1 PCB Industry: Growth Resumes in 2024, High-End Products Lead Demand GrowthPCBs are indispensable in electronic products. The primary function of printed circuit boards (PCBs) is to connect various electronic components to form predetermined circuits. PCBs serve as the substrate for loading electronic components, providing support and electrical connections, making them a fundamental necessity for almost all electronic devices. Currently, the industry categorizes products mainly based on the number of layers, structure, and processes into single-sided boards, double-sided boards, multilayer boards, HDI boards, flexible boards, rigid-flex boards, and other special boards (high-frequency boards, aluminum-based boards, thick copper boards, etc.).The upstream of PCBs mainly consists of bulk commodities, while the downstream encompasses a wide range of industries. In the PCB industry chain, the upstream includes copper foil, fiberglass cloth, wood pulp paper, synthetic resins, etc. The midstream consists of copper-clad laminates and PCBs, with copper-clad laminates being upstream of PCBs and an important component of PCB raw materials. The downstream includes communication equipment, semiconductors, computers, automotive electronics, consumer electronics, industrial control, aerospace, data centers, etc., with a broad application range. According to the China Business Industry Research Institute, the cost of PCBs is mainly composed of direct raw materials such as copper-clad laminates, accounting for nearly 50%, with copper-clad laminates alone accounting for 30%. Since labor and manufacturing costs change little, the main determinant of PCB costs is the price of raw materials, especially copper-clad laminates; the cost of copper-clad laminates is mainly composed of copper foil, resin, and fiberglass cloth, accounting for 42.1%, 26.1%, and 19.1%, respectively, totaling 87.3%.The PCB market is expected to resume growth in 2024, entering a new growth cycle. Due to destocking pressures and interest rate hikes to curb inflation, the global PCB market size shrank in 2023. According to Prismark data, the global PCB output value in 2023 decreased by 15% year-on-year to $69.517 billion. However, as market inventory adjustments and weak consumer electronics demand issues come to an end, along with the accelerated evolution of AI applications, PCBs are expected to enter a new growth cycle, with an estimated year-on-year growth of about 5% in 2024, and PCB manufacturers’ utilization rates are expected to recover. In the medium to long term, the global PCB industry is expected to experience a revival, with a projected CAGR of about 5.4% for global PCB output value from 2023 to 2028, maintaining steady growth. The Chinese PCB industry continues to develop healthily, with the output value of PCBs in mainland China reaching $37.794 billion in 2023, accounting for over 50% of the global market share.PCB inventory is gradually being digested, and the industry is experiencing a mild recovery. In January 2024, the PCB sector in Taiwan reached NT$23.7 billion in revenue, showing a quarter-on-quarter growth rate of 10%, indicating that the PCB industry is currently in a mild recovery phase. From an inventory perspective, since Q1 2022, PCB manufacturers’ inventory has gradually decreased, and destocking is basically complete. Starting from Q3 2023, the industry may have entered a replenishment phase.Among downstream application areas, servers and automotive sectors are leading in growth rates. In the PCB industry’s downstream application areas, the share of PCs and servers/data storage is relatively high, accounting for 14% and 12% respectively in 2023. In the long term, the server industry is expected to grow at a high rate, with a CAGR of 6.5% from 2022 to 2027, driven mainly by the continuous upgrade of server platforms and the increase in PCB demand driven by AI servers. Additionally, automotive PCBs are expected to grow at a CAGR of 4.8% from 2022 to 2027, primarily driven by the development of automotive intelligence, including the continuous growth of PCB demand driven by autonomous driving and smart cockpits.By product type, high-layer boards and HDI products are leading in growth, with strong demand for high-end products. The PCB industry is mainly divided into single-sided and double-sided boards, multilayer boards, HDI boards, flexible boards, and IC carriers, with different types of products requiring different exposure precision (minimum line width) during the manufacturing process. Mid-to-high-end products such as multilayer boards, HDI boards, and flexible boards have higher requirements for minimum line width. The upgrade iteration of downstream applications has increased the demand for high-end PCB products. According to Prismark, the CAGR for HDI boards from 2023 to 2028 is expected to reach 6.2%, higher than the industry average growth rate of 5.4%. Looking ahead, with the increasing integration and complexity of terminal products represented by AI servers, as well as continuous upgrades in performance indicators such as transmission rates, the demand for HDI products is expected to continue to grow due to their advantages in heat dissipation and high transmission rates.2 AI Servers Drive PCB Volume and Price Increase, GB200 