Key investment points: One of the largest semiconductor chip manufacturers in China; market share continues to increase; losses in the silicon business have been significantly reduced.
It is one of the largest and most technologically advanced semiconductor wafer manufacturers in China. Shanghai Silicon Industry Group Co., Ltd. (“Shanghai Silicon Industry” for short) is the main business of R&D, production and sales of semiconductor silicon wafers. The product types provided include 300mm polishing sheets and epitaxial sheets, 200mm and below polishing sheets, epitaxial sheets and SOI silicon wafers. The products are mainly used in storage chips, image processing chips, general processor chips, power devices, sensors, RF chips, analog chips, discrete devices and other fields. The company is one of the largest and most technologically advanced semiconductor wafer manufacturers in China. It is also the first enterprise in mainland China to achieve large-scale sales of SOI silicon wafers and 300mm silicon wafers.
The business is developing rapidly and market share continues to increase. The company's business has developed rapidly in recent years, the scale of revenue has continued to expand, and its share of the global semiconductor silicon wafer market has continued to increase. The revenue in 2019-2020 was 1.49 billion yuan and 1.81 billion yuan respectively. The global market share was about 1.8% and 2.3% respectively, and the market share gradually increased. According to the company's disclosure of the October 2021 investor exchange minutes, it was revealed that ①, the expansion of 300mm silicon wafers continued according to the established plan. The installed production capacity of 300,000 pieces was completed by the end of the year. It is expected that all production capacity will be released by 202E. As of the 2021 three-quarter report, 300mm silicon wafers account for about 30% of the company's total sales, and it is estimated that they will gradually become the company's main source of revenue; ② and 200mm silicon wafers have basically been in full production since 2020, and a certain amount of growth can be obtained through measures such as exploration and product structure adjustment.
The fixed increase project was successfully completed. If the fixed increase project is successfully implemented, the company's 300mm semiconductor silicon wafers will reach 600,000 pieces/month, and the production capacity of 300mm SOI silicon wafers will reach 400,000 pieces/year. In March 2022, the company completed issuing shares to specific targets, with an issue price of 20.83 yuan/share, and raised a net capital of 4.946 billion yuan, mainly used for ① and 300mm high-end silicon chip R&D and advanced manufacturing projects for integrated circuit manufacturing; ② and 300mm high-end silicon-based material R&D pilot projects; ③ to supplement working capital. Through the implementation of the fund-raising project, the company will add 300,000 pieces/month to the production capacity of 300mm semiconductor wafers that can be used in advanced processes. At that time, the company will reach 600,000 wafers per month of 300mm silicon wafers; the production capacity of 300mm SOI wafers will reach 400,000 pieces/year. China Grand Fund Phase II, Shanghai Shangguo Investment Management Co., Ltd., Shenwan Hongyuan Securities Co., Ltd., China Southern Fund, BNP Paribas, and Nuoan Fund all participated in this fixed increase stock issuance.
Profit forecasts and investment recommendations. We expect the company's 2022 E-2024E revenue to be 3.348 billion yuan, 4,237 million yuan and 5.179 billion yuan respectively, up 35.70%, 26.57% and 22.24% year-on-year; net profit to the mother is 198 million yuan, 262 million yuan and 337 million yuan respectively, up 35.33%, 32.55% and 28.59% over the previous year.
We used the PS valuation method, combined with the valuation level of comparable companies, and also considered a certain valuation premium. The company was given a PS (202E) 18.5x-20.0x valuation. The corresponding reasonable market value range was 61,930 billion yuan - 66.952 billion yuan, corresponding to a reasonable value range of 22.77 yuan/share - 24.61 yuan/share. The first coverage was given, giving a “neutral” rating.
Risk warning: Downstream demand falls short of expectations, market competition intensifies, technology research and development progress falls short of expectations, company valuations higher than comparable companies, and the risk of stock prices falling.