Key points of investment
Incident: Saiwei Electronics officially released its third quarterly report. From January to September 2020, the company achieved operating income of 534 million yuan, an increase of 6.62% over the previous year; net profit for the return was 74 million yuan, an increase of 45.62% over the previous year. Among them, 2020Q3 achieved revenue of 175 million yuan, a year-on-year decrease of 8.53%; net profit for the return was 62 million yuan, an increase of 190.16% year-on-year, mainly due to the overall divestment of the avionics business in the third quarter, where profitability declined significantly. The divestment of the loss-making business quickly optimized the company's assets and business structure. Compared with the first half of 2020, the company's return on net assets increased from 0.41% to 2.55%, comprehensive gross margin increased by 2 percentage points, cost ratio decreased by 3.13 percentage points during the period, and increased profitability and revenue quality.
Focus on the semiconductor business and divest inefficient assets. Saiwei Electronics is actively adjusting its strategic layout and business structure, gradually focusing on the semiconductor business. On the one hand, it focuses on developing MEMS process development and wafer manufacturing business, and on the other hand, it is actively laying out the GaN materials and device business. 1) Strong growth in the MEMS business: Benefiting from the high prosperity of downstream biomedical, industrial and scientific, communications, consumer electronics and other application markets, the MEMS business achieved revenue of 483 million yuan in the first three quarters, an increase of 25.54% over the previous year, and continued to maintain strong profitability; 2) GaN R&D and industrialization progress exceeded expectations: the third-generation semiconductor materials and device business developed healthily, continued to iterate on technology and products, and the company's forward-looking layout of GaN business. The subsidiary's GaN epitaxial wafer design capacity was 10,000 yuan/year, with progress exceeding 10,000 yuan per year It is expected, but it will take time to divest inefficient assets; 3) Divesting inefficient assets: Revenue and profitability from the navigation business declined markedly, compounded by rigid expenses such as R&D and operating expenses, etc., and business losses occurred. When the company divested the avionics business as a whole in the third quarter, revenue increased 6.62% year on year, operating profit increased 30.17% year on year, and profitability increased significantly.
The release of production capacity drives performance growth, and will definitely increase and deepen the development of the MEMS business. At present, the company has upgraded and expanded the production capacity of FAB1 and FAB2 in Sweden, and the first phase of the Caiwei Beijing 8-inch MEMS international foundry line has also been officially put into operation. The first phase has a production capacity of 10,000 pieces/month and 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. Saiwei Electronics is the world's leading MEMS foundry, and the release of production capacity from various production lines will further strengthen its position as a global foundry champion.
On October 22, the company announced a fixed increase plan. It plans to raise no more than 2.43 billion yuan in capital. On the basis of continuing to build an 8-inch MEMS international foundry line in Beijing, on the one hand, it plans to develop a process for MEMS high-frequency communication device manufacturing to achieve independent process development capabilities and facilitate large-scale mass production of MEMS device products suitable for high-frequency communication and terminal applications; on the other hand, it plans to expand downstream in the MEMS industry chain, and invest in the construction of an advanced MEMS package testing R&D and production line in the context of an integrated trend of MEMS manufacturing and testing to enrich the company's existing MEMS business and expand industrial service capabilities.
Profit prediction and valuation: The single subsidiary Silex has the world's advanced pure MEMS foundry process and expanding production capacity. In 2019, it became number one MEMS wafer foundry in the world, and entered the top 30 MEMS manufacturers in the world without discrimination; the Beijing MEMS production line provides standardized scale production capacity and pursues product yield and competitive prices, which helps the company to further expand the global market, especially the Asian market; further expand the MEMS business area and increase the company's business scale and volume. According to the company's latest situation, we maintain our profit forecast. We expect net profit to be 1.60/2.56/419 million yuan and EPS 0.25/0.40/0.66 yuan for EPS in 2020-2022. The PE corresponding to the current stock price (October 28, 2020) is 110 times, 68 times, and 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 not be as high as expected; the risk of high fluctuations in the navigation and avionics business; the risk of global public health events.