PCB Sector: Cost Decline, Performance Picks Up

In the first half of 2022, the overall business performance of PCB industry companies is improving, and the performance growth rate is generally 20%-30%.

In 2021, affected by the price increase of upstream raw materials, companies in the PCB industry generally experience a slowdown in performance growth or a decline in performance. However, since the beginning of the year, with the continuous decline in the prices of upstream materials such as copper, resin, and glass fiber, the profit margin level of the PCB industry has been improved, and the industry's profitability has steadily recovered.

Costs drop, performance picks up

Affected by rising raw material prices, in 2021, the overall operating performance of domestic PCB companies will show a downward trend, and some companies will experience negative growth in operating performance.

In the 2022 semi-annual report, PCB companies have stated that the company's operating performance has improved due to factors such as the decline in raw materials and cost and expense control.

Divided by cost structure, in the cost structure of PCB, direct materials account for more than 60% of the cost of PCB products, and materials include copper clad laminates, prepregs, copper balls, electronic parts and other materials. Among the above materials, CCL is closely related to the quality and performance of PCB. Its production technology and supply level directly affect the quality of PCB, accounting for 30%-70% of the cost of PCB raw materials, and it is the most important raw material of PCB.

The price fluctuation of CCL is mainly affected by the price changes of raw materials such as copper foil, resin and glass fiber cloth. The aforementioned three materials account for about 40%, 25% and 20% of the cost of CCL respectively, and the total impact exceeds 80%. Among them, the components of copper foil price mainly include copper base price and processing fee.

Affected by the rapid development of new energy vehicles, since March 2020, the demand for copper foil for lithium batteries has grown significantly, and the market is in short supply, driving copper prices to continue to rise. In 2020, the spot settlement price of LEM copper has risen from US$4,800/ton at the beginning of the year to a high of US$10,700/ton in 2021, with the highest increase in the range exceeding 120%. At the same time, the processing fee of superimposed copper foil has risen, the price of copper foil once exceeded 100,000 yuan / ton, and the highest price of lithium battery copper foil exceeded 150,000 yuan / ton. Since 2022, copper prices have continued to fall. By the end of July, the spot settlement price of LEM copper had dropped to US$7,000/ton, a drop of nearly 30% from the beginning of the year. At the same time, the standard copper foil processing fee has been reduced from a maximum of 24,000 yuan / ton to 20,000 yuan / ton, and the battery-grade copper foil (6 micron) processing fee has also been reduced from 48,000 tons to 40,000 yuan / ton, a decrease of nearly 20%. .

At the same time, since the beginning of the year, the prices of resin and glass fiber cloth have also dropped significantly. From January 2021, the price of resin has started to increase, and the spot price of epoxy resin has risen from 23,000 yuan / ton to a high of 40,000 yuan / ton. By the end of 2021, the spot price of epoxy resin will be 38,000 yuan/ton. In 2022, the price of epoxy resin began to gradually fall, and as of the end of July, it was less than 20,000 yuan / ton, down nearly 50% from the beginning of the year.

In terms of glass fiber cloth, in December 2020, the price of electronic yarn exceeded the 10,000 yuan/ton mark and continued to rise, reaching a high of 16,000 yuan/ton in June 2021 and continued until September. Since October 2021, the price of electronic yarn has begun to fall, falling below 10,000 yuan/ton since April 2022, and dropped to 6,000 yuan/ton by the end of July, a decrease of 57.14% from the beginning of the year.

Debon Securities believes that the increase in the price of upstream raw materials suppresses the profitability level, and the cost transfer helps to restore the profitability. At present, the bottom of the profitability of the PCB industry has been determined.

Demand recovers

From the perspective of demand, in the first half of the year, PCB companies generally achieved an increase in operating income of more than 10%, reflecting that the downstream demand of the industry maintained a certain degree of stable growth.

Driven by the three major trends of autonomous driving, digitalization, and electrification, in recent years, the value of single-vehicle electronic components has continued to increase, and the proportion of cost in the entire vehicle has continued to increase. Among them, the demand for automotive electronic products such as in-vehicle computing platforms, ADAS sensors (cameras, millimeter-wave radars, lidars, etc.), smart cockpits, electric power systems, and battery management systems continues to grow rapidly.

