Key points of investment

Incident: On August 28, the company announced that the second board of directors deliberated and approved, and that the third shareholders' meeting will be held to consider matters related to the restructuring report and adjust the restructuring plan. It is proposed to issue about 83.1783 million shares at a price of 46.06 yuan/share, totaling about 3.831 billion yuan, to acquire 73% of the shares of Bowei Integrated Company, the RF chip business and liabilities of gallium nitride communication base station, and 94.6029% of the shares of Guolian Wanzhong. At the same time, it is planned to raise no more than 2.5 billion yuan of capital for gallium nitride and silicon carbide related business expansion.

Comments: 1. “Boots have landed”, the biggest concern about the restructuring was lifted: previously, the market was concerned that the company's shareholders' meeting notifications were continuously postponed or even terminated. Today, the company announced that the restructuring plan had been successfully reviewed by the board of directors, and issued a notice to hold the third shareholders' meeting on October 13, 2022 to review the asset restructuring bill. The market's biggest concern was lifted. Due to internal management plan considerations, compared to the previous 100% acquisition of the above three assets, the change in plan this time was mainly a slight reduction in the equity acquisition by Bowei Company and Guolian Wanzhong, but the company is still the controlling shareholder and is included in the consolidated statement. The purchase price was adjusted compared to the previous plan, mainly due to the transfer of the company's reserve fund to increase its share capital in the early stages. The supporting capital raised this time did not exceed 2.5 billion yuan, mainly for the expansion of gallium nitride and silicon carbide production capacity and research and development of key technologies, which will further consolidate the foundation for future high growth. Considering that the assets acquired this time are leading third-generation semiconductors in China, there is huge room for growth and little dilution, and the current position is significantly underestimated.

2. The leading silicon carbide MOSFET chip “is ready to be launched, and gallium nitride PA is growing steadily: the third-generation semiconductor assets of CLP 13, which the company plans to issue shares to acquire, are leaders in the domestic gallium nitride/silicon carbide market. China Lianzhong undertook the silicon carbide chip device technology accumulated by 13 companies over many years, creating a scarce IDM model, and applied to BYD OBC's silicon carbide MOSFETs to achieve a breakthrough in orders and achieve batch delivery. The value of silicon carbide MOSFETs applied to the main driver was achieved. High, and it is also expected to gradually break through in the future, leading the domestic market ; The supporting capital raised by the company is expected to accelerate the expansion of production capacity and enter the downstream module process. The integrated model will continue to be consolidated. It is expected that in the future, it will seize the market with technology and customer advantages, and exert synergies as an important downstream part of the electronic ceramic shell. The performance advantages of silicon carbide MOSFTE are remarkable. The trend of replacing silicon-based IGBTs for new energy vehicles is clear. The latest financial guidance from overseas silicon carbide giants has exceeded expectations, once again verifying the explosive trend of demand in the SiC industry. As a first-tier domestic supplier, the 13 gallium nitride PA business that the company plans to acquire is also a scarce IDM model. The main customers are mainstream base station equipment vendors around the world. With superior performance and cost advantages, the market share is still gradually increasing. With its superior performance and cost advantages, the company continues to expand with its superior performance and cost advantages. Under the steady construction and production of global base stations, the company continues to expand. Business growth It is expected to expand new business markets such as satellite communications in the future.

3. The electronic ceramic shell is “outstanding”, benefiting from the explosion in demand for new energy vehicles: the performance of the company's ceramic housing for optical devices has gradually overtaken overseas giants, and its share continues to rise in the context of accelerated domestic substitution. In the context of declining 5G demand, there is still a lot of room for improvement in the market share; wireless power devices/third-generation semiconductors (GaN power tubes, LDMOS power tubes, etc.) ceramic cases of wireless power devices/third-generation semiconductors (GaN power tubes, LDMOS power tubes, etc.) have taken the lead in mass production. Major customers include China Telecom, Infineon, NXP, etc., and their technology and product strength have been recognized by giants at home and abroad. Already large-scale income, continued high growth; consumption The new electronic ceramic shell and substrate business has exploded as scheduled. The company accelerated the expansion of the consumer electronics ceramic case business (including downstream products such as acoustic meter crystals, 3D sensor modules, SAW filters, etc.) with remarkable results. The IPO fund-raising projects were all consumer electronics, reaching a production target of 4.405 billion units in three years. There is a large production value space. The construction of a new consumer electronics production line is being accelerated, laying the foundation for future high growth. IGBT (high-end aluminum nitride materials have been certified by domestic IGBT module manufacturers), silicon carbide modules are fully prepared with AMB packaging technology), lidar ceramic cases/millimeter-wave radar (R&D), etc., are fully prepared and will be released gradually; the company has successfully expanded from optical devices to consumer electronics, power devices/third-generation semiconductors, IGBTs, lidar and other electronic ceramic shell fields, targeting Japan's Kyocera, and there is plenty of room for long-term growth.

4. Profit forecast and investment advice: Without considering mergers of acquisitions, we have maintained our profit forecast. We expect the company to achieve net profit of 1.72, 268, and 352 million yuan in 2022-2024. The PE corresponding to the closing price on August 26 was 124.9, 80.3, and 61.1 times, respectively, maintaining the “prudent increase” rating.

5. Risk warning: asset injection progress falls short of expectations; risks related to international trade frictions; new product development risks.