Leads High Growth in HDI Demand2.1 AI Servers Drive PCB Volume and Price IncreaseLong-term growth in global data center capital expenditure will drive continuous growth in PCB demand. According to Dell’Oro Group, global data center capital expenditure grew by 15% year-on-year to $241 billion in 2022. Hyperscale cloud service providers have experienced strong expansion over the past three years and are now cautiously managing capital expenditures during the economic downturn. In 2023, global data center capital expenditure growth may fall to single digits. In the long term, as data volumes continue to increase and AI-driven data processing demand accelerates, capital expenditures in the data center and enterprise markets will continue to expand. Dell’Oro Group predicts that global data center capital expenditure will reach $500 billion by 2027, with over 20% of server deployments potentially being accelerated types, and edge computing is expected to account for nearly 8% of total data center infrastructure spending. Server shipments are expected to grow significantly in 2024. Despite a 6% year-on-year decline in server shipments in 2023 due to weak downstream demand and ongoing inventory adjustments, we believe that with continued destocking and long-term growth in data processing volumes, server shipments are expected to recover in 2024, with an estimated global server shipment volume of approximately 13.654 million units, a year-on-year increase of about 2%.The AIGC boom is driving the accelerated expansion of AI servers. Driven by emerging applications such as autonomous driving, AIoT, and edge computing, many large cloud service providers are increasing their investments in AI-related infrastructure. TrendForce estimates that in 2023, the annual shipment of AI servers will account for about 8% of total server shipments, and in 2024, the market will still focus on deploying AI servers, with an estimated shipment share of about 12.1%. In terms of procurement share, it is estimated that in 2024, the four major US CSPs—Microsoft, Google, AWS, and Meta—will account for 20.2%, 16.6%, 16%, and 10.8% of global demand, respectively, totaling over 60%, with AI servers equipped with NVIDIA GPUs accounting for a significant portion, with GPU servers making up 60-70% of the overall AI market.Servers require various PCB products internally, and AI servers drive new PCB volume. Servers require various forms of PCBs, typically including server motherboards, CPU boards, hard disk backplanes, power backplanes, memory, network cards, and other different specifications of PCB products. The upgrade of server platforms will drive improvements in the number of internal PCB layers, material characteristics, etc., leading to a significant increase in corresponding value. AI servers differ from traditional servers in terms of GPU boards (UBB), GPU accelerator cards (OAM), and SwitchBoard products. For example, the DGXA100 has a high-value GPU acceleration module that includes one GPU motherboard, eight GPU accelerator cards, and six NvSwitches, supporting high-speed interconnects of 600GB/s between GPUs. In addition, network interfaces, hard disks, memory, power supplies, and fans will also contribute to the overall PCB usage, significantly increasing the value of AI servers compared to traditional servers.Market space: By 2026, the server PCB market size is expected to reach $16 billion, with the AI server market size expected to reach $4.7 billion, with a CAGR of 38.3% from 2022 to 2026. Benefiting from the increased share of AI servers and the upgrade of server platforms, we expect server PCBs to experience a simultaneous increase in volume and price. According to estimates, the global server PCB market size is expected to reach $16 billion by 2026, with a CAGR of 12.8% from 2022 to 2026, and the AI server PCB market size is expected to reach $4.7 billion, with a CAGR of 38.3% from 2022 to 2026.2.2 GB200 Expected to Drive Significant Increase in HDI UsageGB200NVL72 is a full-rack solution featuring 18 1U servers, each equipped with two GB200 super chips. The GB200SuperchipcomputeTray is equipped with two Grace CPUs and four B200 GPUs, providing 80 petaflops of FP4 AI inference performance and 40 petaflops of FP8 AI training performance. In addition to the GB200SuperchipcomputeTray, the GB200NVL72 also includes nine NVLinkSwitchTrays, each with two NVLinkSwitch chips. Each tray provides a total bandwidth of 14.4TB/s. Overall, the GB200NVL72 has 36 Grace CPUs and 72 Blackwell GPUs, with a computing capacity of 720 petaflops for FP8 and 1440 petaflops for FP4. NVIDIA states that NVL72 can handle models with up to 270 trillion parameters for AILLM processing.Disassembling the hardware structure of GB200NVL72, from top to bottom, there are two IB switches, three power control modules, ten GB200 servers, nine NVLink switches, eight GB200 servers, and three power modules at the bottom.From an architectural perspective, a single GB200 server consists of two Superchips, each equipped with one Grace CPU and two B200 GPUs, interconnected via PCIe, and the GPUs are interconnected via Nvswitch. In addition to the CPU and GPU, other important components inside the GB200 server include network cards and DPUs.From the PCB perspective, the architectural upgrade of GB200NVL72 has the following impacts on PCBs: 1) The previous OAM cards of A100 and H100 have been upgraded to superchips, and the upgraded Superchip motherboard integrates the functions of carrying GPUs, CPUs, memory, and other key components, achieving interconnectivity between components. On one hand, the Superchip area increases to accommodate more components, and on the other hand, the material and functional complexity increases to match performance upgrades, leading to an overall increase in integration, which means that conventional through-hole board usage will significantly decrease, while HDI PCB usage will significantly increase. 