In the first half of 2022, the company's revenue is expected to increase by 29.93% year-on-year. Among them, the company's automotive electronic product revenue is expected to increase by 79.63% year-on-year, and the year-on-year growth of computer and storage products, communication products, and consumer electronics products is 54.06%, 26.86%, and 22.65%. Compared with other products, the growth rate of the company's automotive electronics category is obvious, reflecting the accelerated penetration of consumer electronics into the automotive field.

According to Prismark's forecast, the output value of the global automotive electronics industry will be US$240 billion in 2021, and it is expected to reach US$337 billion in 2026, with a compound annual growth rate of 7% from 2021 to 2026.

As the basic support in automotive electronic applications, the demand for automotive PCB applications has increased accordingly. According to the statistics of Sinolink Securities, traditional automotive PCBs are mainly used in ECUs. According to the models, the single-vehicle PCB consumption of economical, mid-range and high-end models in traditional fuel vehicles is about 0.3 square meters, 0.8 square meters and 2 square meters respectively.

In contrast, the PCB usage and unit value of new energy vehicles have increased significantly. Taking Tesla Model 3 as an example, the estimated value of its bicycle PCB is expected to reach 1490-1640 yuan, which is a significant increase in the value of a bicycle compared to the traditional car of 500-600 yuan.

In terms of splits, Model 3's three-electrical system mainly uses 6 sets of PCB boards (4-8 layers of through-hole boards, some with thick copper design), the total consumption reaches 0.71 square meters, and the corresponding value reaches 640-690 yuan. It accounts for 43% of the total vehicle value. Among them, from the perspective of PCB board specifications, the Model 3 battery pack adds about 0.66 square meters of PCB board consumption, which is an increase of nearly 70% compared to the traditional vehicle use of 1 square meter of PCB board. It is estimated that The PCB value of the battery pack part will reach 600-650 RMB. In addition, the domain control system of Model 3 also uses 6 sets of PCB boards (including 3 main control boards using HDI technology), with a total usage of 0.28 square meters and a corresponding value of 550-600 yuan, accounting for 550-600 yuan in the value of the whole vehicle. 37%.

Sinolink Securities predicts that by 2030, the cost of automotive electronics will account for nearly 50%, driving the continued growth of PCB demand.

At the same time, the rapid development of communication equipment and derivative facilities represented by 5G is another important support for the demand side in the first half of the year.

In recent years, benefiting from the commercial use of 5G, base stations for wireless communication infrastructure have been built on a large scale. According to data from the Ministry of Industry and Information Technology, in 2021, the total number of mobile communication base stations nationwide will reach 9.96 million, with a net increase of 650,000 throughout the year. As of the end of June, the total number of China Mobile communication base stations reached 10.35 million, a net increase of 387,000 from the beginning of the year. Among them, the total number of 5G base stations reached 1.854 million, accounting for 17.9% of the total number of mobile base stations, an increase of 3.6 percentage points compared with the end of the previous year, of which 429,000 5G base stations were newly built from January to June.

Guoyuan Securities pointed out that with the cultivation and expansion of the 5G application ecology, the driving force of the value growth of the enterprise communication market board will gradually migrate from the 5G wireless side to the network equipment side. The strong demand for PCB products has put forward higher requirements for its technical level and quality.

BETON Electronics stated in its semi-annual report that the demand for PCBs for communication equipment such as switches, routers, and optical transmission networks used in 5G networks will increase accordingly, and the output value and added value of communication PCBs will be doubled. Development, the demand for cloud infrastructure such as servers and data centers is also expanding, and the corresponding PCB usage has also increased.

In addition, global consumer electronics shipments have not performed well since the beginning of the year due to the downward pressure on the economy and the high base. According to the research report of Tianfeng Securities, in 2020, consumer electronics will account for about 15% of the total PCB demand. In the first half of 2022, the downturn in global consumer electronics sales has affected the demand for PCB products to a certain extent.

However, since July, consumer electronics shipments have also begun to pick up. On July 20, the China Academy of Information and Communications Technology released the domestic mobile phone shipment data in June. In June 2022, mobile phone shipments in the domestic market were about 28.017 million units, a year-on-year increase of 9.2%, ending the previous five consecutive months of negative sales growth. On August 16, the market research firm IDC issued a survey report on China's tablet computer market in the second quarter of 2022, which mentioned that in the second quarter of 2022, the shipment of China's tablet computer market was about 7.29 million units, a year-on-year increase of 1.9%. The growth marked the first "reversal" in the global tablet market after three consecutive quarters of declines in shipments.