With the rebound in upstream prices in the fourth quarter of 2022, the supply and demand confrontation has accelerated the PCB industry's bottoming out.
The Zhitong Finance APP learned that at the end of October, the PCB industry chain experienced a month on month improvement in demand despite supply compression, resulting in a short-term mismatch between supply and demand. The final manifestation was that upstream raw material prices began to rebound. Taking the low-end price of 35um copper foil as an example, copper foil prices have rebounded 11.9% since the low point at the end of October (including a 37.5% rebound in processing fees), presenting a hot scene in the industry chain.
In addition, according to the latest report from Prismark, a PCB research firm, the PCB market reached $21.18 billion in the third quarter of 2022, a month on month increase of 3.6% and a year-on-year decrease of 1.7%. Despite the global economic slowdown, the PCB market performance in the third quarter significantly exceeded expectations. Prismark predicts that the PCB industry market will grow by 2.9% in 2022, better than the previous forecast of 1.5%.
Analysts say that from the demand side, at the end of October, various terminals entered a year-end stocking rhythm, and some large companies were basically close to full production. In the situation where supply has been compressed and demand has improved month on month, there has been a short-term mismatch between supply and demand, and upstream raw materials have started to rise in price one after another.
However, Guojin Securities believes that although downstream terminals have indeed shown a month on month improvement, this is mainly due to the backup demand of clients. The overall improvement is limited, and the year-on-year decrease in demand for some terminals is still expanding. Therefore, the demand for the PCB industry chain has not been truly repaired.
In such a situation, it is necessary to be vigilant about the risk of the current stocking behavior overdrawing 23Q1 demand. However, the increase in upstream raw material prices will exacerbate the supply-demand confrontation, trigger negative feedback from downstream to upstream demand, and accelerate the bottom of the entire industry chain. Therefore, from the perspective of the dynamic changes in the industrial chain, it still takes time for the repair of the industrial chain, but after accelerating to a bottom, it will usher in essential repairs.
Throughout the year, various terminal shipments have been under pressure, and the PCB industry chain has correspondingly declined. This year is in a global currency interest rate hike cycle, coupled with the negative impact of wars and repeated domestic epidemics, resulting in a relatively low demand for electronic products.
Among them, in terms of shipment volume, smartphone global -9.1%, China -13.3% (expected for the whole year, the same later), wearable devices global 4.6%, VR/AR devices global -0.9%/-0.0%, PC global -12.8%, automotive/new energy vehicle China 2.1%/China 91.0%, and server global 12.0%.
Due to the demand for consumer products accounting for about 50% of the downstream PCB market and automotive servers accounting for about 20% of the downstream PCB market, the PCB industry chain is generally under pressure under the pressure of consumer product demand.
Data shows that in the single quarter of 22Q1/22Q2/22Q3, the net profit attributable to the parent company was 53%/-13%/-29% and 44%/-25%/-76% year-on-year for copper foil in A-shares and Taiwan shares, 12%/1%/-49% and -38%/-55%/-88% year-on-year for fiberglass cloth in A-shares and Taiwan shares, -37%/-59%/-90% and 17%/-38%/-58% year-on-year for copper clad board in A-shares and Taiwan shares, and 9%/10%/5% and 25%/16%/20% year-on-year for PCB in A-shares and Taiwan shares.

Guojin Securities pointed out that although the overall demand expectation of the PCB industry is still weak, attention can be paid to structural innovation opportunities.

According to the shipment volume forecast, in 2023, the global growth rate of smartphones is 2.8%, China is -0.9% (expected for the whole year, the same later), PC is -2.3%, and China is 3%. This shows that the growth rate of basic consumer products is not optimistic.

However, the growth rate of innovative consumer shipments is expected to be higher, such as 51.4% for foldable mobile phones globally, 33.2% for China, 5.5% for wearable devices globally, 23%/70% for VR/AR devices globally, 34% for new energy vehicles in China (with slower growth but still room for growth in intelligence), and 2.1% for servers globally (with shipment volume under pressure but innovation iteration bringing value increment). Therefore, although overall consumer demand is still under pressure next year, But if the industry chain focuses on a specific niche innovation point, it will significantly benefit.

In terms of investment opportunities, Guojin Securities suggests focusing on innovation directions including automobiles (high current and high voltage require thick copper plates, SiC volume brings incremental market to lining plates, domain controllers enable upgrading of automotive PCBs to HDI), servers (new platform upgrades require higher layers of PCB boards, higher level CCL, and lower profile copper foil), and packaging substrates (domestic substitution).

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Source: Zhitong Finance Network

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