Company introduction: Leading electronic distributors in China, taking advantage of the momentum to develop their own ICs. The company was founded in 2008, and currently its business covers electronic component distribution, self-developed power management ICs and related technical services. The company mainly distributes products from internationally renowned electronic component design manufacturers such as Toshiba, Seoul Semiconductor, Murata, Panasonic, and LG, and empowers the distribution business through technical services to enhance customer stickiness. At the same time, the company acquired the Tamul team in 2019 to focus on the automotive electronics power management IC business. 22 The company's distribution business revenue in the first three quarters was 1.48 billion yuan, accounting for 91.3% of revenue; IC design business revenue was 140 million yuan, accounting for 8.7%. Benefiting from the increase in revenue scale and gross margin, the company's net profit grew faster. The company's net profit in the first three quarters of 22 reached 128 million yuan, up 132% year-on-year; net interest rate increased simultaneously, from 2.7% in 2017 to 7.8% in 22Q1-Q3, further enhancing profitability.

Industry Overview: The automotive sector is on the rise, and high values coexist with high barriers. Automotive electronic components are an important increase in new energy vehicles. The global market size is expected to reach 2.14 trillion yuan in 2022. Distribution is an important channel for the sale of electronic components, and the “leadership” effect of the industry is obvious. The company has broken through in segmented fields and promoted applications such as LED headlights in line with market demand, so the company's distribution business in the automotive sector occupies an important share. However, the automotive power management IC market is broad. In 2016, China's power management chip market was about 53.1 billion yuan. By 2020, the market size had increased to 75.9 billion yuan, with a CAGR of 9.3%. Referring to Gartner's share of global power management IC downstream applications (9%), the market size of automotive power management ICs in China was about 6.8 billion yuan in 2020.

At the same time, automotive analog chips need to pass AEC-Q100 certification, which has higher certification barriers and technical barriers. The company's power management ICs mainly focus on automotive lighting systems and cockpit electronic systems, and various types of products are rapidly cultivated.

Company business: The distribution business experience is mature, and self-research capabilities are rapidly improving. The company distributes many categories. The main distribution products have a total of 5 categories and 8 subcategories. Optoelectronic devices still accounted for the largest share of the company's revenue in 2021, accounting for 38%. The share of revenue in the storage category with low gross margins declined, and the company's revenue structure further improved. At the same time, the company's price transmission as a distributor was smooth, and the “annual reduction” strategy did not have an obvious impact on the gross margin of the distribution business.

Increased industry sentiment and high-quality technical support services continue to increase the gross profit margin of the distribution business. The company's power management IC R&D team is experienced. The core team members all have more than 15 years of R&D and design experience, and have worked in well-known semiconductor companies such as Samsung Semiconductor and Xiantong Semiconductor. The company has nearly 10 products that have generated sales, 3-4 products are in the promotion stage, and some models are under development. In addition, the first dual-mode Bluetooth SOC chip for automotive electronics jointly developed by the company also passed AEC-Q100 certification. In addition to endogenous business, the company also achieved rapid development of technical teams and business through the acquisition of Yihi Nengda and Ochuangxin.

Investment advice: The company's distribution business focuses precisely on the automotive sector and ranks high in the distribution systems of many leading international electronic components companies such as Toshiba, Seoul Semiconductor, South Asia, etc. At the same time, the company has good price transmission channels in the distribution business; at the same time, the company continues to improve its product structure; and high-quality technical services. Meanwhile, the company's self-developed IC business focuses on automotive electronics, boosting power management ICs. IC parts numbers continue to expand, and introduced well-known domestic car manufacturers such as BYD, Geely, SAIC, Ideal, and Xiaopeng. We expect the company to achieve revenue of 22.2/27.0/3.21 billion yuan from 2022 to 2024, and net profit of 1.6/24/ 30 billion yuan, corresponding to the current PE valuation of 33/22/17 times. It was covered for the first time and gave a “buy” rating.

Risk warning: increased risk of industry competition; risk of downstream demand weakening; risk of new product introduction falling short of expectations; risk of loss of core technical personnel