New Stock Preview | Delton Technology: The leading force in mainland China's algorithm computing server PCB industry, will listing in Hong Kong help solve the dependence on major clients?

The vigorous development of technologies such as AI, big data, cloud services, IoT, and edge computing has triggered a rapid growth in global computational power demand. As a key component of computational power servers, the importance of printed circuit boards (PCBs) is increasingly prominent. According to Frost & Sullivan data, the global market size of PCBs for computational power servers is expected to reach $7.3 billion by 2024, and is projected to reach $11.9 billion by 2029, with a compound annual growth rate of 10.4% from 2024 to 2029. The AI server PCB market size is expected to reach $7 billion in 2029, with a compound annual growth rate of 16.5% from 2024 to 2029. As the main battlefield for global computational infrastructure construction, mainland China accounts for 38% of the market share of computational power server PCB manufacturers in 2024. Guangzhou Delton Technology Co., Ltd. (referred to as "Delton Technology") (001389.SZ), as a leading manufacturer of computational power server PCBs in mainland China, is benefiting from this structural opportunity. According to the Hong Kong Stock Exchange disclosure on June 11, Delton Technology has submitted an application for listing on the main board of the Hong Kong Stock Exchange, with CITIC SEC and HSBC as joint sponsors. Delton Technology, as the largest computational power server PCB manufacturer in mainland China, mainly engages in research, development, production, and sales of customized PCBs for computational power servers and other computational scenarios. The company provides PCBs for computational scenarios, industrial scenarios, and consumer scenarios. PCBs for computational scenarios are designed for high-performance computing equipment and data centers, using high-density multi-layer board structures with features such as high-density interconnection, good heat dissipation, and high-speed signal integrity, which can help computational power servers operate efficiently and data centers exchange data at high speeds. PCBs for industrial scenarios are designed for complex industrial environments, with high durability, precision, and stability, supporting interference resistance, wide temperature ranges, and redundant designs to meet the reliability requirements of industrial control, automotive electronics, and communication industries. PCBs for consumer scenarios are targeted at consumer electronics and security devices, focusing on compact structures, high cost-performance ratios, stable performance, as well as miniaturization, rapid iteration, and cost control to meet market demands for lightweight, diverse, and stable operation. In terms of past performance, Delton Technology's PCB products have focused on PCBs for computational scenarios. In 2024, the company's revenue from computational scenario PCBs reached 2.706 billion yuan, accounting for 72.5% of total revenue; revenue from industrial scenario PCBs and consumer scenario PCBs reached 0.281 billion yuan and 0.493 billion yuan respectively, accounting for 7.5% and 13.2% of total revenue. In terms of cumulative revenue from 2022 to 2024, Delton Technology ranks first among computational power server PCB manufacturers based in mainland China and third globally, with a market share of 4.9%; based on cumulative revenue from 2022 to 2024, the company ranks first among CPU motherboard PCB manufacturers based in mainland China (for computational power servers) and third globally, with a market share of 12.4%. Dependency on a small number of customers, high receivables In terms of performance, Delton Technology has achieved rapid growth in recent years. During the period from 2022 to 2024, the company's operating income increased from 2.412 billion yuan to 3.734 billion yuan, with a compound annual growth rate of 24.3%; in 2024, revenue increased by 39.43% year-on-year. Net profit increased from 280 million yuan in 2022 to 676 million yuan in 2024, with a compound annual growth rate of 56%; in 2024, net profit increased by 63.1% year-on-year. In terms of gross margin, Delton Technology's overall gross margin for 2024 was 33.4%, compared to 33.3% in 2023, showing a slight increase overall, but the gross margin of its PCB business was under pressure. Specifically, the gross margin of computational scenario PCBs in 2024 was 37%, a decrease of 1 percentage point year-on-year; the gross margin of industrial scenario PCBs decreased from 8.6% in 2023 to -1.0%; the gross margin of consumer scenario PCBs also decreased from 8.5% to 1.6%. The significant decline in the gross margins of industrial and consumer scenarios has impacted the overall performance of the segment. This reflects the need for Delton Technology to strengthen the balance of profitability in its diversified business, and to continue to focus on cost