Incident: Yandong Micro released the 2023 semi-annual report. 2023H1 Yan Dongwei achieved operating income of 1,084 million yuan, yoy -6.24%; net profit of 268 million, yoy -12.62%; comprehensive gross profit margin of 35.90%, down 5.98 pct from the previous year. Among them, in the 2023Q2 quarter, the company achieved revenue of 570 million yuan, yoy -2.19%, and qoq of 10.91%; net profit of 178 million, YOY 14.83%, and QoQ of 100.24%; gross profit margin of 38.39%, an increase of 5.25 pct over the previous quarter.
The product and solution business helped the company's performance improve month-on-month. During the 2023H1 period, the company's product and solution business revenue was about 679 million yuan, up 16.11% year on year. While expanding market size and improving competitiveness, it also had new breakthroughs in key customer expansion; manufacturing and service business 2023H1 revenue was 367 million yuan, down 32.50% year on year. While the downstream demand market was relatively sluggish, price fluctuations in the consumer electronics sector led to a decline in sector revenue. We believe that compared to the company's manufacturing and service sector, product and solution business revenue has been steady, moderate and positive, driving the company's quarterly performance to improve month-on-month.
In terms of wafers, the company has 6-inch and 8-inch wafer production lines, a 12-inch wafer production line has already been connected, and 6-inch SiC-SBD products are being delivered in small batches. Among them, as of June 2022, the production capacity of the 6-inch wire has exceeded 60,000 pieces; the 8-inch wire production capacity has exceeded 40,000 pieces, and the production capacity utilization rates of the 6-inch and 8-inch production lines have exceeded 90% and 80%, respectively. The 12-inch production line project company has a total investment of 7.5 billion yuan. According to the company's announcement, after completion, the project is expected to form a production line with a monthly production capacity of 40,000 pieces and a process node of 65 nm. The products are positioned as high-density power devices, display driver ICs, power management ICs, silicon optical chips, etc. The company's 12-inch project is divided into two stages. The first phase was trial production in April 2023 (the yield of the first SBD device met expectations, and the production capacity is expected to reach 10,000 pieces per month in 2023), and production was completed in July 2024; the second phase will be trial production in April 2024, and production will be completed in July 2025.
Continued investment in R&D, R&D results have blossomed more frequently. In the first half of 2023, the company invested 95 million dollars in R&D, an increase of 20.11% over the previous year, and the R&D expenditure rate was 8.72%. As of 2023H1, the company has achieved:
1) 1200V IGBT and 1200V FRD products achieved mass production and passed NEV customer certification.
2) Ultra-low capacitance TVS products have been serialized, and product shipments have increased steadily. 3) Development of a variety of SOICMOS products, some of which are supplied in batches. 4) The ultra-high pressure BCD process platform is stably mass-produced, and technology iterations are carried out at the same time to optimize device conduction parameters. 5) Silicon Optical Process Platform An optical communication product has achieved process completion and has entered the sample batch production stage.
Profit prediction: Yandong Micro uses the IDM model and has its own 6-inch and 8-inch wafer production capacity. The 12-inch wafer production line has been successfully launched in 2023H1, and is also actively deployed in the SiC field. In the company's downstream corresponding fields, the special IC industry pattern is relatively stable and has strong profitability. In the future, with the release of 12-inch production capacity, products such as high-density power devices, display driver ICs, power management ICs, and silicon optical chips may send the company new momentum for growth. We expect the company's 2023E/2024E/2025E to achieve operating income of 25.50/3208/3.71 billion, respectively, and net profit of 466/596/683 million, corresponding to the current stock price PE of 47.71/37.31/32.51 x, respectively, and be upgraded to a “highly recommended” rating.
Risk warning: The 12-inch wafer manufacturing project has fallen short of expectations, downstream demand has fallen short of expectations, and market competition has intensified.