The company is an established third-party testing company in China. Its business area covers CP (wafer) testing and FT (finished product) testing. Among them, FT test platforms accounted for 59% of revenue in 2023, contributing most of the revenue; CP testing platforms achieved revenue of 188 million yuan, +22.6% over the same period last year, contributing a large revenue increase, accounting for 37% of total revenue. The company obtained approval to issue convertible bonds on February 29, '24. It plans to invest 490 million dollars to expand chip testing capacity and 30 million to supplement working capital. Furthermore, the company's subsidiary Liyangxin lays out business such as wafer thinning. According to the company's February 2 announcement, it has now signed a contract with an estimated amount of 65 million.

Investment logic

Deploy mid-to-high-end test capacity such as computing power in advance during the downturn cycle. According to the annual report, in 2023, the company achieved revenue of 503 million yuan, +11.2% year over year; achieved a return of 0.2 million yuan, or -32.2%. Revenue reached a record high, affected by equipment depreciation and low operating rates, putting pressure on profits. In the downward cycle of the industry, the company's new production capacity continued to be released and continued to expand. Revenue continued to grow in the fields of high computing power, automotive chips, industrial control, etc., to hedge the decline in some consumer electronics businesses. Computing power chips accounted for about 20% of revenue in 2023. We forecast that the company will achieve revenue of 6.63/8.38/994 million and profit of 0.39/106/159 million in 24-26.

Chiplet became the mainstream solution for AI chips, driving a “sharp rise in volume and price” for chip testing. Currently, industry leaders Nvidia and AMD both use the Chiplet solution. Nvidia's new product GB200 connects two GPUs and a CPU into a single chip, which greatly improves performance compared to the previous H100; the MI300 previously released by AMD also uses a CPU+GPU sealed Chiplet method. The use of the Chiplet solution has increased the number of tests and test accuracy, driving the chip test “volume and price increase”.

The dark days of the industry are over, and a reversal of the bottom may be imminent. As industry leaders, Jingyuan Electronics, Xinquan, and SiGe all achieved month-on-month growth in monthly revenue in March 2024, and the performance of domestic third-party testing companies is expected to usher in an upward inflection point from the bottom. Furthermore, due to the influence of geopolitics and other factors, establishing an autonomous and controllable industrial chain has become an important goal at this stage. In particular, the relocation of the manufacturing chain for special chips and high-end AI computing power chips is imminent. The process of localization of semiconductors continues to deepen, and domestic demand for IC testing continues to expand.

Profit forecasts, valuations, and ratings

It is estimated that the company will achieve net profit of 0.39/1.06/159 million yuan in 24-26, EPS of 0.20/0.53/0.80 yuan, respectively, and corresponding PE of 81.7/30.3/20.1 times, respectively.

We gave the company a 40 times PE valuation in 2025, with a target market value of 4.24 billion yuan, and a corresponding target price of 21.2 yuan/share. First coverage, giving the company a “buy” rating.

Risk warning

Downstream demand falls short of expectations, dependence on imported equipment, and the risk of increased competition in the industry.