Crystal oscillator provides a stable "pulse" for electronic circuits, and its demand is strongly related to the main IC. Crystal oscillator can form stable clock frequency and wireless carrier frequency by using its piezoelectric effect, which provides a stable "pulse" for electronic circuits.

In the electronic circuit, the crystal oscillator is matched with the main IC to make the main IC work at a unified and stable frequency, so its demand is positively related to the main IC, and each electronic device needs at least 1-2 crystal oscillator products.

The emergence of new application scenarios by 5G has led to the expected expansion of the crystal oscillator market to 53 billion, and the CAGR is expected to reach 8% in 5 years. With the continuous diversification of the Internet of things, downstream scenes represented by 5G, automotive electronics and wearable devices break out, rapidly increasing the demand for quartz crystal oscillator. In emerging markets, the crystal oscillator demand of each new energy vehicle is expected to exceed 100 PCS, which is 3-4 times that of traditional vehicles; the crystal oscillator demand of each Bluetooth headset is at least 4 PCS, and the average crystal oscillator demand of various AIoT devices is 5 PCS. We predict that the global crystal oscillator market is expected to reach 53 billion by 2025, and the CAGR is expected to reach 8% in 2020-2025, of which the vehicle crystal oscillator market will reach 12 billion, and the CAGR will reach 20% in 2020-2025.

The epidemic situation / shortage accelerates the process of domestic substitution, and domestic crystal oscillator manufacturers are expected to overtake at the corner. In 2020, manufacturers from the mainland and Taiwan accounted for less than 20% of the global crystal oscillator market. Taijing, as the largest crystal oscillator manufacturer in the mainland, accounted for less than 3% of the global crystal oscillator market. According to the deduction of the global competition pattern, we judge that the mainland crystal oscillator manufacturers will overtake at the bend in the Internet of things market: 1) superimposed epidemic factors, downstream manufacturers in the mainland to ensure the security of the supply chain and accelerate the process of domestic substitution. 2) the expansion of global crystal oscillator is limited, the pace of capacity expansion of Japanese manufacturers is slow, and Taiwan factories, except Taiwan crystal technology, lack of power to expand production. High-frequency small-size crystal oscillator products are limited by the lithography process maturity of global crystal oscillator manufacturers, so they can not be mass-produced on a large scale. 3) Japanese and Taiwan manufacturers have strong advantages in the high-end market, and mainland crystal oscillator manufacturers welcome the opportunity for the development of the Internet of things and increase their global market share. Japanese manufacturers have the advantage of first mover, leading in product accuracy and stability, focusing on mobile phones, communications, automobiles and other high-end fields. Benefiting from the opportunity of Japan's technology introduction and undertaking industrial transfer, Taiwan occupies a large share of the mobile phone market. Crystal oscillator manufacturers in the mainland have developed the Internet of things market to achieve rapid growth.

The company's three core competitive advantages help the company to increase its global share in the era of IoT. 1) the company has developed some key core production equipment, and the lithography process has been in reserve for nearly 11 years, providing a reliable guarantee for leading product performance and capacity expansion. 2) domestic substitution forms a positive cycle of key customer share increase + product structure upgrading. Aiming at the Internet of things market, the company has entered Huawei, Mobile, Lexin and other customer groups. Under the background of domestic substitution, as the company verifies the continuous enrichment of products, the company's share in the major customer system is expected to further increase and complete customer upgrading. At the same time, the demand transmission of downstream customers will be faster, and the demand for miniaturized, high-frequency and highly stable products will prompt the company to meet the needs of downstream customers, which will lead to the upgrading of product structure and enhance the profitability of the company's products. 3) the company actively expands production to make up for the gap between supply and demand of the Internet of things. In 2020, the company privately raised 639 million yuan for the R & D and industrialization of MEMS process micro crystal oscillator and high stable crystal oscillator TCXO, and the company's high-end product production capacity will be further expanded.

Profit forecast: the number of Internet of things connections will remain high, and the demand for crystal oscillator products will increase synchronously. Under the background of domestic substitution, the company will enjoy the dual opportunity of Internet of things plus domestic substitution to increase global market share. We estimate that the revenue of the company from 2021 to 2023 is 12.29,18.92 and 2.571 billion yuan, and the net profit is 2.35,3.65 and 492 million yuan, respectively, and the corresponding EPS is 1.18,1.84,2.47 yuan. The company's future performance growth has high reliability, and with reference to the comparable company valuation, we give the company 40x PE, corresponding to 22-year EPS, with a target price of 73.6yuan per share, covering for the first time and giving a "strong push" rating.

Risk hint: the demand for the Internet of things is lower than expected, the yield is not as good as expected, and the intensification of competition in the crystal oscillator market leads to a downward price.