Analysis Report on ROIC and Cost of Capital for Weiergao (301251)

Jiangxi Weiergao Electronics Co., Ltd. was founded in April 2017 and listed on the Growth Enterprise Market of the Shenzhen Stock Exchange in September 2023, with stock code 301251. The company’s main business is the R&D, production, and sales of printed circuit boards (PCBs), whose products are mainly used in industrial control power supplies, displays, automotive electronics and other fields[1][2].

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is a core indicator for measuring the efficiency of returns generated by a company’s invested capital, with the calculation formula as follows:

$$ROIC = \frac{NOPAT}{Invested Capital} \times 100%$$

Based on Weiergao’s 2023-2024 financial data, the calculation results are as follows:

Financial Indicator	2023	2024
Operating Revenue	RMB 1.043 billion	RMB 1.022 billion
Net Profit Attributable to Shareholders of the Parent Company	RMB 123 million	RMB 56 million
Earnings Before Interest and Taxes (EBIT)	RMB 153 million	RMB 78 million
Net Operating Profit After Taxes (NOPAT)	RMB 130 million	RMB 66 million
Invested Capital	RMB 1.605 billion	RMB 1.719 billion
ROIC	8.09%	3.85%

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Based on the

and the company’s financial structure, the estimated weighted average cost of capital (WACC) for Weiergao is as follows:

Parameter	Value
Risk-Free Rate (Rf)	2.50%
Market Risk Premium	5.50%
Beta Coefficient	1.05
Cost of Equity (Ke)	8.28%
Cost of Debt	4.00%
After-Tax Cost of Debt (Kd)	3.40%
Equity Weight	90%
Debt Weight	10%
WACC	7.79%

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Year	ROIC	WACC	Difference	Value Created?
2023	8.09%	7.79%	+0.30%	✓ Yes
2024	3.85%	7.79%	-3.94%	✗ No

Year	EVA (in RMB 100 million)
2023	+0.048
2024	-0.677

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Weiergao’s ROIC was

, but :

• 2023
  : ROIC (8.09%) > WACC (7.79%), the company initially created economic value of approximately RMB 4.8 million for shareholders
• 2024
  : ROIC (3.85%) < WACC (7.79%), the company destroyed value of approximately RMB 6.77 million

The main reasons for the sharp decline in ROIC in 2024 include:

1. Gross Margin Decline
   : Dropped from 24.85% to 20.41%, a decrease of 4.44 percentage points[3]
2. Net Profit Margin Decline
   : Fell from 11.79% to 6.22%, reflecting increased cost-side pressure
3. Net Profit Halved
   : Decreased from RMB 123 million to RMB 56 million, a 54.5% year-on-year drop[2]
4. Increased Invested Capital
   : Capacity expansion led to higher capital expenditures, but returns failed to keep pace

• Short-Term Pressure
  : Current ROIC is lower than WACC, indicating that the company’s current capital allocation fails to create positive economic profits
• Room for Improvement
  : The company is actively adjusting its product structure and transforming into high-value-added fields such as AI server power supplies and automotive electronics[2]
• Need for Continuous Tracking
  : Monitor the recovery of gross margin and the improvement of new capacity utilization

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The above chart shows:

1. Top Left
   : Bar chart comparing ROIC and WACC
2. Top Right
   : ROIC-WACC difference (value creation/destruction)
3. Bottom Left
   : Trend of Economic Value Added (EVA)
4. Bottom Right
   : Comparison of profitability indicators

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1. Intensified Industry Competition
   : The PCB industry is highly competitive, and price pressure may persist
2. Raw Material Fluctuations
   : Fluctuations in prices of bulk commodities such as copper affect the cost side
3. Demand Uncertainty
   : Risk of demand fluctuations in consumer electronics and industrial control markets
4. Capacity Ramp-Up Risk
   : The release of capacity at the Thailand plant and Jiangxi Phase II will take time

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[1] Sina Finance - Weiergao (301251) Company Information (https://vip.stock.finance.sina.com.cn/corp/go.php/vFD_FinanceSummary/stockid/301251/displaytype/4.phtml)

[2] Eastmoney - Weiergao (301251) Financial Data (https://quote.eastmoney.com/sz301251.html)

[3] Sina Finance - Weiergao (301251) Financial Indicators (https://vip.stock.finance.sina.com.cn/corp/go.php/vFD_FinancialGuideLine/stockid/301251/displaytype/4.phtml)

[4] Minsheng Securities - Guanghe Technology Investment Value Report - WACC Reference for PCB Industry (https://pdf.dfcfw.com/pdf/H3_AP202404101630103768_1.pdf)