2) The NVLink switch has been separated to form an independent NVLinkSwitch switch to achieve GPU interconnectivity and memory bandwidth sharing across the entire rack, which corresponds to a significant increase in PCB area and, along with the upgrade of the NVLink switch, PCB materials will also be upgraded, further increasing the value of the single machine.Further sorting out the upgrades of various structural components to assess the degree of PCB upgrades. GPU: From H100 to GB200 (two B200), the B200 GPU has 208 billion transistors, 2.6 times more than the 80 billion transistors of H100, allowing for the support of larger parameter models for training, but the corresponding power consumption has also increased from 700W for H100 to 1000W for B200, while the total power consumption of GB200 is expected to reach 2700W (2*GPU+1*CPU). Memory: The GPU memory uses HBM3e, with a memory capacity of 24GB per chip, a theoretical bandwidth limit of 1.2TB/s, and an actual bandwidth of 1TB/s. A single Superchip has a memory capacity of 24*16=384GB, with a bandwidth of 16TB/s. The total HBM memory capacity of the entire machine reaches 13.5TB, with a bandwidth of 576TB/s. NVLink: Upgraded from 4.0 to 5.0, with NVLink 4.0 having a single lane bandwidth of 50GB/s, 18 lanes, resulting in a bandwidth of 900GB/s, while the upgraded NVLink 5.0 maintains 18 channels but increases the single channel bandwidth from 50GB/s to 100GB/s, resulting in a bandwidth of 1.8TB/s for NVLink 5.0. This means the maximum bandwidth for GPUs reaches 1.8TB/s. Nvswitch: The fourth-generation NVSwitch chip has 72 NVLink ports, each with two channels, with a bidirectional bandwidth of 100GB/s, totaling 7.2TB/s. In addition to the doubling of GPU interconnect bandwidth compared to Nvswitch 3.0, the cluster interconnect bandwidth limit reaches 1PB/s.IBNIC: GB200NVL72 will use the new generation InfiniBand network card ConnectX-8, with a communication bandwidth of 800Gb/s. The previous H100 used the ConnectX-7 network card, with a communication bandwidth of 400Gb/s, while A100 used the ConnectX-6 network card, with a bandwidth of 200Gb/s. The IB connection bandwidth has significantly increased. In summary, the architectural upgrade of GB200 corresponds to a continuous increase in overall machine integration, while performance, high-frequency and high-speed materials, bandwidth transmission rates, and power consumption and heat dissipation have all increased exponentially. The increase in integration corresponds to an increase in wiring density, as well as improvements in transmission and heat dissipation capabilities, which are the advantages of HDI boards. Therefore, the demand for HDI will significantly increase in the AI era!We conducted a sensitivity analysis of the PCB usage of GB200NVL72 based on NVIDIA’s official technical documents, estimating the sizes of NIC products to be approximately 170mm*70mm; DPU products to be approximately 170mm*110mm; and A100PCIEOAM sizes to be approximately 260mm*110mm. Based on this, we obtained the following size data and conducted calculations, with the corresponding product areas for Superchip/NVLinkswitch/NIC/DPU being 0.09/0.16/0.01/0.02 square meters, respectively. Under the background of significantly increased machine integration and transmission rates, the NVLinkSwitch PCB is similar to switch products or may have multiple solutions, with an expected range of 20-24 layers for 5-stage HDI or 28-32 layers for through-hole solutions, and the NVLinkSwitch solution will also directly impact the usage of HDI in a single machine.We distinguish between low-tier (assuming a decrease in core product materials, layers, and HDI stages) and high-tier solutions for calculations, estimating the total PCB value of GB200NVL72 to be approximately $24,900 to $33,945. Among them, the PCB value of Superchip is estimated to be approximately $16,380 to $23,400/Rack, the value of NVLinkSwitch using HDI solutions is approximately $6,075 to $7,088/Rack, the value of NVLinkSwitch using through-hole solutions is approximately $5,063 to $6,075/Rack, the DPU value is approximately $721/Rack, and the NIC value is approximately $1,836/Rack.Thus, we obtain the changes in PCB value corresponding to a single GPU and the corresponding changes in HDI value. Assuming the NVLinkswitch uses HDI solutions, under the low-tier solution, the PCB value corresponding to a single GPU of GB200NVL72 is approximately $360, while the PCB value corresponding to a single GPU of H100 is approximately $226, representing an increase of about 59.2%. The HDI value corresponding to a single GPU of GB200NVL72 is approximately $347, while the HDI value corresponding to a single GPU of H100 is approximately $97. Therefore, the HDI value of a single GPU of GB200 using HDI solutions is significantly increased by 259.1% compared to H100; if a high-tier solution is used, the HDI value of a single GPU of GB200 using HDI solutions is significantly increased by 374.4%. We also assume the NVLinkswitch uses through-hole solutions for calculations, under the low-tier solution, the HDI value corresponding to a single GPU of GB200NVL72 is approximately $263, which still represents a significant increase compared to the $97 value of the H100 8-card architecture, corresponding to an increase of about 171.9% in value; if a high-tier solution is used, the HDI value of a single GPU of GB200 is significantly increased by 272.7% compared to H100. The internal PCBs of AI servers are fully evolving towards HDI.3 The Sector’s Q1 Performance is Impressive, AI-Driven Growth is Promising3.1 Impressive Growth in Performance, Continuous Optimization of Product StructureThe PCB and copper-clad laminate industry experienced strong growth in Q1 2024, with AI driving record highs for leading companies. Benefiting from sustained demand in AI, networking, and automotive systems, the high-end HDI, high-speed high-layer, and packaging substrate segments of the PCB market all achieved strong growth in Q1 2024. In terms of specific performance, Shenghong Technology achieved a net profit attributable to the parent company of 210 million yuan in Q1 2024, a year-on-year increase of 67.72% and a quarter-on-quarter increase of 144.19%, setting a new record for Q1 profits. Shenzhen South Circuit and Huadian Co., Ltd. also achieved significant performance growth due to increased orders in data communication and AI businesses, with Huadian Co., Ltd. achieving an operating income of 2.58 billion yuan in Q1 2024, a year-on-year increase of 38.3%, and a net profit attributable to the parent company of 515 million yuan, a year-on-year increase of 157.0%. Hongxin Electronics achieved revenue of 1.67 billion yuan in Q1 2024, a year-on-year increase of 161.1%, mainly driven by the continuous growth of its traditional business and the ramp-up of computing power business. In terms of copper-clad laminates, Shengyi Technology has continuously optimized its product structure, with stable utilization rates, achieving revenue of 4.42 billion yuan in Q1 2024, a year-on-year increase of 17.8%, and a net profit attributable to the parent company of 390 million yuan, a year-on-year increase of 58.2% and a quarter-on-quarter increase of 47.9%.Optimizing PCB product structure is a major trend, and we are optimistic about the continuous rise in profit margins against the backdrop of demand recovery. In 2023, the global economic environment fluctuated, and the growth of new orders from PCB downstream customers was weak, intensifying price competition for PCB products. We see that most companies are actively responding by developing high-end customers, optimizing order structures, upgrading product lines, and reducing operating costs, which is expected to lead to a continuous rise in profit margins. Huadian Co., Ltd. further increased its gross margin to 33.9% in Q1 2024, a year-on-year increase of 8.1 percentage points and a quarter-on-quarter increase of 2.7 percentage points. In addition, Shenzhen South Circuit, Jingwang Electronics, Shengyi Technology, and other companies have also benefited from product structure optimization and demand recovery, achieving significant improvements in profit margins both year-on-year and quarter-on-quarter.The inventory turnover days continue to decrease, and PCB companies’ performance is expected to improve significantly against the backdrop of demand recovery. We have sorted out the inventory turnover days of the PCB and copper-clad laminate industry. In Q1 2024, most PCB companies saw a continuous decline in inventory turnover days, as previously accumulated inventory was gradually digested with the recovery of customer demand and normalization of inventory. Since the shortening of inventory turnover days is usually closely related to the improvement of order visibility, we believe that the overall supply and demand situation in the PCB industry is improving, and market demand is gradually warming up.3.2 Shenghong Technology: Multiple Products Hold Global Market Share First, AI Products Expected to Break Through RapidlyMultiple products hold the global market share first, with wide applications. Shenghong Technology was established in 2006 and listed on the Shenzhen Stock Exchange in 2015. The company specializes in the research, development, production, and sales of high-density printed circuit boards, with multiple products ranking first in global market share. The main products include high-end multilayer boards, HDI boards, etc., widely used in new energy, automotive electronics, 5G new infrastructure, data centers, artificial intelligence, industrial interconnection, medical instruments, computers, aerospace, and many other fields, with downstream customers including well-known terminal manufacturers such as NVIDIA, Tesla, AMD, Intel, Microsoft, Amazon, and Cisco.Significant growth in revenue and net profit in Q1 2024. In 2023, the company achieved an operating income