China's leading supplier of cell/module process testing equipment for the AMOLED industry: AMOLED has become the main panel equipment category in mainland China. According to CinnoResearch statistics, the equipment market size of the new display industry in mainland China reached 110 billion yuan in 2021. Among them, the AMOLED equipment market is about 60 billion yuan, accounting for about 55%. It is expected that after 2024, the high-generation AMOLED industry will also usher in a new wave of factory construction cycles. Huaxing Yuanchuang is leading the market share of cell/module process testing equipment in the domestic AMOLED industry, with a domestic market share of 32% in 2021. Furthermore, Huaxing Yuanchuang is Apple's core supplier of mobile phone screen inspection equipment, and has established long-term stable cooperative relationships with internationally renowned tablet manufacturers Samsung, Sharp, LG, BOE, JDI, etc.
There is broad space for domestic replacement of back-end testing machines, and the layout of SoCs opens up room for growth: According to SEMI data, the market size of back-end testing equipment was US$6.01 billion in 2021, and is expected to be US$78/82 billion in 2021/2022, an increase of 30%/5% over the previous year. Among the back-end test equipment, testing machines accounted for 63% of the total, with SoC, storage, simulation, and RF testing machines accounting for 50%, 30%, 12%, and 8%, respectively. At present, the vast majority of the global test equipment market is dominated by overseas manufacturers such as Eduan, Tereida, Koshu, etc. The domestic market has taken the lead in breaking through in analog testing machines. The localization rate has reached a high level, but there is basically a gap in SoC, storage, and RF testing machines. The company targets SoC and RF testers that occupy a relatively high share. The frequency rate of the self-developed T7600 series tester has reached 400MHZ. The technical parameters have reached the level of mid-range SOC testers recognized in the industry, and can directly measure Teleda J750, fingerprints and images at present Sensing, MCU, Mass production has been achieved in chip tests such as TOF, and test applications for chips such as DSP and NorFlash have also passed verification and entered the preparation period for mass production. In the future, the company will further develop customers for large-scale domestic first-tier and second-tier testing plants and independent third-party testing plants, promote the installed capacity of the company's standard test equipment, and fully benefit from the domestic substitution trend of semiconductor back-end testing equipment.
Micro OLED has huge potential, and the company's layout is leading the industry: Micro OLED technology attaches OLED to silicon wafers to achieve ultra-high resolution, and is currently the most suitable technology for AR/VR near-eye displays. According to Bloomberg, Apple showed board members its upcoming AR/VR device, a first-generation AR/VR device, or two 4K micro-OLED screens. In addition, Qualcomm also released a new AR smart glasses reference design, called “New Wireless AR Smart Viewer,” which uses dual 0.49-inch 1920-by-1080 90Hz microOLED microOLED displays manufactured by China's Siya Technology. Driven by leading international manufacturers such as Apple and Qualcomm, micro OLED applications are expected to accelerate. The company is leading the deployment of micro OLED testing equipment in the industry. Related products have been verified by well-known downstream CMOS chip manufacturers and consumer electronics manufacturers. It is cooperating with downstream customers to carry out early R&D trials for subsequent mass production of products. It is expected that the future will fully benefit from the popularization of Micro OLED in AR/VR/MR applications.
The NEV testing market is growing rapidly, and the company is expected to continue to benefit: full-vehicle NEV testing can be divided into two categories: vehicle testing and component testing. Vehicle testing is very complex, and electric vehicle component-level testing has huge market opportunities due to the variety and difficulty of electric vehicle component-level testing. The development of global new energy vehicles will drive the rapid expansion of the testing equipment market. The global NEV testing equipment market reached 1,290 billion yuan in 2020, and is expected to reach 5.055 billion yuan in 2027, with a compound annual growth rate (CAGR) of 20.91%. The company has formed a number of independently developed technology patents, the company has obtained Tesla's supplier qualification, and has delivered equipment to Tesla in Shanghai. In addition to Tesla, companies are also actively promoting cooperation with domestic first-tier electric vehicle manufacturers to meet customer needs. Driven by the rapid growth of the electric vehicle market, the company's electric vehicle testing equipment is expected to usher in a period of rapid development.
Investment advice: We expect Huaxing Yuanchuang's revenue for 2022-2024 to be 2,412 million, 3,285 million, and 4,317 million yuan respectively, and net profit of 327 million, 603 million, and 842 million yuan respectively. Referring to Changchuan Technology, Huafeng Measurement and Control, and Precision Electronics, the 2023 average of 31.48XPE, with reference to peer valuations and the company's historical situation, taking into account the company's expectations for continued high growth in the future, we will give Huaxing Yuanchuang 35 XPE 2023, with a corresponding target price of 47.95 yuan.
Risk warning: customer expansion falls short of expectations, downstream demand falls short of expectations, domestic substitution falls short of expectations.