Key points of investment:
1. The size of the global power semiconductor market in 2018 was 36.3 billion US dollars, an increase of 11% over the previous year. The growth rate slowed. The main reason was that the semiconductor industry had overcapacity in the second half of 2018. At the same time, demand declined, and prices of some semiconductor devices fell. However, demand in the Chinese market remains strong. In 2018, China's power semiconductor market was about 111.4 billion yuan, an increase of 19% over the previous year. It is expected to maintain double-digit growth in 2019.
2. The domestic power semiconductor market is mainly monopolized by large international manufacturers. The import rate in the field of high-end devices has reached more than 80%. Due to the high technical barriers in the power semiconductor industry, it is difficult for local enterprises to compete with large international manufacturers in the short term. However, in recent years, Chinese enterprises have had a considerable market share in the fields of diodes, low voltage MOSFETs, etc., and many enterprises are actively investing in the development of high-end devices, and the domestic power semiconductor market is gradually being replaced by imports. 3. As a leader in the domestic power semiconductor industry, HuaWei Electronics has always had a stable market share. The company's MOSFET series and fast recovery diodes have strong competitiveness in China. Currently, the company is undergoing production capacity conversion, changing some 4-inch production lines to 5-inch and 6-inch production lines to produce high-end power devices. Currently, the company has a chip production capacity of 80,000 4-inch chips per month, 5-inch chips 130,000 pieces/month, and 65,000 6-inch chips.
4. In 2019, HuaWei Electronics invested 1,132 million yuan in the construction of a new power electronic device base. The new project is mainly to build a 6-inch production line and an 8-inch production line, which mainly produces IGBT, low-voltage TRENCH-MOS, superjunction MOS, and IC chips compatible with the company's mainstream products. It is expected that the completion of the project will bring in revenue of 918 million yuan/year and 190 million yuan/year of after-tax revenue. The return on the project is significant.
5. Affected by the cyclical contraction of the semiconductor market, China's microelectronics sales declined in the second half of 2018 and the beginning of 2019, and the market slump may continue until the second half of 2019. The company's revenue for 2019-2021 is estimated to be 1.78 billion yuan, 1.87 billion yuan, 2.02 billion yuan, up 4%, 5% and 8% year on year. Net profit is 100 million yuan, 115 million yuan, 154 million yuan, up 2.27%, 14.02%, 34.34% year on year, and EPS is 0.105 yuan, 0.119 yuan and 0.160 yuan respectively. The company's PE in 2019 is expected to be 65 times, corresponding to the target stock price of 6.825 yuan and the corresponding target market value of 6.579 billion yuan, giving it a “hold” rating.
Risk disclosure:
The global semiconductor industry has declined, and profits on low-end power devices have declined. The company's fund-raising projects are large, project implementation is complicated, and there is a risk of delays. The company has borrowed a lot in the short term, and the decline in performance has weakened its short-term solvency.