control and product structure optimization to improve the quality of overall profitability across all scenarios. It is worth noting that Delton Technology also faces a high degree of customer concentration risk. In the period covered by its financial records, the company's customers include direct customers (including terminal product brands, EMS providers), traders, and PCB manufacturers. From 2022 to 2024, the total revenue from the top five customers reached 1.534 billion yuan, 1.757 billion yuan, and 2.292 billion yuan, accounting for 63.6%, 65.6%, and 61.4% of total revenue respectively; the largest customer accounted for 26.5%, 26.6%, and 24.6% of revenue. This highly concentrated customer structure means that the company's operational performance is highly dependent on large customers. Fluctuations in future procurement demands from major customers or changes in cooperation relationships could directly impact the company's revenue and profit. In its prospectus, Delton Technology points out that the company faces credit risks related to customer overdue payments and defaults. As of December 31, 2022, 2023, and 2024, the company's trade accounts receivable and bills receivable amounted to 705 million yuan, 887 million yuan, and 1.293 billion yuan respectively. The prospectus also shows that the trade accounts receivable turnover days reached 102 days in 2024. The company also points out that due to factors such as long payment cycles, poor operating or financial conditions of customers, and inability of customers to pay due to overdue payments, the company may not be able to recover some (or all) of its trade accounts receivable and bills receivable. In such circumstances, the company may need to make impairment provisions, which would have an adverse impact on its liquidity and financial condition. Increasing capacity through fundraising Observing the rapid growth in demand for computational power server PCBs, expanding business scale, optimizing customer structures, and enhancing capacity planning are key for Delton Technology to mitigate customer concentration risks and enhance its counter-cyclical capabilities; and rational capacity planning is an important measure to support these goals. According to the data in the prospectus, the designed capacity at the Guangzhou base in 2024 was 1.003 million square meters, with actual production reaching 923 thousand square meters and a utilization rate of 92.1%; during the same period, the designed capacity at the Huangshi base was 873 thousand square meters, with actual production climbing to 564 thousand square meters and a utilization rate of 64.7%, showing a clear path for the release of capacity. To match market demand, Delton Technology plans to use the funds raised through the IPO to advance its capacity layout. The prospectus shows that the phase 1 of the base in Thailand was completed in January 2025, with an area of about 92,650 square meters and a designed annual capacity of about 200,000 square meters, expected to start production before June 2025. The company expects to expand capacity through phase 2 of the Thailand base, which is expected to commence in 2026 and be completed and put into operation in 2027. The estimated capital expenditure for the second phase, including the engineering, procurement of equipment, and installation, is about 1.1947 billion yuan, with funds expected to be utilized from the net proceeds of the IPO and cash flow generated from operating activities. The second phase is expected to have a designed annual capacity of about 300,000 square meters. The Thailand base will focus on serving Southeast Asian customers, leveraging regional supply chain advantages to expand customer base, diversify risks from a single market, and mitigate some trade barriers, providing tangible support for optimizing the customer structure. Additionally, some of the funds raised through the IPO will be used for upgrading the automation production lines at the Guangzhou base to consolidate existing capacity efficiency and quality advantages. Overall, as a leading domestic manufacturer of computational power server PCBs, Delton Technology is benefiting from the industry dividend of the expansion of global computational power demand, achieving rapid growth in performance. However, risks such as customer concentration, receivables, and uneven business profitability still pose constraints on long-term development. The company is attempting to break through these challenges through strategies such as expanding overseas capacity and optimizing customer structures, but the actual effectiveness of these measures will need to be validated by the market. Under the dual pressures of intensified industry competition and accelerated technological iteration, Delton Technology must continue to strengthen cost control, product innovation, and risk response capabilities to explore a sustainable development path in the global PCB market and deliver long-term value to investors.