FT probes are tied to big customers, profoundly benefiting from the explosion of computing power: Nvidia is the company's largest customer in the probe business, accounting for 71%/52% of its probe business revenue (revenue share declined in 2022 due to Nvidia's inventory adjustments). As AI applications drive demand for data center GPUs, we think Nvidia's GPU shipments will continue to grow at a high rate. According to our supply chain research, based on TSMC's CoWos production capacity estimation, Nvidia's A100/H100 shipments in 2023 are expected to reach 1-1.1 million units, double the 50-600,000 units in 2022. Although the growth rate of the game business is relatively slow, we believe Nvidia FT probe demand is still expected to exceed 30% in 2022-2025 CAGR, while the company's share of Nvidia FT probe purchases is relatively low, so there is plenty of room for improvement. Benefiting from increased market share and AI-driven demand, we estimated the company's revenue related to Nvidia in 2023/2024/2025 to be $1.1/26/43 billion. On the other hand, we believe that the company will fully benefit from the development of domestic high-performance computing chips, and domestic replacement space for FT probes is also huge.
Fundraising is entering MEMS probes, and there is broad scope for domestic substitution: the company will increase the capacity to build MEMS wafer test probes and substrate test probes in 2022. According to data from Huajing Industrial Research Institute, China accounted for 12.5% of the global probe card market in 2020, but domestic suppliers only accounted for 8% of the domestic share, and were mainly concentrated on cantilever probe cards. There is huge room for domestic replacement of MEMS probes. On the other hand, MEMS probes will benefit from the development of Chiplet. We estimate that the increase in demand for CP probe cards brought about by Chiplet in 2024/2035 will reach 122/1.2 billion US dollars. Relying on the good customer base established by existing FT probes, the company's MEMS process wafer test probes have received verification requirements from some customers. Mass production of the company's MEMS probe products may begin in '25, which will further open up market space for the company.
The MEMS component industry is gradually picking up, with new products driving revenue and gross profit growth: MEMS precision parts revenue fell 24% year over year in 2022 due to weak demand, increased costs, and declining capacity utilization, while gross margin fell to 34% (vs. 42% in 2021). However, we believe that with the recovery of the economic situation, demand for consumer electronics is expected to gradually recover. Coupled with pressure sensors and optical sensor components entering the sales period, the company's MEMS precision parts revenue and gross profit will rise steadily. We estimate that the company's precision parts service market space will exceed $340 million by 2026, and the future explosion in the AR/VR field will further open up incremental space.
Valuation and advice: Since the company currently has no directly comparable A-share companies, we recommend that similar semiconductor component companies give valuations. We expect the company's net profit to the mother in 2023/2024/2025 to be 0.5/17/320 million yuan respectively. Considering that the company will fully benefit from the explosive growth in AI demand, fundamentals still have room to exceed expectations, giving 53x 2024PE (historical expected valuation 1SD quartile) a target price of 100 yuan for the first time, covering a “better than the market” rating.
Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Production capacity release falls short of expectations.