The company is mainly engaged in engineering technology services, semiconductor manufacturing and photovoltaic power generation, accounting for 86% of project revenue.
The company is a state-owned listed company under Wuxi Industrial Development Group Co., Ltd. In 2016, the company acquired 11 Technology, a leader in high-tech engineering design and general contracting, and merged into its engineering technology services and photovoltaic power generation business. In 2022, the company's engineering service business achieved revenue of 30.38 billion yuan and gross profit of 1.97 billion yuan, accounting for 86.3% and 75.2% respectively, which is the main source of the company's profit.
The high-tech engineering industry has a lot of room for future growth. With the rise of emerging fields such as 5G, AI, cloud computing, and automotive electronics, market demand for advanced process semiconductor products is expected to increase, semiconductor sales gradually rise steadily, and the industry is expected to go out of a downward cycle, while China's semiconductor localization space is huge, and future industry capital expenditure is expected to continue to increase; there is phased overcapacity in the photovoltaic industry chain, but continuous expansion of advanced production capacity is still the core means for leading enterprises to maintain their competitive advantage. The market size of cleanroom engineering (the core part of high-tech engineering) is predicted to be 268.6 billion yuan in 2023, and it can maintain a growth rate of more than 10% in the future.
There is a lot of profit room in the high-end market, and design companies take the lead in general engineering outsourcing. High-end markets such as electronics, biomedicine, and photovoltaic engineering have large profit margins and high requirements for participants. Among them, the barriers to entry in the design process are higher, and gross margin can reach about 50%. Engineering design companies are usually responsible for leading the general engineering contract, undertaking the design process with the highest profit margin, and then subcontracting the installation and construction part to the corresponding professional subcontractor.
The company focuses on high-tech engineering and technical services and occupies a high-margin front-end segment. The company has accumulated many years of project implementation experience in the front-end design process of high-tech engineering, has strong brand power, continues to promote EPC transformation, has established high competitive barriers by relying on technology and channel advantages, and its estimated market share in the field of high-end cleanroom design can reach 60%-70%. The design and consulting business generated 57.8% of the company's gross profit with 7.7% of revenue in 2022.
The semiconductor and photovoltaic power generation business is growing steadily. The company cooperated deeply with SK Hynix, set up a joint venture to enter the semiconductor manufacturing industry, and simultaneously developed its own semiconductor business. The company has 40 photovoltaic power plants with a total installed capacity of 436,78 MW, and is expected to continue to contribute revenue and stable cash flow.
Valuation and investment suggestions: The company's net profit for 2023-2025 is estimated to be 801/10.42/1,363 million yuan, earnings per share of 0.38/0.49/0.65 yuan, corresponding to the current stock price PE 17.0/13.0/10.0X.
The comprehensive absolute valuation and relative valuation determined the company's reasonable valuation range of 8.08-9.12 yuan. Compared with the current stock price, there is a space of 28.3% to 44.8% compared to the current stock price. It was covered for the first time, and a “buy” rating was given.
Risk warning: the risk of changes in the macroeconomic situation, the risk of policy changes, the risk of market competition, the risk of the subsidiary Haitai Semiconductor being dependent on a single customer, the risk of increased bargaining power of equipment suppliers in the general engineering contract business, the risk of loss of core technical personnel, and the risk of depreciation of accounts receivable.