Incident Overview
On the evening of October 27, the company disclosed its report for the third quarter of 2023. 2023Q1-Q3 had revenue of 895 million yuan (+28.25% year-on-year), net profit of 142 million yuan (-0.17% year-on-year); 2023Q3 single-quarter revenue was 338 million yuan (+43.20%, +7.07%), and net profit of 60 million yuan (+20.52% y/y, +7.70%).
Analysis and judgment
The sealed test end pattern is superior to the design side, and is expected to fully benefit from the gradual recovery of the DDIC market. According to a report by Qunzhi Consulting, demand for display driver chips is slowly picking up. It is predicted that global display driver chip shipments in 2024 will reach about 7.97 billion units, an increase of about 5.7% over the previous year. Competition in the design-side market is fierce. Lianyong, LX Semicon, etc. drive IC design manufacturers' strategies to reduce prices and remove inventory, and profitability has declined; however, in our opinion, the competitive pattern on the closed test side is relatively superior. Huicheng Co., Ltd.'s previous fund-raising project reached a total production capacity of about 8.605 billion units after delivery and other leading display driver chip sealing and testing companies, Qizhong Technology/Qibang Technology/Nanmao Technology, which is only slightly higher than the estimated shipment volume for 2024. We believe that the recovery of the industry is expected to boost orders on the closed and testing terminal, and that the profitability of related companies is expected to remain relatively stable.
The company expands production capacity in line with the trend of industrial transfer, continues to lay out the OLED and automotive display markets, and moves towards the high-end. According to a report by China News Network, China's display industry continues to rank first in the world in terms of scale. In 2022, China's display panel production value accounted for 48% of the global market; display panel shipping area accounted for 68.6% of the global market, +5 pct over the previous year; we believe that China may still have a lot of room for growth in the high-end panel market, as can be seen from the fact that the share of shipping area is higher than the share of output value. Under this trend, Huicheng Co., Ltd. is actively expanding the scale of 12-inch DDIC sealing and testing. At the 2023 semi-annual performance briefing, the company stated that the IPO for the “12-inch display driver chip encapsulation and expansion project” is expected to be completed by the end of 2023, and that the company plans to issue convertible bonds to raise no more than 1.2 billion yuan to invest in the “12-inch advanced process new display driver chip wafer manufacturing and wafer test expansion project” and the “12-inch advanced process new driver chip wafer testing and capsulation expansion project” to expand OLED panels DDIC sealed the scale of testing and expanded the automotive display panel market.
Investment advice
Maintain a “buy” rating. Benefiting from the expected shift in the DDIC industry from recession to growth, the acceleration of the industrial transfer process, and the commencement of corporate fund-raising projects, we raised the company's net profit forecast for 2023-2025 to 2.01/2.55/305 billion yuan, corresponding to PE by 44/35/29 times, respectively.
Risk warning
Downstream demand fell short of expectations, market competition intensified, and international trade friction intensified.