of 7.931 billion yuan, a year-on-year increase of 0.58%; the net profit attributable to shareholders of the listed company was 671 million yuan, a year-on-year decrease of 15.09%, mainly due to the impact of acquisitions. In Q1 2024, the company achieved revenue of 2.39 billion yuan, a year-on-year increase of 36%, and a net profit attributable to the parent company of 210 million yuan, a year-on-year increase of 67.7%. The significant improvement in Q1 performance was mainly due to the recovery of the PCB industry and the impact of the acquisition of PoleStar Limited.Gross margin rebounded in 2023. In 2023, the company’s gross margin was 20.7%, a year-on-year increase of 2.55 percentage points, while the gross margin for Q1 2024 was 19.5%, down 0.62 percentage points year-on-year but up 2.31 percentage points quarter-on-quarter, mainly due to the impact of the acquisition of PoleStar Limited. The total expenses for the company in 2023 accounted for 6% of revenue, with the increase mainly due to the impact of the acquisition of PoleStar Limited and exchange rate fluctuations. The total expenses for Q1 2024 also accounted for 6.4%, similarly affected by the consolidation of financial statements, and the total expenses are expected to stabilize in the future.The company continues to increase R&D expenses. The company’s R&D expenses have shown a growth trend in recent years, reaching 348 million yuan in 2023, a year-on-year increase of 21%, accounting for 4.4% of revenue. In Q1 2024, R&D expenses were 90 million yuan, a year-on-year increase of 8%. As PCBs are the mother of electronic components, they will upgrade synchronously with global electronic industry technological innovation. The company’s significant investment in R&D is expected to continue to build core competitiveness in the industry. In addition, the company is seizing opportunities in AI development and increasing efforts to layout AI-related products, and we expect overall R&D expenses to continue to grow steadily.Continuous breakthroughs in products, AI-driven growth. With the increasing demand for AI computing power technology, the company continues to increase R&D investment, achieving significant breakthroughs in computing power and AI server fields. The products used in Eagle/BirchStream-level server fields have all achieved industrialized operations. Based on AI server acceleration modules, the company has achieved certification and industrialized operations for 5-stage 20-layer HDI products and is accelerating the layout of the next generation of high-end HDI product R&D certification. In the HPC field, the company has achieved batch production of AIPC products and is simultaneously conducting product certification for AI mobile phones. In the high-end data transmission field, the 1.6T optical module has completed sampling; high-end SSDs have achieved industrialized operations. The company will continue to increase R&D layout for industrial robots and high-end artificial intelligence products, keeping pace with the market and ensuring a good layout of cutting-edge technologies. Automotive electronics help open up growth space: Shenghong Technology is the second-largest supplier to the world’s largest electric vehicle customer and a qualified supplier for many international Tier 1 automotive companies. The company’s products involve autonomous driving computing modules (4-stage HDI), three-electric systems, body control modules (3-stage HDI), and integrated MCUs. The 77GHz automotive radar has achieved small-batch operations, while the company is increasing R&D in segmented fields, such as thermal management, successfully laying out thermal grease, ultra-thick copper, embedded copper blocks, and increasing the introduction of high-end automotive electronic products and resource allocation for clients. We expect the company’s share in overseas electric vehicle customers will continue to expand, while its share in domestic new energy customers will also increase rapidly, making automotive PCBs an important driver of the company’s rapid growth in performance.The acquisition of flexible circuit board business PSL forms a product matrix with both soft and hard capabilities. Shenghong Technology has strong market competitiveness in rigid PCB products such as single-sided, double-sided, multilayer, and HDI boards. PSL’s products are mainly flexible circuit boards, which complement the company’s products and help enrich the company’s product portfolio, forming a product layout with both soft and hard capabilities. PSL has long-term stable customer resources in downstream automotive, industrial, and medical industries, and the high certification barriers for suppliers in these downstream fields make the acquisition beneficial for expanding customer coverage and increasing market share. In addition, PSL has mature production lines in Malaysia, a stable supply chain, and customer resources, which help promote the company’s globalization strategy, achieve overseas capacity layout, and enhance risk resistance.3.3 Huadian Co., Ltd.: Leading High-End PCB Manufacturer with Steady GrowthHuadian Co., Ltd. is a global leading high-end PCB manufacturer. Established in 1992 and listed on the Shenzhen Stock Exchange in 2010, the company focuses on core application areas such