Matters:

The company released its 2022 financial report. In 2022, the company achieved revenue of 2,914 million yuan, an increase of 14.69% over the previous year; the net profit returned to the mother was 688 million yuan, an increase of 14.57% over the previous year. The company plans to distribute a cash dividend of 4.2 yuan (tax included) for every 10 shares to all shareholders in 2022. In the first quarter of 2023, the company achieved revenue of 632 million yuan, a year-on-year decrease of 16.40%; the net profit returned to the mother was 34 million yuan, a year-on-year decrease of 85.53%.

Ping An's point of view:

Performance grew steadily in 2022, and the advantages of upstream and downstream integration in the industrial chain were highlighted: the company covered multiple upstream and downstream production links in the semiconductor industry chain, including silicon monocrystalline drawing, silicon grinding discs, silicon polishing sheets, silicon epitaxial sheets, power devices and compound semiconductor RF chips. The integrated advantages were highlighted, driving steady growth in performance. In 2022, the company achieved revenue of 2,914 million yuan, an increase of 14.69% over the previous year; the net profit returned to the mother was 688 million yuan, an increase of 14.57% over the previous year. The company's main business performance: semiconductor silicon achieved revenue of 1,746 million yuan, an increase of 19.73% over the previous year; semiconductor power devices achieved revenue of 1,078 million yuan, an increase of 7.10% over the previous year; compound semiconductor RF chips achieved revenue of 501 million yuan, an increase of 14.90% over the previous year.

The company's sales expense ratio, management expense ratio, financial expense ratio, and R&D expense ratio in 2022 were 0.57% (-0.13pcTyoy), 3.45% (+0.67pcTyoy), 3.26% (-0.94pcTyoy), and 9.33% (+0.31pcTyoy), respectively. In the first quarter of 2023, downstream demand continued to shrink, as the company's semiconductor material production capacity utilization continued to decline, and the company's revenue and profit declined markedly year-on-year.

The production and sales situation of main products is subject to cyclical fluctuations in semiconductors: the company's main products include semiconductor wafers, semiconductor power devices, compound semiconductor RF chips, etc. The Quzhou 6-8 inch silicon wafer project that the company laid out earlier and the power device chip manufacturing production line implemented quickly contributed to production capacity when market demand was strong in the first half of 2022. The Quzhou 6-8 inch silicon wafer production line and Ningbo silicon wafer production line, power device production line were all in full production in the first half of 2022, leading to an increase in silicon wafer production and sales in the second half of 2022, but the second half of 2022 market volume and sales increased with the second half of 2022. Decline in demand, inventory volume There has been an increase; the production capacity construction of the 12-inch silicon wafer project is progressing steadily, and the technical capacity has covered logic circuits and storage circuits for technology nodes above 14nm, and is still in the climbing stage; production and sales of compound gallium arsenide RF chips have declined due to the contraction of the consumer electronics market in 2022.

Investment advice: The company is in the first tier of semiconductor chips in China. Its main business is semiconductor silicon wafers, semiconductor power devices, and compound semiconductor RF chips. Semiconductors are currently still in the downward phase of the cycle, and there is no obvious rebound trend yet. The company's circuit is in the direction of semiconductor materials, which have significant semiconductor cycle properties. Based on the company's annual report and judgment on industry development trends, we lowered the company's net profit forecasts for 2023-2024 to 624 and 700 million yuan respectively (previous values were 1,250 million yuan and 1,393 million yuan respectively), and added the net profit of Fumo for 2025 to 820 million yuan, EPS for 2023-2025 was 0.92 yuan, 1.03 yuan and 1.21 yuan respectively. PE corresponding to the closing price of April 21 was 61.4, 54.7, 46.7 times, respectively. At present, the company's 12-inch silicon wafer sales scale is expanding and production capacity is climbing. As downstream customer demand is released, customer certification and capacity climbing are progressing smoothly, and economies of scale will be highlighted; the company's power device product structure is continuously optimized and the product layout is richer, which will continue to benefit from the rapid development of photovoltaics and automobiles. We are optimistic about the company's future development and maintain the “recommended” rating.

Risk warning: 1) The risk that industry sentiment is declining and market demand falls short of expectations: semiconductor silicon wafers and power devices are closely related to the sentiment of the semiconductor industry. If downstream demand slows down, it will have a negative impact on the company's revenue and profit growth. 2) Risk of increased market competition: Competition in the semiconductor silicon wafer industry is fierce, and various silicon companies continue to expand production capacity. Some customers of the company's silicon wafers are still in the product certification stage. If product certification falls short of expectations, it will affect the company's production capacity expansion and profits. (3) Risk of declining gross margin: Fluctuations in raw material prices, especially factors such as rising prices of upstream electronic grade polysilicon, increased human resource costs, and increased depreciation due to project construction and commissioning, may cause product costs to rise and affect the company's gross profit margin.