 Copper-clad laminate (CCL) is a building block of every electronic device, enabling 5G, electric vehicles, and servers  We foresee demand heading higher, input cost hikes slowing, strong bargaining power for leaders, and high entry barriers  Initiate on four CCL makers, with potential near-term catalysts for EMC, ITEQ, and TUC (all Buys); Kingboard at Hold An essential ingredient for technology migration. Found in every electronic device today, copper-clad laminate (CCL) is a niche but rapidly growing industry, as it’s the raw material for printed circuit boards (PCB). The top four applications are datacentre servers, 5G base stations, consumer electronics such as 5G-enabled smartphones, and electric vehicles (EVs). It’s not just about rising demand – as CCL is also becoming more complex to enable faster processing power. For instance, in EVs the content value of CCL is twice that of a petrol-powered car. We see the CCL industry growing at roughly an 11% CAGR in the next three years, faster than PCB’s 6% growth. For more on printed circuit boards in mainland China, see The global leader with more room to run, also published today by Chase Ding.

Margins in focus. A concern has been the c50% price hikes over the past year in key raw material inputs like copper, resin and glass fibre. Our house view is the copper prices should fall, so we think the margin pressure for CCL producers should ease in 2H21e.

Initiate on four CCL makers; we foresee a re-rating on bargaining power, high growth. The CCL industry is concentrated which gives it bargaining power over its customers and means it can pass on cost increases. It’s also hard for new entrants to muscle in as they struggle to compete on costs at the low end and don’t have the technology for the high end. We expect margins to improve as technology is upgraded and this is why, in addition to the rapid growth ahead, we foresee a likely re-rating for the industry. In accompanying reports published today (see page 6 for links), we initiate on four CCL makers (see exhibit below).