as communication equipment, data center infrastructure, and automotive electronics. In 2022, the company’s revenue from enterprise communication boards accounted for 65.9%, and automotive boards accounted for 22.8%, totaling 88.7%. The company has deepened its focus on high-end PCB products, forming relative competitive advantages in technology, quality, cost, brand, and scale, leading the industry and establishing long-term cooperative relationships with many domestic and foreign giants.Strong AI demand drives continuous high growth in Q1 2024. In Q1 2024, the company achieved revenue of 2.584 billion yuan, a year-on-year increase of 38.3%, and a quarter-on-quarter decrease of 9.5%; the net profit attributable to the parent company was 515 million yuan, a year-on-year increase of 157.03%, and a quarter-on-quarter decrease of 8.0%; the net profit after deducting non-recurring gains and losses was 497 million yuan, a year-on-year increase of 172.02%, and a quarter-on-quarter decrease of 6.4%; the gross margin was 33.9%, a year-on-year increase of 8.1 percentage points, and the net profit margin was 19.7%, a year-on-year increase of 9.0 percentage points.The enterprise communication market board contributes the main revenue. In 2023, the enterprise communication board achieved revenue of 5.87 billion yuan, accounting for 68.5% of PCB business revenue, of which PCB products related to AI servers and HPC accounted for approximately 21.13% of the company’s enterprise communication market board revenue, up from about 7.89% in 2022. The automotive board business achieved revenue of 2.16 billion yuan, accounting for 25.2%. The company’s automotive board business revenue has been steadily increasing, rising from 1.33 billion yuan in 2020 to 2.16 billion yuan in 2023. From a product gross margin perspective, the enterprise communication board has a higher gross margin, with a gross margin of 34.5% in 2023.Stable increase in R&D investment. In 2023, the company’s R&D expenses were 539 million yuan, a year-on-year increase of 15%. Since 2020, the company’s R&D expenses have maintained a relatively stable growth rate, with a year-on-year growth rate of around 13%-15%. The company continues to increase investment in technology and innovation, and in early 2024, the company decided to invest approximately 510 million yuan to implement a technical transformation project for high-density, high-speed interconnect printed circuit board production lines aimed at computing power networks. The implementation of the technical transformation project will improve the HDI stages and layers of the company’s products related to computing power networks, enhance the quality stability and reliability of related products, and improve the digitalization and intelligence level of production lines.Continuously laying out cutting-edge technologies. The company has achieved large-scale production capabilities for products in new platform servers, high-end data center switches, and data center acceleration modules. At the same time, the company is also researching higher performance and more advanced architecture products, such as UBB2.0, OAM2.0, 800G, 6-stage HDI, and NPO/CPO architecture boards. The Huangshi plant has begun mass production of PCIe-based computing acceleration cards and network acceleration cards; in the switch product segment, the box-type 800G switch based on 112Gbps rate 51.2T has been delivered in bulk, and products with a rate of 224Gbps (102.4T switching capacity 1.6T switch) are in the research phase, while NPO/CPO architecture switches/routers are currently being developed in collaboration with customers. General server BHS platform products have been launched and are being productized, while research on the next-generation OKS platform products has begun. In terms of accelerated computing, products with a rate of 112Gbps have begun product certification and sample delivery, and 3-stage HDI UBB products have begun mass production and delivery, while new platform parts based on PFGA, GPU, and XPU architectures are currently being planned and laid out.3.4 Shenzhen South Circuit: Leading Communications PCB Manufacturer, Deeply Cultivating the Entire Electronic Interconnection FieldWith forty years of hard work, we continue to move forward to create the future. Shenzhen South Circuit was established in 1984 and has been deeply engaged in the electronic interconnection field for forty years, mainly engaged in printed circuit boards, electronic assembly, and packaging substrates, forming a unique “3-in-One” business layout in the industry. The company focuses on interconnection, continuously strengthening its leading position in the printed circuit board business while vigorously developing its packaging substrate business, which shares the same technology roots, and its electronic assembly business, which shares the same customer origins. The business covers the first to third levels of the packaging industry chain, with comprehensive manufacturing capabilities to provide customers with professional and efficient one-stop comprehensive solutions. The company has become a global leading supplier of RF power amplifier PCBs for wireless base stations, the largest domestic supplier of packaging substrates, and a leading supplier of processor