PCB Industry Scale、Development Trends and Introduction to Downstream Applications
PCB refers to printed circuit boards formed by connecting points on a general substrate according to a predetermined design，its main function is to connect various electronic components into a predetermined circuit，acting as a relay transmission。
The global PCB output value reached $61.3 billion in 2019，expected to grow to $75.8 billion by 2024，with a compound annual growth rate of about 4.3%。The industry scale and growth rate are shown in the table below：
China’s PCB output value reached $32.9 billion in 2019，accounting for 52% of the global market, up from 31% in 2008。It is expected that by 2024, China’s PCB output value will reach $41.8 billion，with a compound annual growth rate of about 5%，outpacing growth rates in other regions。The Chinese PCB market is characterized by low industry concentration，and intense market competition，but under environmental regulations、scale effects、and capital market promotion, the PCB industry will consolidate and increase industry concentration。
The global PCB market has experienced four growth-decline cycles，and is currently in the fifth cycle：
The first cycle was from 1980 to 1992，which was the initial development stage of the market；The second cycle was from 1992 to 2002，driven by upgrades in desktop computers and home appliances；The third cycle was from 2002 to 2009，driven by laptops and feature phones；The fourth cycle was from 2009 to 2016，driven by smartphones。The fifth cycle is from 2016 to the future，with the next decade seeing downstream 5G、cloud computing、and the Internet of Things（including vehicle networking）boosting the development of the PCB industry。
Looking at the history of PCB development，the global PCB industry has undergone a transition from being“led by Europe and the United States” to“led by Asia”with a clear trend of global PCB capacity shifting eastward。The global PCB industry was initially dominated by Europe and the United States，and later Japan joined to form a pattern of joint dominance by the US, Europe, and Japan；since the 21st century，due to relatively low labor costs，Asia has become the most important manufacturing base for electronic products globally，and the focus of the global PCB industry has gradually shifted to Asia，forming a new pattern centered on Asia（especially mainland China）with other regions as supplements。
3、Downstream Applications
PCB has a wide range of downstream applications，known as the“mother of electronic products”，its applications are shown in the figure below：
Forecast of the average annual compound growth rate of various sub-industries within five years：
From the forecast of the compound annual growth rate of the downstream application industries，in the next five years, communication、mobile phones、servers、data storage, and automobiles are the optimal segments for PCB，and the demand for corresponding high-end PCB products such as multilayer boards、HDI、flexible boards、and packaging substrates will grow significantly。
Classification of PCB Boards
PCB boards are classified according to the materials used into rigid boards、flexible boards、rigid-flex boards、and packaging substrates，rigid boards are divided into single-sided、double-sided, and multilayer boards，multilayer boards can be categorized into ordinary multilayer boards、backplanes、high-speed multilayer boards、metal substrates、thick copper boards、high-frequency microwave boards, and HDI boards。Packaging substrates are developed based on HDI boards，featuring high density、high precision、high performance、miniaturization, and thinness。See the table below for details：
The demand for different PCB boards in different downstream industries is shown in the table below：
The demand for PCBs in communication equipment is mainly for high-layer boards（with 8-16 layers accounting for about 35.18%），and there is a demand for 8.95% for packaging substrates；
The demand for PCBs in mobile terminals is mainly for HDI、flexible boards、and packaging substrates；
The demand for PCBs in industrial control and medical applications mainly consists of multilayer boards with less than 16 layers and single-sided or double-sided boards（accounting for about 80.77%）；
The demand for PCBs in the aerospace field is mainly for high-layer boards（with 8-16 layers accounting for about 28.68%）；
The demand for PCBs in automotive electronics is mainly for low-layer boards、HDI boards, and flexible boards；
The demand for PCBs in personal computers is mainly for flexible boards、and packaging substrates；
The demand for PCBs in services/storage is mainly for 6-16 layer boards and packaging substrates.
Competition Analysis in the PCB Industry
The PCB sub-industry for communication equipment is mainly dominated by Huadian Co. and Shenzhen South Circuit，with Shenzhen South Circuit showing stronger growth。Chongda Technology、Jingwang Electronics also have PCB business for communication equipment，and Shenghong Technology’s communication high-frequency PCB boards have been put into production this June。
The PCB sub-industry for mobile terminals and personal computers is absolutely led by Taiwan-funded Pengding Holdings，with domestic Dongshan Precision being quite strong。Last year, Shenghong Technology’s HDI boards were put into production，and they reached full production in the first half of this year。
Chongda Technology、Jingwang Electronics、Shenghong Technology、Aoshikang、Hongxin Electronics、Xingsen Technology、and Zhongjing Electronics are all strong second-tier companies in the domestic PCB industry。Xingsen Technology is leading in the layout of IC packaging substrates。
The upstream of the PCB industry is copper-clad laminate，domestically led by Shengyi Technology，with Huazheng New Material also being quite strong。
Stock Price Increase in the PCB Industry、Performance Comparison
The PCB industry has seen a surge of bull stocks in 2019，such as Huadian、Shenzhen South、and Pengding, all of which are leading companies in the tech bull market。Huadian、Shenzhen South mainly benefited from the growth in demand for communication PCB boards due to 5G communication，leading to a rapid increase in their performance，and subsequently their stock prices surged。The following figures show the price increases of several PCB stocks in 2019、2020 and comparisons：
From the comparison of the above two figures，A-shares pricing is actually very effective。
Huadian Co. and Shenzhen South’s main business is communication PCB，Huadian had the best performance in 2019，so it had the highest price increase。Pengding Holdings, although its performance is average，is the leader in global mobile terminals and personal computer PCBs，being a member of the Apple supply chain，and it is also a new stock listed in 2018，so its price increase in 2019 was also significant。However, stocks like Shenghong Technology、Jingwang Electronics、and Dongshan Precision with average performancehad mediocre stock price performance in 2019。
In 2020, although Huadian’s net profit continued to grow，the revenue growth rate decreased，and due to the high price increase in 2019，this year is a period of adjustment to digest the high valuation of 2019 and clear out profit-taking。Shenzhen South’s performance is relatively good，it is a new stock listed in 2018，but why has it ranked among the top in industry growth for two consecutive years?？Shenzhen South not only has a relatively fast increase in fixed assets，but also a significant increase in construction projects，indicating strong growth potential for the company。The market’s high valuation of it is attributed to this。
This year, Shenghong Technology ranked third in price increase in the PCB industry，which also has strong logic。On one hand, its performance has grown rapidly this year，on the other hand, its fixed assets increased significantly in 2019。The top-ranked Xingsen Technology benefits from the output of IC packaging substrates。
Investment Recommendations for the PCB Industry
The valuation range for the PCB industry is around 20-100，currently about 40 times，which is within the reasonable historical range for the industry，without any bubble。2、Investment Suggestions
The PCB industry is large，currently in an upward trend of the fifth cycle，and there is a clear trend of global PCB development towards the east，the industry concentration is increasing，so even though there are many PCB stocks in A-shares，this industry is still worth investing in。
When investing in PCB stocks, one should prioritize those with capacity expansion in application segments focused on communication、mobile phones、servers、data storage, and automobiles。
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