Event Overview:
The company released the 2023 three-quarter report: the third quarter achieved revenue of 387 million yuan, +255.89%, and +57.96% month-on-month, exceeding company guidelines (the company previously issued a forecast for the first three quarters, 75-8.1 million yuan for the first three quarters, 31-370 million yuan); net profit was 0.04 billion yuan, turning a loss into a profit, 22Q3 was -44 million yuan, and 23Q2 was -104 million yuan; net profit from non-attributable net profit of -0.04 billion yuan, 22Q3 was -65 million yuan, 23Q2 was- 65 million yuan, gross profit margin 18.69%, year-on-year +30.37pcts, month-on-month +8.00pcts, net profit margin 0.98%, year-on-year +41.92pcts, +18.90pcts month-on-month.
Q3 Turned a loss into a profit, and gross margin improved dramatically
Q3 The company's revenue increased significantly, with six consecutive quarters of month-on-month growth, mainly because the company's conductive substrate production capacity continued to increase and production and sales volume continued to increase. On the profit side, the company turned a loss into a profit for the first time in nearly seven quarters since its net profit, and the inflection point in performance has reached. Q3 gross margin increased by 8pcts month-on-month, mainly because the yield of silicon carbide substrates continued to improve, and the improvement in net profit margin benefited from the company's lean management. The scale effect gradually became prominent, and various cost rates were reduced.
The Lingang plant is expected to reach production ahead of schedule. The accelerated release of conductive substrate production capacity is based on IHS data, benefiting from demand in the NEV industry and increased efficiency and power consumption requirements in fields such as photovoltaics, wind power and charging piles. The global silicon carbide power device market is expected to exceed 10 billion US dollars in 2027, and the CAGR for 2018-2027 is close to 40%. At the same time as the scale is increasing, the market share is also growing steadily. According to YOLE's forecast, the market share of silicon carbide in power semiconductors will reach 25% by 2028. Demand for silicon carbide devices is strong, and the world is currently in short supply of production capacity.
The company currently has three silicon carbide semiconductor material production bases: Jinan, Shandong, Shanghai Lingang, and Shandong Jining. The Jinan factory has now been adjusted to mainly conductive products; at the same time, the company has accelerated production capacity construction at the Shanghai Lingang plant and started product delivery in May 2023. It is expected that delivery capacity in Q4 2023 will continue to improve, making a positive contribution to revenue. At the same time, the production capacity of the first phase of the Lingang plant is expected to reach 300,000 pieces ahead of schedule (originally planned for 2026), and the second phase of the production capacity plan for 960,000 pieces has also begun.
The company is also further improving the yield of the Lingang plant through technology and capital investment. In the future, with the simultaneous increase in production capacity+yield of conductive substrates, it is expected that both revenue and profit will increase.
High quality customer resources, plenty of orders
As a leading domestic manufacturer of silicon carbide substrates, the company has excellent technical strength and high-quality customer resources. In May '23, the company announced that it had signed a cooperation agreement with Infineon, which would provide Infineon with 6-inch silicon carbide substrates and crystal bars, and also help Infineon move towards 8-inch silicon carbide wafers (the company already has the capacity to mass-produce 8-inch products and send samples to customers for verification and small-batch sales).
The agreed supply will account for a 2-digit share of Infineon's long-term demand. In addition, the company holds a large number of orders: in July '22, it was announced that it signed a long-term sales contract of 1.39 billion yuan with customer E to sell 6-inch conductive silicon carbide substrate products. In August '23, the announcement signed a long-term framework agreement with customer F to sell silicon carbide products in 24-26, with a contract amount exceeding 800 million yuan. Judging from the quality of customers, the company's current customers include leading international semiconductor manufacturers such as Infineon and Bosch, which are recognized by international manufacturers, and are expected to go overseas at an accelerated pace in the future.
Investment advice
Tianyue's advanced Lingang plant is expected to reach production ahead of schedule, and the release of conductive substrate production capacity is accelerating, which is expected to drive high revenue growth. We adjusted the company's 2023-25 revenue to 13.2/24.1/34.5 billion yuan (the original forecast value for 23/24 was 1,205/1,816 billion yuan), and the corresponding PS was 21/11/8 times. We maintain a “buy” rating on the company.
Risk warning
The prosperity of the industry fell short of expectations, R&D progress fell short of expectations, and the decline in production capacity fell short of expectations.