麦格理报告：中国PCB行业：在5G时代日益占据主导地位China PCB sector Growing dominance in the 5G era（72P）

Please refer to page 70 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 16 August 2019 Greater China EQUITIES Recommendations and target prices Mkt cap 3M ADTO Price TP Up- Stock Ticker (US$m) (US$m) (lcy) Rec (lcy) side SYTECH 600183 CH 6,722 92 20.78 O 25.00 20% SCC 002916 CH 5,818 72 120.63 O 139.50 16% WUS 002463 CH 4,581 171 18.69 N 18.50 -1% Source: Bloomberg, Macquarie Research, August 2019, share prices at close 15 August 2019 Comparative valuations PE PB ROE Company 18 19E 20E 18 19E 20E 18 19E 20E SYTECH 44.0 33.8 26.8 6.9 6.1 5.6 15% 17% 20% SCC 48.4 42.5 29.7 9.1 9.1 7.3 19% 21% 25% Wus 56.3 34.2 27.7 8.0 6.6 5.7 14% 20% 21% Source: Bloomberg, Macquarie Research, August 2019 Contents Key charts 2 Growing dominance in the 5G era 5 Valuations 6 Risks 8 China PCB industry’s version of “supply-side reform” 10 PCB demand to ride on the rise of 5G 17 5G PCB requires high speed, high frequency laminate 24 Appendices 27 Stocks inside Shengyi Technology (A-Share) (600183 CH) 28 Shennan Circuits (A-Share) (002916 CH) 43 WUS Printed Circuit (Kunshan) (A-Share) (002463 CH) 57 Analysts Macquarie Capital Limited Erica Chen +86 21 2412 9024 erica.chen@macquarie.com Fiona Liu +852 3922 1368 fiona.liu@macquarie.com China PCB sector Growing dominance in the 5G era Key points  We initiate coverage on the China PCB sector with a positive view on both supply (consolidation) and demand (5G).  We believe the sector features more growth prospects and is less cyclical than in previous cycles. Valuation multiples are likely to re-rate.  Top picks are SYTECH (Huawei's plan B) and SCC (import substitution), both rated Outperform with 20% and 16% upside. We rate WUS (turnaround) Neutral. China PCB industry’s version of “supply-side reform” Under the banner of “environmental protection” centred on cutting waste water discharge and improving air quality, China’s PCB industry has been seeing “supply-side reforms” since late 2017. Authorities have indirectly forced many PCB “shops” out of business via suspension orders. As the policy continues to be tightened and enforced strictly, environmental bills (either fine or additional expenditure in environmental equipment) are eating up profits of the remaining small PCB companies who could gradually exit the market. The rise of 5G to drive PCB demand Initially, 5G will be rolled out in telecom, then IDC and, finally, in consumer electronics, all benefitting the PCB sector in both volume and ASP growth from upgrades in materials and manufacturing process. The growing demand for 5G was seen in the 2Q19 result comments of global leading tech companies, such as TSMC (reality check link). We expect the PCB content value per station for 5G macro station to be ~3 times of 4G stations in the initial stages and ~1.8 times in the mature stage. More growth and less cyclical than in previous technology cycles PCB is commonly perceived as a commodity-like sector. However, we believe with positives in both supply and demand, the 5G cycle presents more growth and less cyclical features in the next 2-3 years for select China PCB companies. SYTECH, the world’s 2nd largest laminate company in capacity, is closing the technology gap with industry leaders and is part of Huawei’s plan B. SCC earns 60% of its revenues from telecom and is the #1 PCB supplier for Huawei. We view it as the best substrate company in China and should benefit from import substitution. WUS earns 60% of its revenues from telecom and is the #2 PCB supplier to Huawei. It turned around in 1H18 after 4 years of barely breaking even. Stock recommendations We have an Outperform ratings on SYTECH (TP of Rmb25.00 at 32x 2020E PER, currently trading at 34x/ 27x 19/20E EPS) and SCC (TP of Rmb139.50 at 34x 2020E PER, currently trading at 43/ 30x 19/20E EPS). By contrast, we are Neutral on WUS (TP of Rmb18.50 at 27x 2020E PER, currently trading at 34/28x 19/20E EPS) due to stretched valuations near-term. We estimate SYTECH, SCC, and WUS will show 19-21E EPS CAGRs of 28%/35%/25%, respectively. Key catalysts include 2Q19 results beat, 5G infrastructure take-off, Downside risks include Huawei order relocation, trade war, looser environmental policy. Macquarie Research China PCB sector 16 August 2019 2 Key charts Supply side reforms Fig 1 China PCB market growth trend Source: Prismark, Macquarie Research, August 2019 Fig 2 National environmental fine and average fine per case trend Fig 3 Production restriction/suspension cases trend from environmental policy Source: MEE (Ministry of Ecology and Environment of the PRC), Company data, Macquarie Research, August 2019 Source: MEE (Ministry of Ecology and Environment of the PRC), Company data, Macquarie Research, August 2019. Note: 2018 full year number is e