3Q23 homing net loss is higher than Huatai expected; long-term optimistic about IDM competitiveness

Shilan 3Q23 realized income of 2.424 billion yuan, an increase of 17.7% over the same period last year; the net loss of homing was 148 million yuan, down-184.6% from the same period last year, and the loss was higher than Huatai's expected 60 million yuan, mainly due to changes in the fair value of the company's stocks and other financial assets, deducting 20 million yuan of non-homed net profit. 3Q23's gross profit margin was 21.9%, a month-on-month drop of 0.6pp, while the company's 5-inch and 8-inch capacity utilization stabilized month-on-month. The decline in gross profit margin shows that the downward pressure on prices brought about by intensified market competition has not been alleviated. Taking into account the loss of the company's financial assets and the joint venture loss of Jike / Minga, we reduce the company's parent net profit forecast of 2023, 2024, 2025 to 0.83, 389, 444 million yuan. We give the company 4.9x 2024E PB, which is higher than the average 3.7x premium of comparable companies, mainly due to the strong IDM attribute of the company, the forward-looking layout of 12-inch production lines, SiC and other production lines, maintaining the target price of 27 yuan and the "overweight" rating.

Review: the downward pressure on prices has not eased, superimposed losses on financial assets, losses exceeded our expectations of Shilanwei 3Q23 achieved revenue of 2.424 billion yuan, an increase of 17.7% over the same period last year; gross profit margin was 21.9%, month-on-month decline in 0.6pp, competition intensified, power material price downward. From the point of view of the production line, the company announced that its 5ax 6-inch capacity utilization rate rebounded to around 90%, the 8-inch production line was full, Jike's 12-inch production line dropped slightly to 70%, Mingga LED capacity utilization increased significantly to 90%, SiC was built smoothly, and the losses of the overall joint venture (Jike + Mingga) narrowed month-on-month. The data at the operating level of the company is better than the previous month. The price of specific shares held by 3Q23 fell, resulting in the loss of the fair value of financial assets, resulting in a net loss of 148 million yuan, which exceeded our expectations.

Outlook: short-term continuous pressure; long-term optimistic about the characteristic process competitiveness of IDM mode taking into account: 1) the price of the main power material number is still in the downward channel, and the company's inventory ratio still increases slightly; 2) the company's current 5-inch and 8-inch line capacity utilization is not low, and the gross profit margin may be more sensitive to market price changes. We expect the company's gross profit margin to remain under pressure in the fourth quarter compared with the previous quarter. Superimposing the loss of financial assets, we reduce the company's 2025 net profit forecast to RMB 0.83, 389 and 444 million. We are optimistic about the company: 1) the forward-looking layout of the car specification-level module and SiC field; 2) the company's IDM model has more outstanding competitiveness in the characteristic process and product research and development.

Maintain the bid price of 27 yuan and maintain the overweight rating.

Since Q3, capacity utilization has improved, and we have slightly raised the company's annual revenue forecast for 23-24-25 to RMB 107.78 billion. Taking into account the loss of the company's financial assets and the joint venture loss of Jike / Minga, we reduce the company's parent net profit forecast of 2023, 2024, 2025 to 0.83, 389, 444 million yuan. We give the company 4.9x 2024E PB, which is higher than the average 3.7x premium of comparable companies, mainly due to the strong IDM attribute of the company, the forward-looking layout of 12-inch production lines, SiC and other production lines, maintaining the target price of 27 yuan and the "overweight" rating.

Risk hint: semiconductor cycle downward, consumer electronics sector demand recovery less than expected, 12-inch production capacity climbing less than expected risk.