manufacturers remained stable, which was a reflection of the unsatisfactory transmission of upstream and downstream prices.
Outlook for the industrial chain: The copper clad laminates may improve in the second half of 2018, paying attention to the expansion of PCB capacity. The price of CCL is already at a high level, and the extent of the upward movement may not be large. The downstream demand of the PCB industry has not shown signs of great change. With the rebound in consumer electronics shipments in the second half of 2018 and the stimulation of information consumption policies, manufacturers are expected to be relatively active. As a result, the profitability of CCL manufacturers may improve. It is worth noting that since 2017, the investment in the domestic PCB industry has increased significantly, and the release of production capacity has been concentrated in 2019 and 2020. At that time, PCB manufacturers faced greater competition and the bargaining power of CCL faucets was strengthened.
The corresponding convertible bond listed companies in the industrial chain are Shengyi Technology (10.530, 0.17, 1.64%), Jingwang Electronics (54.380, 0.85, 1.59%) and Chongda Technology (16.970, 0.25, 1.50%). The fundamentals of the three companies are all interesting, and the stock price trend is stronger than the industry average. Shengyi Technology is the second largest manufacturer of copper clad laminates in the world with high technical content. Chongda Technology and Jingwang Electronics are manufacturers with strong PCB competitiveness in China, and their production capacity is expanding rapidly. Our investment proposals for convertible bonds include: 1) Shengyi Convertible Bonds (107.000, 0.39, 0.37%) have certain medium and long-term investment value, but the premium rate is slightly higher than the short-term elasticity. 2) Chongda Convertible Bonds (119.624, 0.62, 0.52%) and Jingwang Convertible Bonds (116.330, 0.45, 0.39%) are valuable game varieties. The former has a slightly higher game value, but needs to guard against fluctuations. In the third quarter of the PCB, there may be a situation in which the peak season is not prosperous. If the three quarters report weakens, it may bring a lot of fluctuations to the high-end convertible bonds. At that time, investors can pay attention to the low-medium and medium-term layout values of the corresponding targets.
Risk warning: raw material costs rose more than expected, industry sentiment fell, and capacity expansion progress was less than expected.