chip packaging substrates and electronic assembly manufacturing. According to Prismark data, the company ranked eighth among global PCB manufacturers in 2023.Significant growth in Q1 2024 performance. In 2023, the company achieved revenue of 13.5 billion yuan, a year-on-year decrease of 3%, and a net profit attributable to the parent company of 1.4 billion yuan, a year-on-year decrease of 15%, mainly due to the decline in downstream demand in 2023, the overall utilization rate of packaging substrates and PCBs decreased, coupled with the impact of new project construction and new factory ramp-up in packaging substrates. With the gradual recovery of downstream demand and the company’s utilization rate rebounding, the company achieved revenue of 3.96 billion yuan in Q1 2024, a year-on-year increase of 42.2%, and a net profit attributable to the parent company of 380 million yuan, a year-on-year increase of 84%. The company has a good order situation, supporting continuous growth in performance. The gross margin continued to improve in Q1 2024. The company’s selling expenses slightly decreased year-on-year in Q1 2024, while management expenses increased year-on-year. The total expense ratio for Q1 2024 was 5.05%. The company achieved an overall gross margin of 25.2% in Q1 2024, with a net profit margin of 9.6%. From the perspective of gross margin, the company achieved gross margins of 23.05%, 22.83%, 23.43%, 24.18%, and 25.19% from Q1 2023 to Q1 2024, showing a quarterly improvement in gross margin, with a year-on-year increase of 2.14 percentage points compared to Q1 2023.The PCB business contributes the main revenue, and the packaging substrate business is expected to ramp up. In 2023, the company’s PCB business revenue was 8.07 billion yuan, showing a year-on-year decline. In terms of applications, the demand in the communication field showed no significant improvement in 2023, with an overall decline in orders in this field. In the data center field, some customers’ EagleStream platform products have gradually ramped up, and breakthroughs have been made in developing new customers and new products (such as AI accelerator cards), resulting in a slight increase in revenue. In the automotive field, the release of demand for new customer projects introduced earlier and the increase in demand for high-end products related to ADAS have led to a year-on-year increase of over 50% in automotive orders. The packaging substrate business achieved revenue of 2.3 billion yuan, mainly due to the decline in demand in the industry leading to a decrease in utilization rates. However, with the continuous ramp-up of FC-BGA and FC-CSP project capacities, it is expected to bring significant revenue increases in the automotive and data center fields. The company’s electronic interconnection business has grown against the trend, achieving revenue of 2.12 billion yuan, a year-on-year increase of 21.5%, providing more value to customers through quality service and enhancing customer stickiness.Continuously increasing R&D to solidify core competitiveness. In 2023, R&D expenses reached 1.07 billion yuan, a year-on-year increase of 31%. In Q1 2024, the company’s R&D expenses reached 338 million yuan, a year-on-year increase of 103.6%. The company continues to increase R&D investment to accelerate the launch of high-end PCB and IC packaging substrate products, solidifying core competitiveness and seizing opportunities brought by the subsequent data center and automotive fields.The company’s three major business product matrix is rich and covers a wide range of fields: PCB business: Shenzhen South Circuit is engaged in the design, research and development, and manufacturing of high-end PCB products, with downstream applications focused on communication equipment, particularly in the data center (including servers) and automotive electronics fields. The company’s backplane samples can reach 120 layers, and batch boards can reach 64 layers, which is at the leading level in the industry. In terms of HDI boards, there are few companies in China that can achieve mass production of HDI, and Shenzhen South Circuit can achieve mass production of 10-layer HDI, with samples reaching 16 layers. The situation in various fields is as follows: 1) Data Center: The 800G switch has seen significant ramp-up in Q4, and the company has completed PCB sample development for the EGS platform in collaboration with customers, achieving mass production capabilities. The new platform server began to accelerate penetration in Q4, continuing the trend into Q1, with AI server products already being shipped in bulk. 2) Automotive Electronics: The company focuses on new energy and ADAS, mainly producing high-frequency, HDI, rigid-flex, thick copper, and other products, with a relatively high proportion of products in the ADAS field. The new energy products mainly focus on battery and electronic control aspects, and the demand for new customer projects introduced earlier has gradually been released, while deep development of existing customer projects has contributed to incremental orders. The ramp-up of the Nantong Phase III plant is progressing smoothly, providing capacity support for order introduction, with automotive orders expected to grow by over 50% year-on-year in 2023.Packaging