Event: the company released the first quarter report of 2022. The company's 2022Q1 realized operating income of 786 million yuan, + 47.09% compared with the same period last year, realized net profit of-15.1522 million yuan,-267.19% of the same period last year, and deducted non-net profit of-3.2805 million yuan, an increase of 42.3108 million yuan over the same period last year.

Comments: 2022Q1, company 300mm semiconductor wafer revenue + 122% year-on-year, deducting non-net profit growth is eye-catching. The sharp increase in 2022Q1's revenue is mainly due to a sharp increase in product sales with the release of the company's production capacity, of which 300mm semiconductor wafer revenue increased by 122% over the same period last year, and the expansion of revenue led to a significant increase in non-net profit. The decline of 2022Q1 homing net profit is mainly affected by the change of fair value. The decline in net profit belonging to shareholders of the listed company in the current period compared with the same period last year is mainly due to the fluctuation of the fair value of Semiconductor Manufacturing International Corporation Science and Technology Innovation Board's listed shares invested by the company through the Juyuan Core Star Industrial Fund and the changes in non-recurrent gains and losses such as government subsidies recognized in the current period.

Semiconductor wafer leading enterprises, in the industry boom + domestic substitution tide, the company wafer has the core competitive advantages such as large-scale first-mover advantage + domestic production capacity leading & rapid start + leading level of technological innovation. Since its establishment, the Shanghai silicon industry has persisted in facing the major strategic needs of the national semiconductor industry, adhering to the global layout, following the international cutting-edge technology, and has broken through a number of key core technologies in the field of semiconductor wafer manufacturing, breaking the situation that the localization rate of 300mm semiconductor wafers in China is almost 0%. The company's 300mm production capacity is the first to achieve large-scale mass production in China, and to achieve the target of 300,000 wafers / month installed capacity by the end of 2021. At the same time, fund-raising projects will contribute to the rapid expansion of production capacity.

The silicon wafer industry has entered a long business cycle that supply exceeds demand. Shanghai silicon industry has the advantage of large-scale first-mover advantage & the advantage of rapid production capacity. Under the condition that the supply of the wafer market is limited and the new capacity is not put into operation, the expansion of the wafer generation factory makes the wafer consumption rise in a straight line, which contributes to the price rise of the wafer and achieves a simultaneous rise in volume and price. The semiconductor material industry belongs to the post-manufacturing cycle, and silicon wafer enterprises benefit greatly from the dividend brought by the production capacity of wafer factories. Considering that the production capacity expansion cycle of wafer foundry is more than 6 months, the wafer industry will continue to thrive.

On the supply side, according to ICMtia data and our estimates, the domestic 300mm semiconductor wafer supply capacity at the end of 2021 is about 950,000 wafers per month (including positive + test wafers), and the Shanghai silicon industry accounts for about 32%. On the demand side, the monthly demand for 300mm wafers by Chinese mainland at the end of 2021 is about 1.31 million wafers per month, far exceeding the supply capacity of 950,000 wafers per month. In terms of the company's production capacity, Shanghai Xinyi 300mm wafer will achieve the target of 300,000 wafers / month installed capacity by the end of 2021, increase the project support, 300mm production capacity is expected to double after it is put into production, and the company plans to achieve the monthly production capacity target of 1 million wafers in the future. New energy vehicles set sail, 200mm silicon wafer once again ushered in a golden opportunity. Subsidiary Xinao Technology and Okmetic have a continuous layout, with a production capacity of more than 400,000 wafers per month for polished epitaxial wafers of 200mm and below, and more than 50,000 wafers for SOI wafers of 200mm and below.

Technology-products are comparable to the international advanced level, realizing the full coverage of process nodes + application fields + mainstream customers + product types, helping to obtain a stable source of customers. Shanghai silicon industry has become one of the few semiconductor wafer enterprises with international competitiveness in China, and its products have been recognized by many customers at home and abroad. Shanghai Silicon Industry subsidiary Shanghai Xinyi 300mm has achieved three full coverage, namely, full coverage and large-scale sales of 14nm and above logic and 3D storage processes, full coverage of mainstream wafer product categories, and full coverage of major domestic customers. Other subsidiaries Okmetic and Xinao Technology cover 200mm polishing & epitaxial wafers and SOI wafers, covering a full range of wafer products. In terms of technology, the company continues to make breakthroughs, such as optimizing epitaxial products, eliminating edge MCLT rings, improving the device utilization of the whole wafer, and rapidly improving the effective length of near-perfect single crystals.

Extend the existing business line and invest in the field of advanced photomask. In 2021, as a limited partner, the company participated in the establishment of Guangzhou New Ruiguang Equity Investment Fund Partnership, with an investment of 400 million yuan, which has been completed by the end of 2021. The partnership is a project fund, and the company's contribution as a limited partner will be invested in Guangzhou Xinrui Optical Mask Technology Co., Ltd in the form of equity investment. Guangzhou Xinrui Optical Mask Technology Co., Ltd. was established on February 8, 2021, and its main business belongs to the category of "integrated circuit materials". It builds advanced optical mask production lines for 40-28nm and above process, so as to solve the problem that there are no commercial advanced optical mask local suppliers in China.

Investment advice: based on the company's long-term growth momentum under the high demand in the semiconductor wafer industry and the domestic substitution logic, we expect the annual net profit in 22-23-24 to be 1.91 million yuan per share, respectively, maintaining the target price of 31.38 yuan per share and maintaining the "buy" rating.

Risk hints: concentration of sales areas, rising labor costs, aggravation of the epidemic, and loss of R & D technical personnel