Key points of investment
Incident: Nivea Technology released an interim report that net profit for the first half of 2019 is expected to be 28.32 million yuan to 33.98 million yuan, a year-on-year decrease of 40% to 50%.
The company's performance in the first half of 2019 declined sharply, mainly because: 1. In terms of navigation, avionics, etc., the finalization of some products was delayed, the user review progress of some orders fell short of expectations, and the production and delivery schedule of some orders was adjusted, which led to a marked decline in the profitability of related businesses in the first half of the year; 2. In order to seize market opportunities in the core business MEMS, navigation, avionics and potential businesses of third-generation semiconductor materials and devices, unmanned systems, etc., the company increased personnel recruitment and investment, thereby leading to an increase in related management and R&D expenses.
Regarding the decline in the first half of the year, we should note that since the company's traditional businesses such as navigation and avionics account for a relatively high proportion, negative customer-side factors had an obvious impact on overall performance. However, in terms of the MEMS business, benefiting from the high level of prosperity in downstream biomedical, industrial and scientific, communications, consumer electronics and other application markets, the business, which has a global competitive advantage, achieved rapid growth in the first half of the year and continued to maintain strong profitability.
The MEMS industry is growing at a rate of over 10%, and 5G will drive an explosion in the future. In recent years, benefiting from the rapid growth of automotive electronics, mobile Internet, medical electronics, industrial control and other markets, the MEMS industry is developing strongly. The global MEMS market was US$12.9 billion in 2017, with a compound annual growth rate of about 11.3% in the future, while the Chinese market accounts for more than 1/3 of the world and is growing even faster, and is expected to reach 20%. The most important driving force in the MEMS industry is the Internet of Things. In the 5G era, the Internet of Everything has become a trend. MEMS devices, which are the core of sensing, are expected to be perfectly integrated with future IoT technology and usher in explosive growth.
The MEMS industry chain has grown, and pure contract manufacturing has become mainstream. Similar to the IC industry, the MEMS industry chain mainly includes design, manufacturing, package testing, etc. The difference is that compared to IC chip products, MEMS chips have the characteristics of “one product, one manufacturing process”. The MEMS manufacturing process is capital-intensive and technology-intensive, and designers are showing a trend of outsourcing the manufacturing process.
Among the manufacturers that undertake MEMS OEM, IDM manufacturers and pure MEMS foundries are included. MEMS contractors that are deeply involved in a specific segment have become strong competitors in the manufacturing outsourcing business with IP libraries and process development capabilities generated by technology accumulation. Since IDM manufacturers and customers both own design businesses, there is a risk of cross-disclosure, pure foundry manufacturers are favored by MEMS designers. This trend can be seen from the revenue growth rate of the pure OEM model exceeding the average growth rate of the industry.
Nike has deployed its own production capacity, impacting global OEM leaders. Through the acquisition of Silex from Sweden in 2016, Nivea Technology obtained the world's leading process IP and entered the MEMS pure OEM circuit. With Sweden's production capacity of 6000 pieces/month, it has won excellent competitiveness in the small-batch customized MEMS OEM market.
Currently, Nike is focusing on building an 8-inch MEMS foundry line in Beijing, and is committed to cultivating complete autonomous and controllable capabilities. The first phase, with a production capacity of 10,000 pieces/month, is expected to be put into trial production in the third quarter of 2019. On the one hand, the investment of the National Integrated Circuit Fund reflects a high level of recognition of the company's technical strength and future prospects, while also giving Nike a huge financial advantage that its competitors do not have.
With the gradual release of new production capacity in Beijing and the completion of a long-term plan of 30,000 pieces/month, Nivey Technology is expected to become a global MEMS OEM leader. Nivey Technology, which actively opens up the upstream and downstream of the industrial chain, has full potential for future development.
Profit forecasting and valuation: Currently, due to objective factors, the company is in a painful period of strategic transformation and innovation, but we are still optimistic about the development prospects of the company's MEMS business. According to the company's latest situation, we lowered our profit forecast. The estimated revenue for 2019-2021 was 8.3/11.6/1.64 billion yuan, net profit of 0.84/131/184 million yuan, and the corresponding EPS was 0.25/0.39/0.54 yuan. PE corresponding to the current stock price (July 12, 2019) is 55 times, 35 times, 25 times, maintaining the “prudent increase in holdings” rating.
Risk warning: The yield of the new MEMS plant in Beijing increased slowly, the capacity utilization rate increased slowly, and depreciation was large, affecting the release of the company's performance; the navigation and avionics business fluctuated greatly, causing a drag on performance.