深南电路：Solid FY24 results; Upgrade to BUY being key beneficiary in domestic localization-20250314

Investment Rating - The report upgrades the investment rating of Shennan Circuit to BUY, with a new target price of RMB146.81, up from the previous RMB115.00, indicating a potential upside of 14.7% from the current price of RMB128.00 [1][3]. Core Insights - Shennan Circuit reported solid FY24 results, with revenue increasing by 32.4% year-on-year to RMB17.9 billion, surpassing estimates by 2% and 7% compared to internal estimates and Bloomberg consensus, respectively. Net profit rose by 34.3% year-on-year to RMB1.9 billion, aligning with internal estimates but falling 2% short of Bloomberg consensus [1][2]. - The gross profit margin (GPM) improved to 24.8% in FY24 from 23.4% in FY23, reflecting a recovery in demand, although this was partially offset by the ramp-up of a new factory [1]. - Revenue forecasts for FY25 and FY26 have been revised upwards by 15% and 21%, respectively, due to higher utilization rates, increased revenue from data center and AI-related sectors, and better growth in automotive PCB revenue [1][10]. - Net profit estimates for FY25 and FY26 have also been increased by 12% and 16%, respectively, despite lower GPM estimates due to ongoing capacity ramp-up costs [1][10]. Financial Performance Summary - FY24 revenue reached RMB17,907 million, with a year-on-year growth of 32.4%. The projected revenue for FY25 is RMB21,551 million, reflecting a growth of 20.3% [2][13]. - The net profit for FY24 was RMB1,878 million, with a year-on-year growth of 34.3%. The forecast for FY25 is RMB2,429 million, indicating a growth of 29.4% [2][13]. - The gross margin is expected to stabilize at around 25.1% for FY25, with a gradual increase to 26.2% by FY27 [2][13]. Market Position and Growth Drivers - Shennan Circuit is positioned as a key beneficiary of domestic localization trends, particularly in the PCB market, with significant growth expected in the data center and automotive sectors [1][7]. - The PCB sales grew by 30% year-on-year to RMB10.5 billion, driven by strong demand in data centers and automotive applications, despite a decline in telecom-related sales [7]. - The company is expected to benefit from the increasing capital expenditure by domestic cloud companies and the faster-than-anticipated penetration of high-end autonomous driving systems [1][7].