substrate business: The company’s packaging substrates cover modules, storage, processor chips, and other products, mainly applied in mobile smart terminals, servers/storage, and other fields. The company actively introduces new projects and develops new customers, leveraging its extensive BT-class carrier board coverage capabilities, particularly achieving deep cultivation results in the storage, RF module, and FC-CSP product markets. The company’s FC-CSP products have achieved industry-leading capabilities in MSAP and ETS processes, capable of producing 2-6 layer boards with line widths/spacing reaching 12/12um-25/25um. RF products have successfully been introduced into some high-end product categories, capable of producing 2-8 layer boards; FC-BGA products with 14 layers and below have achieved mass production capabilities, with some customers completing sample certification and entering the production line verification stage; products with more than 14 layers have entered the sample certification stage. The company’s Wuxi plant focuses on storage packaging substrates, with FC-CSP product technology capabilities, and the second phase project mainly targets FC-CSP and other BT carrier boards, which began production in late September 2022 and is currently ramping up capacity, achieving monthly breakeven. The Guangzhou plant mainly targets FC-BGA packaging substrates, RF packaging substrates, and FC-CSP packaging substrates, with FC-BGA being a key product. The total investment is approximately 6 billion yuan, and the project is expected to achieve an annual production capacity of about 200 million FC-BGA, 3 million panels of RF/FC-CSP organic packaging substrates after reaching full production. The first phase of the project is expected to be completed and put into production in Q4 2023.3.5 Jingwang Electronics: Bright Growth in Q1 2024, High-End Capacity Set to ReleaseOne of the few manufacturers in China covering rigid, flexible, and metal-based circuit boards. Jingwang Electronics was established in 1993 and has been deeply engaged in the PCB industry for over thirty years. The company’s products cover multilayer boards, thick copper boards, high-frequency and high-speed boards, metal-based circuit boards, double-sided/multilayer flexible circuit boards, high-density flexible circuit boards, HDI boards, rigid-flex boards, special material PCBs, carrier boards, and IC carriers, widely applied in new generation information technology, automotive electronics, communication equipment, consumer electronics, computers and network devices, industrial control, security, etc. Currently, the company ranks 10th globally in the printed circuit board industry and 3rd among domestic PCB manufacturers in 2023, with stable revenue growth in 2023 and impressive performance growth in Q1 2024. The company achieved revenue of 10.76 billion yuan in 2023, a slight year-on-year increase, and a net profit attributable to the parent company of 940 million yuan, a year-on-year decrease of 12%, mainly due to structural market conditions in some fields, but overall, the electronic industry is experiencing a downturn. In Q1 2024, the company achieved revenue of 2.743 billion yuan, a year-on-year increase of 17.16%, and a quarter-on-quarter decrease of 8.7%. The net profit attributable to the parent company was 318 million yuan, a year-on-year increase of 50.3% and a quarter-on-quarter increase of 34.75%, mainly due to product structure improvement, increased utilization rates, and gradually warming demand for downstream automotive and consumer electronics products. The optimization of product structure is gradually improving profitability. The company achieved a gross margin of 24.61% in Q1 2024, a year-on-year increase of 0.17 percentage points and a quarter-on-quarter increase of 5.2%, with a net profit margin of 11.57%, a year-on-year increase of 2.48 percentage points and a quarter-on-quarter increase of 4.17 percentage points, mainly due to the increased proportion of high-value-added products in consumer electronics, automotive, and server fields, while the company has effectively controlled its expense ratios.Continuously increasing R&D, differentiated layout of server FPC products. In 2023, the company invested 601 million yuan in R&D, a year-on-year increase of 10.03%, and in Q1 2024, R&D expenses were 150 million yuan, a year-on-year increase of 8.15%. The company has achieved mass production in server EGS/Genoa platforms, low-orbit satellite communication high-speed boards, supercomputing PCBs, 800G optical modules, high-end HDI for communication modules, CSSD storage HDI, ultra-thin foldable screen through-hole FPC, AR/VR multilayer high-end soft-hard combined boards, ultra-long size new energy power battery FPC, and automotive camera COB soft-hard combined boards, while also achieving significant breakthroughs in technology for products such as switching routers, millimeter-wave sixth-generation radar boards, medium-sized OLED multilayer soft boards, high-speed FPCs for servers, high-end R-F, ultra-high-speed GPU graphics card FPCs, high-speed optical module FPCs, AR/VR AnyLayer FPCs, and PCB with embedded magnetic cores for variable frequency power supplies.Report produced by: Founder Securities, Zheng Zhenxiang, She Lingxing