Incidents:
Tongfu Microelectronics released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 22.269 billion yuan in 2023, an increase of 3.92% over the previous year; net profit to mother was 169 million yuan, a year-on-year decrease of 66.24%. The company achieved operating income of 5.282 billion yuan in 24Q1, an increase of 13.79% over the previous year; net profit to mother was 98 million yuan, an increase of 2064.01% over the previous year.
Comment:
The semiconductor cycle has recovered, and the company's performance reversal continues. The company's 23Q4/24Q1 revenue was 63.63/5.282 billion yuan respectively, up 4.14%/13.79% year on year; net interest rate was 4.43%/2.19%, respectively, up 3.77/1.96pct year on year. With the gradual decline in downstream client inventory levels, the semiconductor industry's downward cycle has bottomed out, and the market is showing signs of recovery. The sealing and testing market is expected to rebound in 2024. The company's revenue target for 2024 is 25.280 billion yuan, an increase of 13.52% over 2023.
Deeply bind to AMD and share the dividends of AI industry trends. The company and AMD have formed a strong joint model of “joint venture+cooperation”. The Suzhou and Penang production bases provide AMD with sealing and testing services for high-end products such as XPU. In 2023, the Suzhou and Penang production sites achieved total revenue of 15.529 billion yuan, a year-on-year increase of 7.95%, and achieved a total net profit of 671 million yuan. In the future, with mass production of new products such as the AMD MI300 and the continuous increase in the penetration rate of AI PCs, the company's related business revenue and profit are expected to continue to grow rapidly.
It is proposed to acquire Jinglong Technology to enhance its competitive advantage in the testing process. The company plans to acquire 26% of Jinglong Technology (Suzhou) shares held by Jingyuan Electronics through KYEC Microelectronics for 1,378 billion yuan (tax included) in cash. Jinglong Technology has a differentiated competitive advantage in the field of high-end integrated circuit professional testing. Service areas include wafer needle testing, IC product testing, and wafer grinding/cutting/grain selection. The product line covers Memory, Logic & Mixed-Signal, SOCCIS/CCD, LCD Driver, and RF ireless. The total number of test machines has exceeded 1000. Among them, the test scale driving IC.eFlash has reached an advanced position in China. Through this acquisition, the company is expected to further enhance its competitive advantage in the testing process and increase the company's return on investment.
Profit forecast and investment advice: We expect the company's 2024-2026 revenue to be 252.8/298.6/34.82 billion yuan, and net profit to mother of 90/11.8/1.47 billion yuan, and corresponding PB of 2.2x/2.0x/1.8x, respectively. Maintain a “buy” rating.
Risk warning: Industry recovery falls short of expectations; capacity construction falls short of expectations.