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How is value increment reflected in the core integrated equipment of AIPCB?
The value increment is mainly reflected in the increase in equipment value brought about by technological advancements, especially during the process of increasing the proportion of high-end Bitcoin products. In the AIPCB stage, due to technological progress, the precision requirements of the equipment have increased, and the cost-performance ratio has also improved. For example, the drilling process has shifted from traditional mechanical drilling to CCD drilling and CO2 drilling, with equipment prices rising from 700,000 to 750,000 to 1.5 million to 2 million yuan, or even higher. This indicates that with technological upgrades, the value increment of equipment can reach 1 to 3 times.
What are the sources of value increment in AIPCB equipment?
Value increment comes from two aspects: on one hand, the improvement in equipment precision and cost-performance ratio due to technological advancements, such as the shift from traditional mechanical drilling to CCD drilling and CO2 drilling, which leads to a significant increase in equipment prices; on the other hand, as the number of layers of the board increases and efficiency losses occur during processing, the usage will also increase correspondingly, thus bringing value increment. For instance, the demand for drilling, exposure, and electroplating will double or increase by 1 to 1.5 times with the increase in layers and efficiency factors.
From the perspective of localization rate, which processes have further room for improvement?
Currently, the processes with a high localization rate are mechanical drilling, which has reached over 95% localization, followed by the LDI (Laser Direct Imaging) process, achieving a localization level of 50% to 60%. However, for high-end equipment, such as laser drilling, the localization rate is low, only 20% to 30%, and new projects have even lower localization rates. Therefore, it can be seen that the higher the end equipment, the greater the potential for improvement in localization rates, especially in drilling and some electroplating processes, where the potential for localization rate improvement is significant.
What are the main disadvantages faced by domestic companies in competition with foreign companies during the current cycle? What are the reasons for the extended delivery times of foreign equipment?
In this cycle, our main disadvantages compared to foreign companies are insufficient brand recognition and less stable equipment. Previously, domestic equipment had instances of purchasing foreign equipment among peers, but now foreign companies’ order volumes have been significantly locked in the first half of the year, leading to severe extensions in equipment delivery times to over three quarters. Foreign companies have certain equipment advantages in high-end segments, but due to rapid demand growth, their capacity expansion has not kept pace, providing domestic companies with opportunities to improve equipment quality and capabilities and gradually enter high-end segments. The extended delivery times of foreign equipment are mainly due to two reasons: first, the significant increase in global semiconductor equipment demand exceeds supply capacity; second, foreign companies have not been able to quickly expand production capacity during this cycle, combined with urgent customer demands for capacity expansion, resulting in difficulties in equipment delivery.
What are the key factors for improving localization rates?
The key factors for improving localization rates include external objective factors and internal subjective factors. External factors include demand exceeding supply, compounded by insufficient deliveries from foreign companies; internal factors involve domestic excellent companies achieving significant improvements in localization in high-end segments through technological accumulation over the past few years. Currently, leading domestic companies continue to maintain high levels of R&D investment and are expected to become the first tier or the first companies to introduce localization.
When might domestic companies begin to significantly increase their market share in certain segments?
It is expected that in the second half of this year to next year, domestic companies may achieve significant market share increases in laser drilling, UV, and ring drilling segments, which have previously had a small share for domestic companies. However, with advancements in technology and products, we can expect to see changes and increases in share leading to value elasticity.
How does the proportion of high-end products affect the performance growth of equipment companies?
The proportion of high-end products is crucial for the performance growth of equipment companies. For example, in the LDI segment, most automotive products have shifted to high-end markets, which have higher gross margins, while some equipment, such as laser drilling machines, have also introduced new high-end products. Companies like Dongwei and Dazhu have a proportion of high-end equipment or AI-related equipment roughly between 20% to 30%, and this proportion is significantly increasing. It is expected that this ratio will further increase to around 30% to 40% next year, and the revenue and profit share of high-margin products will also significantly increase accordingly.
What impact does the increase in localization rates have on the overall market and the internal product structure of companies?
The increase in localization rates is reflected not only in the growth of domestic company shares in the overall market but also in changes in the internal product structure of companies. With the increase in localization rates and the continuous expansion of high-end product market shares, the overall profit elasticity of equipment companies will rise. Currently, it is observed that the gross margins of high-end products are generally between 40% to 60%, with certain specific areas like LDI equipment even reaching 45% to 50%. In contrast, the gross margins of high-end products in the drilling segment are far higher than those of low-end products, nearly three times that of low-end products, which will greatly enhance the overall profit elasticity of equipment companies.
In the current profit forecast, why is the gross margin level a concern for investors?
Investors are concerned that the current valuations are too high, but this does not fully consider the profit elasticity of the company. It should not be simply judged based on order growth rates to determine performance doubling; a deeper analysis of the current gross margins compared to past prosperous periods is necessary, especially in comparison to historical stages with high capacity utilization and sufficient expense ratios, such as the peak period of the PCB industry from 2020 to 2021.
How did the gross margin performance of the industry compare during the 2020 to 2021 period?
At that time, taking Dazhu as an example, its gross margin could reach nearly 40%, far exceeding the current operating rate of 8-9%. The net profit margin also dropped from over 20% at that time to the current 12%, mainly due to the decrease in gross margins. This means that if performance is calculated based on order doubling, it actually ignores the elasticity of profit margins.
How have the gross margin and net profit margin of companies like Dongwei and Dazhu changed?
During peak periods, Dongwei’s gross margin was about 40%, and net profit margin was about 20%, while now the gross margin has dropped to 33%, and the net profit margin is only about 8.5%, showing a significant decline compared to the peak. Although Dazhu’s investment scale is relatively small, its capacity expansion is quite evident, especially with some investment in PDP, with an overall investment scale of over 200 million. Therefore, during the process of utilization improvement, the elasticity of profit margins is an important perspective worth paying attention to.
What significant differences in profit margins are observed in this cycle compared to 2021?
The increase in the proportion of high-end products in this cycle may lead to a year-on-year increase in profit margins. Even considering changes in product structure, there is still a possibility of reaching historical highs. Overall, in terms of volume, there may be a space of 1 to 1.5 times, in terms of price, it may increase by 3 to 5 times, and the localization rate may still have a space of 0.5 to 1 times. Therefore, the profit elasticity of equipment companies may reach 5 to 10 times compared to the low point of the cycle.
Is there a possibility of further price increases for equipment?
Currently, the possibility of further price increases for equipment has not been considered, but it has been observed that foreign companies have started to raise prices due to supply exceeding demand. In the second half of this year or next year, with the increase in investment scale, domestic companies may also see slight increases in equipment prices. However, at present, it seems that most equipment companies still have sufficient capacity, and significant price increases have not yet emerged.
How should we view the profit elasticity of equipment companies?
The profit elasticity of equipment companies is sufficiently large, and there is no need to worry too much about insufficient elasticity. With the development of the industry and changes in relationships with companies, there is still more potential for growth. We will continue to pay attention to industry dynamics and company performance, and welcome any questions for discussion.