Key points of investment
On January 26, 2024, the company released the “2023 Annual Results Forecast”.
The overall market downturn compounded high investment in production expansion. As a result, the company's short-term performance is under pressure. The company expects to achieve net profit of 168-201 million yuan in 2023, a year-on-year decrease of 38.16% to 48.31%; net profit after deducting non-return to mother of -1.80 to -144 million yuan. Looking at a single quarter, the 23Q4 company is expected to achieve net profit of -0.45 to -012 million yuan, net profit after deducting non-return net profit of -1.17 to -81 million yuan.
The company's performance is mainly pressured by 1) Overall market impact: According to SEMI data, global semiconductor silicon wafer shipments decreased by 14.3% year-on-year in 2023 due to factors such as weak terminal demand and high industry inventories; the company's semiconductor silicon wafer revenue decreased by about 12% year-on-year due to factors such as weak terminal demand and high industry inventories. 2) High investment in production expansion: In 2023, the company promoted multiple production expansion projects in an orderly manner. Among them, the 300mm high-end silicon wafer expansion project for integrated circuits had released a new production capacity of 150,000 wafers/month by the end of 2023, with a total production capacity of 450,000 pieces/month. The implementation of the production expansion project generated certain upfront costs while increasing large fixed costs.
New project operation+terminal recovery stimulates demand for silicon wafers, increasing production capacity construction and increasing market share. SEMI data shows that the global semiconductor silicon wafer market is expected to rebound in 2024 after a brief decline in 2023. The global semiconductor silicon wafer shipment area is expected to increase 8.5% year-on-year to 13.578 billion square inches in 2024. SEMI expects Chinese chipmakers to start operating 18 projects in 2024, and wafer production capacity in mainland China is expected to increase 13% year-on-year to 8.6 million wafers/month (equivalent to 8-inch wafers) in 2024. The successive commissioning of new midstream projects and the gradual recovery of downstream demand are expected to stimulate demand for upstream semiconductor silicon wafers.
The company aims to become a “one-stop” integrated service provider for silicon materials. It has now formed a large-scale silicon material platform with 300mm semiconductor silicon wafers as the core and a specialty silicon material platform with SOI silicon wafers as the core.
1) 300mm: By the end of 2023, the company's second phase of the 300mm semiconductor silicon wafer production expansion project had released a new production capacity of 150,000 wafers/month. In addition to the previous phase of production line of 300,000 wafers, the company's total production capacity of 300mm semiconductor silicon wafers reached 450,000 wafers per month. In December 2023, the subsidiary Shanghai Xinsheng plans to sign a cooperation agreement with the Taiyuan Municipal People's Government and the Taiyuan Zhongbei High-tech Industrial Development Zone Management Committee to invest in the construction of a “300mm semiconductor silicon wafer drawing and cutting and polishing production base”. The total planned investment of the project is 9.1 billion yuan. According to the Taiyuan Municipal People's Government Network, the project is expected to be put into operation by the end of June 2024, and is expected to achieve annual revenue of 3 billion yuan after delivery.
2) 200mm: In January 2024, the company plans to increase the total investment in the 200mm semiconductor specialty silicon wafer production expansion project from 2.95 billion yuan to 2.99 billion yuan. The first phase plans to invest 2.25 billion yuan to first complete the construction of the plant and supporting facilities, and to generate an annual production capacity of 1.572 million 200mm semiconductor polishing sheets; the second phase plans to invest an additional 740 million yuan, creating a total production capacity of 3.112 million 200mm semiconductor polishing sheets after completion. According to the company's October 2023 research minutes, the project is expected to form the first batch of production capacity in 2024.
Investment advice: In view of the slow recovery in demand in the terminal market, we adjusted the company's original performance forecast. Revenue from 2023 to 2025 is expected to be adjusted from the original 38.39/44.45/5.072 billion yuan to 32.19/40.89/5.153 billion yuan, with growth rates of -10.6%/27.0%/26.0%, respectively; net profit to mother will be adjusted from 361/4.69/583 million yuan to 190/2.99/442 million yuan, with growth rates of -41.6%/57.5%/48.0%, respectively.
As a leading semiconductor silicon wafer company in China, the company is steadily expanding its production capacity. The scale effect is gradually showing. Coupled with the gradual recovery of the terminal market, the company's revenue scale and profitability are expected to improve. Continue to recommend and maintain an “gain” 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.