Explore the financial password and business logic behind Shengyi Technology - CCL. Since the copper clad laminate and its downstream PCB industry have obvious cyclicality, its price fluctuations also have obvious cyclicality. From 2016 to 2017, there was a shortage of copper foil supply, and there was a 30 percent increase in PCB; and the outbreak of 5G led to a 40 percent price increase driven by consumer electronics in the third quarter of 2020. However, judging from the changes in gross profit in each round of price increase cycles, they are also CCL companies, while the gross profit margins of Shengyi Technology and Hong Kong-based Kingboard Group have changed in the opposite direction.
This is because although Kingboard's laminate products are positioned at the mid-to-low end, in the price increase cycle (the second half of 2020), since its upstream raw materials are basically self-supplied, the timing and magnitude of price increases are better than those of Shengyi Technology. However, Shengyi Technology does not have the ability to "self-supply" raw materials, and the rate and time of product price increases lag behind the increase in raw material prices, resulting in a decline in gross profit margins in the second half of the year.
Because the processing process of CCL is relatively simple, in the cost composition of CCL, the direct material cost (86 percent ) accounts for the first place. The raw materials required for the manufacture of CCL are mainly three categories: electrolytic copper foil (29 percent ), electronic grade fiberglass cloth (25 percent ) and epoxy resin (25 percent ). Therefore, the supply capacity of raw materials has become the key to affecting the profit rate of enterprises.
The gross profit margin of Shengyi Technology has fluctuated from 24 percent to 29 percent since the 2019 annual report, which also shows that the company has not completely solved the problem of raw material costs. This is also the key point for the follow-up observation of Shengyi Technology.