SCC released 1H24 results. Revenue went up by 38% YoY to RMB8.3bn, with double-digit growth across all segments (PCB/Substrate/PCBA: 25%/94%/42% YoY). NP increased by 108% YoY to RMB987mn, on higher GPM (26.2% in 1H24 vs. 22.9%/23.8% in 1H/2H23) and cost optimization. SCC delivered strong 1H24 results, driven by 1) strong AI demand, 2) Eagle Stream upgrades, 3) robust auto orders, 4) inventory restocking on consumer electronics market, and 5) margin expansion. However, we expect demand in the consumer electronics market to become softer in 2H and estimate 1H24 revenue/NP to be 52%/56% of our FY24E forecast (vs. 45%/34% in 1H23). SCC’s share price is currently trading at ~30x 2024E

P/E, which is fair in our view. Maintain HOLD, with TP unchanged at RMB106.4.

A very solid 1H24 with margin expansion surprise. By segment, PCB (58%

of 1H24 sales) grew by 25% YoY/16% HoH to RMB4.9bn, with strong growth in DC and auto sales. Telecom was stable with greater contribution from wired communication, including switches, routers and optical-related sales (100% YoY growth). Wireless side and industrial/medical sectors remained weak.

Substrate revenue (19% of 1H24 sales) grew by 94% YoY/7.4% HoH to RMB1.6bn, driven by recovering demand with low inventory in the channel.

PCBA business (15% of 1H24 sales) also grew 42% YoY to RMB1.2bn, benefitting from higher PCB sales. GPM increased to 27.1% in 2Q, up from 22.8%/25.2% in 2Q23/1Q24, benefitting from a favourable product mix.

Expect SCC’s FY24E revenue to be 1H weighted. In our previous sector

report (report), we pointed out 7 out of the 16 leading PCB manufacturers in China have announced profit alerts, with an avg. 75%-105% YoY and 21%- 43% QoQ increase in NP for 2Q24. This supported a strong momentum for PCB sector as the market expected a meaningful recovery in end-market demand. We maintain our view that the sector is recovering from the cyclical trough with modest growth in 2024E (5.0% YoY). However, the growth won’t be evenly distributed across end markets. We expect SCC’s revenue will be 1H weighted this year on weaker consumer demand in 2H due to fewer rush orders and inventory restocking behavior. This will also put pressure on ASP, which could limit revenue growth. We estimate 2H24 revenue to grow by 3.2% YoY but decline by 7.1% HoH from 1H24 to RMB7.7bn.

Maintain HOLD, with TP at RMB106.4. We revise up 2024/25E NP forecasts by 5%/2% on higher GPM and lower R&D expenses. We expect GPM to return to ~25% level in 2H24 (vs. 27.1% in 2Q), considering weaker demand and higher material costs. R&D expenses are projected to decline QoQ according to mgmt. Our TP of RMB106.4 implies a 30.8x 2024E P/E, which is 5% below 5-year historical avg. forward P/E (32.5x). Key risks include: 1) volatility in raw material prices, and 2) weaker consumer sentiment and slower-than-expected demand recovery.