PCB Industry Special Report

PCB Industry Special Report

The copper clad laminate has a significant increase due to the impact of raw materials, and it is expected to fluctuate at a high level in the later period. 1) Copper foil: Supply/currency/demand drives up the price of copper. The average value of LME copper in June 2021 was US$9632/ton, +67% year-on-year.
Low copper inventories pushed up copper prices. As the epidemic in major copper producing countries eases, the easing of copper mine supply and demand will drive the cost of copper foil to stabilize; 2) Epoxy resin: 2020/8-2021/4 cumulative increase of 120%, mainly due to its raw materials (epichlorohydrin/ Bisphenol A) prices continue to rise, the US/European cold wave caused a 62% reduction in factory output, and wind power rushed to install production capacity. Epoxy resin is expected to remain high in the short term, but supply/cost pressure is expected to gradually ease; 3) Glass fiber cloth: Due to the limited supply of new glass fiber in my country and the slow recovery of supply from major high-end electronic yarn producing countries, the stock of glass fiber is low. At the beginning of July 2021, the price of electronic cloth was 8.7-8.8 yuan/meter, +175% year-on-year. With the ignition of the new production line and the increase in production capacity, the price of glass fiber is expected to return to a reasonable level.

The price increase momentum of copper clad laminate manufacturers is expected to slow down, and the time when the most cost pressure of PCB manufacturers has passed has passed. The technical barriers of copper clad laminates are high, with CR10 being relatively concentrated at 73%; PCB customization is high/customer stickiness is strong, and the pattern is scattered (CR10<36%), so the bargaining power of copper clad laminate manufacturers is stronger than that of PCB manufacturers. At present, the prices of various raw materials have reached historical highs, and there is limited room for continued rise. Furthermore, copper clad laminate manufacturers have basically shifted cost pressures and increased gross margins after the prices of raw materials have risen. The momentum for continued price increases is expected to slow. The time when PCB manufacturers have the greatest cost pressure has passed, and they are expected to repair their performance through new order price increases and product structure adjustments.

The downstream demand is high and the performance growth of PCB manufacturers is highly certain. 1) Base station construction is gradually picking up, and mid- to long-term construction is optimistic. According to Ovum data, global operator capital expenditures are expected to reach a record high of US$360 billion in 2022. The centralized procurement of domestic 5G base stations has been launched from June to July, and the pace of 5G construction has gradually accelerated. 2) The expansion of the cloud computing market and the upgrade of server platforms drive PCB growth. According to IDC data, the global cloud computing market will reach US$291.5 billion in 2020 and is expected to reach US$349.7 billion in 2021.
DellOro Group expects data center capital expenditures to resume strong single-digit percentage growth in 2021. CPU update iterations will stimulate further increase in server demand and drive the increase in server PCB volume and price. 3) New energy vehicles continue to be prosperous, and the trend of electrification and intelligence is obvious. According to the China Insurance Regulatory Commission, in the first half of 2021, there were 1.004 million new energy passenger vehicles insured across the country. According to Marklines/SNEResearch forecasts, global electric vehicle sales may reach 5.6 million units in 2021. In the short term, the core shortage of automobiles is expected to gradually alleviate in 2022, driving sales of new energy vehicles; in the long term, the electrification/intelligence of automobiles is still the main theme, and the boom is expected to continue. According to estimates, the gradual penetration of new energy smart vehicles will bring about US$2 to US$3.2 billion in incremental space for global automotive PCBs. According to Prismark, the global automotive PCB output value will reach 8.7 billion U.S. dollars in 2024, with a CAGR of 9.0% in 2020-24.
Investment recommendations: 1) Server business is picking up/communication demand is improving quarter by quarter, and the performance of Shennan Circuit and Shenghong Technology is expected to improve; 2) The gross profit margin is severely damaged due to the price increase of copper clad laminate, and Tesla's global main supplier Shiyun Circuit resumes Greater flexibility; 3) The boom in the semiconductor industry is superimposed on the general trend of localization, and Shennan Circuits, which has the ability to mass produce packaging substrates, is developing rapidly. We give the industry a "overweight" rating.

Risk reminder: Macroeconomic downturn, trade frictions intensified, and the epidemic is not recovering as expected.