Events:

On July 26, 2018, Ya Xiang Integration (603929) released its 2018 semi-annual report. During the reporting period, the operating income was 1.403 billion yuan, an increase of 38.39% over the same period last year, and the net profit was 102 million yuan, an increase of 25.91% over the same period last year. The net profit was 98 million yuan, up 23.36% over the same period last year.

Main points of investment:

Frequently won the bid for major projects, the company's performance has a strong certainty. Benefiting from the construction-intensive period of Hefei Changxin and Fujian Jinhua projects undertaken in the second half of 2017, the company's operating income increased significantly in the first half of the year. According to the company's annual report in 2017, the unconfirmed income of major projects under construction reached 1.411 billion yuan, including the clean B package of Wuhan Huaxing Optoelectronics 6th generation flexible LTPS-AMOLED display panel production line project that won the bid on December 28, 2017, the secondary air conditioning and drainage project of Fujian Jinhua Electric Power on July 4, 2018, and the clean project of Wuhan Xinxin Phase II project which won bid on July 17, 2017. According to the project time limit and construction progress, the identifiable income of major projects alone is expected to reach 1.9 billion yuan in 2018, and the company's performance has a relatively clear margin of safety. The company's substantial increase in operating income in the first half of the year, especially in the second quarter, has released a positive signal. It is believed that as domestic 12-year wafer factories have entered the clean room decoration and secondary piping stage, the company relies on its high industry position and market influence. It is expected to hand over a bright answer in terms of business income this year and next year.

Benefiting from the transfer of semiconductor and panel industry, China's clean room market is expected to usher in rapid growth. The main function of the clean room is to open up a specific space where the density of particles such as suspended dust is very low, and at the same time, through the division and cooperation of many subsystems such as pure water system, fire protection system and computer room, the humidity, temperature and pressure and other environmental indicators are always maintained within a suitable range. The fabrication of IC semiconductors and optoelectronic devices based on LCD and OLED displays needs to be carried out in a clean environment, especially under the background of smaller linewidth and higher integration, the requirements for environmental cleanliness will become more and more stringent. Nowadays, the clean room has become the standard for high-end manufacturing (integrated circuits, panel manufacturing, etc.). Benefiting from China's large investment in the semiconductor industry, the domestic market demand and specifications for clean rooms are constantly increasing. according to the statistics of the Industrial Information Network, the market size of clean rooms in China will reach 110.233 billion yuan in 2017 and will grow to 126.858 billion yuan in 2018.

It is worth noting that during 2016-2017, many 12-inch fab plants in China began construction. generally speaking, the civil construction of 12-inch wafer fabs takes about a year, and after the plant is capped, the construction of the clean room begins. After the construction is completed, carry out the transfer of manufacturing equipment and secondary piping installation. According to the construction progress, the wafer factories that broke ground in 2016-2017 will gradually enter the clean room decoration and secondary plumbing stage in 2018, which will help the growth of the performance of the overall solution provider of the clean room project. Ya Xiang integrated Fujian Jinhua Electric Power Air conditioning and drainage Secondary Distribution Project and Wuhan Xinxin Phase II Project in July this year is a better proof.

Semiconductor projects have been launched in many places in China, and Ya Xiang, with mature experience, obviously has more advantages. The high-precision manufacturing field represented by IC semiconductor is characterized by large investment scale, large construction area, complex system integration, high engineering quality, and relatively low price sensitivity to clean room engineering. From another dimension, as many domestic semiconductor projects have been launched in the past three years, the competition for orders from downstream customers is quite fierce. At present, the construction of display panels and fab factories in China are all on schedule. Ya Xiang Integration is a domestic subsidiary of Taiwan Ya Xiang Engineering. Taiwan Asia Xiang was founded in 1978. It has very rich experience in the construction of mechanical and electrical engineering and clean room engineering in laboratory engineering, chemical pharmaceutical factory, optoelectronics and semiconductor electronics factory. mature customers in the field of semiconductors and optoelectronics include: United Microelectronics Corp, South Asia, Maude, Sun and Moon Qimei, Qunchuang, Zhonghua Yingguan, Longteng, Tianma, Shenchao, Lianjing, Huaxing, Weichuang and so on. There are successful cooperation cases between the company and the above customers, there is no doubt that companies with many years of mature engineering experience obviously have more advantages in the current market environment, both customer trust and construction capacity should be superior, this is the most clear guarantee for the growth of the company.

Profit forecast and investment rating: covered for the first time, the buy rating benefits from the mature construction experience of the parent company Taiwan Yaxang Engineering for many years and the basis of cooperation with Taiwan departments such as United Microelectronics Corp and South Asia. The company has a very clear first-mover advantage in the field of domestic clean and dust-free engineering. Taiwan's Ya Xiang, which lasted nearly 40 years, has gradually transformed from traditional mechanical and electrical engineering to the core helmsman of promoting the construction of clean rooms on both sides of the Taiwan Strait. At a time when China has invested heavily in semiconductor manufacturing in recent years, it is expected to fully enjoy the era dividend brought by the growth of the industry, which is a very distinct logic of well diggers. We are optimistic about the company's growth flexibility in the next few years. It is estimated that the net profit from 2018 to 2020 is 2.34,3.05 and 342 million yuan respectively, and the current market value corresponding to PE is 19.2,14.7 and 13.1 times respectively, which is rated by the company.

Risk tips: (1) the centralized construction progress of domestic wafer plants is not as expected; (2) the winning bid of the company's major projects is not as expected. (3) the downstream engineering account of the company is affected by the operation of the customer and can not be recovered in time.