Key points of investment
Focusing on 12-inch display driver chip foundry, revenue shows a quarterly recovery trend. Crystallization is mainly engaged in the 12-inch foundry business; according to the 23Q2 global foundry revenue ranking announced by TrendForce, the company ranks 10th in the world and 3rd among mainland Chinese companies.
Since 2023, the company's revenue has shown a quarterly recovery trend. In 23Q3, the company achieved revenue of 2,047 billion yuan, a year-on-year decrease of 18.14% and an increase of 8.90% month-on-month. The company's profit side was under pressure due to the year-on-year decline in revenue, higher fixed costs such as depreciation and amortization, and the year-on-year decline in exchange earnings. In 23Q3, the company achieved net profit of 76 million yuan, a year-on-year decrease of 89.89% and a decrease of 73.65% month-on-month; net profit of non-return to mother was 0.2 billion yuan, a decrease of 90.99% month-on-month. In 23Q3, the company's gross margin decreased by 4.93 pct month-on-month to 19.20%, mainly due to price fluctuations and increased equipment depreciation due to the product portfolio.
With display drivers as the core, Hefei City has proposed an industrial development strategy of “chip screen automotive”, which continues to develop advanced processes and diversified process platforms. It has formed emerging industries such as new display devices, integrated circuits, new energy vehicles, and artificial intelligence, and demand for terminal chips is strong. The company is located at the strategic core of Hefei, giving full play to the advantages of the proximity and large scale of the local terminal market. It relies on mature manufacturing experience to support the Hefei industrial chain planning, provide key chips, and promote the joint development of the industrial chain. According to the company's January 2024 investor survey minutes, the company currently has a production capacity of 110,000 tablets/month, and will flexibly plan production expansion plans in the future according to market recovery.
In terms of process platforms, the company continues to promote the development of new process platforms such as logic, e-Tag, and mini-LED chips with DDIC, PMIC, CIS, and MCU as the main axes. In the first half of 2023, the company's DDIC, PMIC, CIS and MCU accounted for 87.84%, 5.77%, 4.08%, and 1.35% of the main business revenue, respectively. In terms of process nodes, the company's mass production process nodes cover 150nm-55nm, and is developing 40nm and 28nm process platforms. In the first half of 2023, 55nm, 90nm, 110nm, and 150nm accounted for 4.83%, 49.92%, 31.65%, and 13.60% of the main business revenue, respectively. Among them, 55nm's share of main business revenue increased rapidly, mainly because the company achieved large-scale mass production of 55nm. According to the company's December 2023 investor survey minutes, the company's 55nm capacity utilization rate remained high, and revenue increased steadily.
The company actively plans and develops more advanced process platforms, and continues to develop into more advanced process nodes. Remarkable results have been achieved: 1) The 55nm copper process platform and the 145nm low power high-speed display driver platform have been developed. 2) 55nm TDDI products have been mass-produced on a large scale. 3) The efficiency and yield of 40nm high voltage OLED platform components have met the target, and it has the ability to provide customers with product design and flow sheets. 4) The automotive 110nm display driver chip has reached a good standard in vehicle CP testing, completed AEC-Q100 vehicle certification in March 2023, and passed the company's customer's 12.8-inch display assembly reliability test in May 2023.
The terminal market is booming, providing a strong guarantee for the company's long-term growth OLED: According to Omdia data, the global OLED panel shipping area is expected to grow strongly from 17.9 million square meters in 2022 to 26.1 million square meters in 2026. It is estimated that OLED display panel shipments will grow from 160,000 pieces in 2022 to 2.77 million pieces in 2026, achieving a significant increase of more than 17 times. Chinese panel companies are actively developing the OLED market, and new OLED production lines built by panel manufacturers such as BOE, Vicino, and Tianma Microelectronics are expected to be fully put into operation within the next few years. The rapid development of the OLED panel industry has led to an increase in demand for OLED panel driver chips; according to Omdia data, the number of OLED driver chips shipped in 2022 is about 1 billion, and is expected to reach 1.67 billion by 2026. The company is committed to building a complete OLED driver chip process platform; according to the company's January 2024 investor research minutes, the company's 40nm OLED driver chip has been successfully developed and officially released.
Automobiles: The “tri-transformation” process of automobiles continues to drive the value of bicycle semiconductors; according to Standard & Poor's forecasts, the value of bicycle semiconductors is expected to increase from $854 in 2022 to $154.2 billion in 2029. According to Omdia data, total automotive TDDI shipments will reach 55 million units in 2023, an increase of 53% over the previous year, and will reach 96 million units in 2027, with a CAGR of about 15% in 2023-2027. The company has passed automotive-grade AEC-Q100 certification for display driver chips and microcontroller chips. In the future, it will continue to promote certification of logic, power management, and image sensor chips to fully enter the automotive electronic chip market.
AR/VR and other emerging application fields: The Chinese Academy of Information and Communications Technology predicts that the global AR/VR market will reach 54% CAGR in 2020-2024, and the global AR/VR market is expected to reach 480 billion yuan in 2024. Currently, AR/VR micro display technology mainly uses three micro display technologies: LCoS (silicon-based liquid crystal), OleDOS (silicon-based OLED technology), and LEDoS (silicon-based LED technology). The company is actively developing silicon-based OLED technology and has developed in-depth cooperation with leading domestic panel companies to accelerate application implementation.
Investment advice: We expect that in 2023-2025, the company's revenue will be 73.61/100.27/13.410 billion yuan, respectively, up -26.8%/36.2%/33.7% year on year, and net profit to mother will be 3.00/10.91/18.46 billion yuan, respectively, up -90.2%/263.8%/69.3% year on year; PE will be 112.7/31.0/18.3 respectively. Crystal integration is centered on display drivers, and continues to develop advanced manufacturing processes and diversified process platforms. The 55nm capacity utilization rate remains high, and revenue is steadily increasing. At the same time, 40nm OLED driver chips have been successfully developed and officially released. With the gradual recovery of downstream terminal markets such as TVs and mobile phones, the company's revenue is expected to return to the growth track. First coverage, giving a “buy” rating.
Risk warning: the risk that demand in the downstream terminal market falls short of expectations, the risk that new technology, new processes, and new products will not be industrialized as scheduled, the risk that market competition will intensify, the risk that production capacity expansion will fall short of expectations, systemic risks, etc.