Company Profile

Shenzhen Kinwong Electronic Co., Ltd. is a China-based company and mainly engaged in development, manufacture and sales of Printed Circuit Board (PCB). The main products of the company are double-sided and multi-layer Rigid Printed Circuit Board, Flexible Printed Circuit (includes Surface Mount Device), and metal core Printed Circuit Board. The products of the company are applied in communications equipment, computer and network equipment, consumer electronics, automotive electronics, industrial control, and among others. The Company distributes its products in domestic and to overseas markets. (Source: Reuters).

Event

Shenzhen Kinwong Electronic Co., Ltd. (“the company”) released its 2022 annual report.

The company reported a revenue of CNY10.514 billion for 2022, up 10.30% year-on-year. The company also reported CNY1.066 billion in net profit attributable to shareholders for 2022, up 13.96% year-on-year.

For 4Q22, the revenue was CNY2.798 billion, up 0.91% year-on-year, and the net profit attributable to shareholders was CNY319 million, up 41.02% year-on-year.

Comments

The demand for automotive electronics was stable, and new production capacity was gradually expanded, contributing to steading performance growth.

The company achieved a revenue of CNY10.514 billion in 2022, a year-on-year growth of 10.30%, mainly due to the steady growth of demand for automotive electronics and cloud computing.

In terms of production capacity, the company has gradually expanded its production capacity for Zhuhai high and multi-layer PCB, HDI (including SLP), Toyama FPC, multi-layer PCB of Longchuan phase II.

In 2022, the company’s factory for high and multi-layer PCB and SLP factory in Zhuhai contributed CNY1.160 billion of revenue, a year-on-year growth of CNY759 million.

The company’s Fushan plant achieved a revenue of CNY818 million, a year-on-year increase of CNY244 million. The Longchuan base achieved a revenue of CNY4.237 billion, up CNY501 million from a year earlier. Automotive electronics is already the largest downstream application field for the company.

The company’s Q4 revenue increased by 8.07% QoQ, mainly due to the growth of orders for automobiles and servers, and a slight recovery in consumer electronics orders, resulting in a higher utilization rate for the company.

The profitability improved due to product mix optimization and lean cost reduction within the company

The company’s gross profit margin was 22.35% in 2022, down 1.04pps year-on-year, and the gross margin in 4Q22 alone was 23.23%, up 2.07pps year-on-year. The reasons are as follows:

1) the raw material prices continued to repair; 2) the product mix was upgraded, as the proportion of automotive electronics increased; 3) measures to reduce expenses took effect; and 4) RMB depreciation increased gross profit margin.

In terms of expenses, the 2022 sales and management ratios dropped by 0.15pps and 0.60pps year-on-year, respectively, and the R&D expense ratio was up by 0.39pps year-on-year.

In addition, benefiting from the depreciation of the RMB against the USD, the gain from exchange rate was CNY102 million in 2022, contributing part of the profit.

In the fourth quarter alone, the sales, management and R&D ratios changed by -0.08pps, +0.09pps and +1.26pps year-on-year, respectively. The net cash flow from operating activities for 2022 was CNY1.555 billion, showing sound operation quality.

As automotive PCB demand continues to grow, high and multi-layer PCB and HDI boards will contribute to the company’s growth.

The company has very sufficient reserves in the field of automotive PCB. Its rigid PCB and flexible PCB are adopted by the world’s leading Tier 1 companies and battery factories respectively.

The company is able to mass-produce new energy vehicle charging and switching boards, millimeter wave fifth-generation radar/4D imaging radar boards and other new products, which will enable the company to fully benefit from the continuous growth of demand for automotive boards in the future.

At the same time, the company ramps up the production capacity of two new factories in Zhuhai for high and multi-layer PCB, SLP and IC packaging substrate, which target the fields of high-end communications, HDI boards for mobile phones and automobiles, IC carrier boards.

The company has achieved mass production of high-speed boards on the server Whitley platform and has made major breakthroughs in the server EGS/Genoa platform.

The company has successively passed the verification and certification of some key customers, as it continues to upgrade its product mix.

Earnings forecast and investment recommendation

In view of the current weak consumer demand, we slightly lower our previous earnings forecast and estimate the company’s net profit attributable to shareholders at CNY1.282 billion, CNY1.542 billion and CNY1.843 billion for 2023, 2024 and 2025, respectively, implying a PE ratio of 17.0x, 14.2x and 11.8x, based on the closing price on April 19, 2023.

We maintain the rating of “Outperform”.

Potential risks

Rising raw material prices; slower-than-expected capacity growth of new plant; slowdown in downstream demand.