Incident: Saimei Electronics officially released an interim report. In the first half of 2020, the company achieved operating income of 360 million yuan, an increase of 15.93% over the previous year; Guimu's net profit was 11.7068 million yuan, a year-on-year decrease of 60.06%.
Judging from the composition of the company's revenue: 1) The semiconductor business revenue was 316 million yuan, an increase of 28.11% over the previous year, and the comprehensive gross margin was 45.12%, an increase of 5.54 pp over the previous year. Among them, MEMS wafer manufacturing revenue was 201 million yuan, up 43.94% year on year; MEMS process development revenue was 115 million yuan, up 7.37% year on year, mainly due to the continued expansion of demand from downstream customers for MEMS wafer manufacturing and process development. 2) The revenue from the specialty electronics business was only 283.422 million yuan, a year-on-year decrease of 52.69%, and the comprehensive gross margin was 38.17%, a year-on-year decrease of 3.06 pp. Among them, the navigation business revenue was 129.064 million yuan, down 69.11% from the previous year; the avionics business revenue was 153865 million yuan, down 14.66% from the previous year. Mainly affected by seasonal factors and public health events, product delivery progress was worse than expected, and adverse changes in the sales structure led to a decline in business profitability. Looking at the cost side, in the context of the structural expansion of the semiconductor business scale and the maintenance of investment in multiple units and projects in the special electronics business, the company's R&D expenses continued to rise sharply to 693.646 million yuan in the first half of 2020. The year-on-year growth rate reached 77.73%, accounting for 19.28% of operating income. The scale and intensity of R&D investment have all risen to a new level to fuel subsequent high growth.
Furthermore, due to the expansion of the scale of the business, the company's financial, management and sales expenses have also increased.
Regarding the decline in profits in the first half of the year, we should note that due to the significant decline in the performance of the company's specialty electronics business, combined with rigid expenses such as R&D and operating expenses, most business subsidiaries lost money, which had an obvious impact on overall performance. However, in terms of the main MEMS business, benefiting from the boom in downstream biomedical, industrial and scientific, scientific, communications, consumer electronics and other application markets, the business, which has leading global competitiveness, achieved a healthy increase in orders and production capacity, and achieved continuous growth in revenue and profit scale. The subsidiary Silex's net profit alone exceeded 78 million yuan, and the net interest rate reached 24.7%. According to statistics from well-known consulting agency YoleDevelopment, in 2019, the company's market share climbed to the top position among global MEMS foundry manufacturers.
The MEMS business operates with full resilience, and production capacity investment strengthens its position as a global OEM champion. MEMS is a technology- and intellectual-intensive industry with a long process development cycle. Through the acquisition of Silex from Sweden, Saimei obtained the world's leading process IP and entered the MEMS OEM circuit in 2016. The company can currently produce various devices such as microfluidics, microultrasound, microscopes, optical switches, etc. The product terminals cover many fields such as communications, biomedicine, industrial science, consumer electronics, etc., and serve giant manufacturers in various fields around the world. By the end of June, Silex, a wholly-owned subsidiary of the company, owned a total of more than 500 million yuan of unexecuted contracts/orders, and continued to have sufficient momentum for business growth.
The first phase of Saiwei's 8-inch MEMS international foundry line in Beijing is expected to be completed and put into use in the third quarter of 2020. The planned production capacity of the first phase is 10,000 pieces/month, with a target production capacity of 30,000 pieces/month. After delivery, the annual output value will not be less than 2 billion yuan, and the annual profit will not be less than 347 million yuan. As the global leader in MEMS OEM, Saimei Electronics is expected to overtake its competitors in the future and take the first place in the world.
New opportunities for the Internet of Everything, a golden period for semiconductor business development. 1) MEMS business. Currently, the most promising growth point of the MEMS industry comes from the Internet of Things. Sensor technology is the core technology of the Internet of Things, and MEMS sensors are perfectly compatible with IoT technology. The development of related industries such as big data, 5G, cloud computing, and artificial intelligence is driving the rapid growth of the Internet of Things. MEMS devices are two-wheel driven by consumer electronics and the Internet of Everything, and will see explosive growth. The company has maintained the first tier of global MEMS foundry for a long time, and the long-term improvement in industry segmentation is conducive to the company's rapid development. 2) GaN business. With the advent of the 5G era, the Internet of Things, cloud computing, artificial intelligence and other fields have developed rapidly, and the consumption of electric energy has increased dramatically, requiring power electronic systems to have higher energy conversion efficiency and smaller size. Due to its high frequency and high power characteristics, GaN will have huge demand potential in the power and microwave fields. The company has completed the construction of a 6-8 inch GaN epitaxial material manufacturing project (phase I) and established cooperation with downstream customers. It is currently in the interactive verification stage and has achieved a breakthrough in engineering verification epitaxial material sales. At the same time, it is actively promoting the development of GaN power and microwave device products and application solutions to provide core component support for 5G communications, cloud computing, new consumer electronics, new energy vehicles and other fields.
Facing the Internet of Everything era, SEMICOELECTRONICS focuses on developing the MEMS process development and wafer manufacturing business on the one hand, consolidating its competitive advantage. On the other hand, it actively lays out the GaN materials and device business, and is committed to becoming a well-known semiconductor technology enterprise group based on local, international development, and fully autonomous and controllable.
Profit forecast and valuation: According to the company's latest situation, we have adjusted our profit forecast. The estimated revenue for 2020-2022 will be 81/1,39/2.25 billion yuan, net profit of 1.60/256/419 million yuan, and the corresponding EPS is 0.25/0.40/0.66 yuan. PE corresponding to the current stock price (August 19, 2020) is 109 times, 68 times, 42 times, maintaining the “prudent increase in holdings” rating.
Risk warning: the risk that the yield and capacity utilization rate of the new MEMS plant in Beijing will fall short of expectations; the risk that the navigation and avionics business will fluctuate greatly; the risk of global public health events.