Key points of investment
Using the PCB model as the foundation, we have a comprehensive layout of high-end fine circuit manufacturing processes.
The company is the largest printed circuit board (PCB) model and small-batch board manufacturer in China. It has independently invested in the construction of IC carrier boards, semiconductor test boards and other projects. Currently, it has successfully completed the extension and upgrading from traditional PCBs to high-end semiconductor refined circuit processes. The company's PCB business revenue continues to grow, from 792 million yuan in 2010 to 4,030 billion yuan in 2022, a compound annual increase of 14.52%. With the launch of IC carrier board production capacity in 2016, the share of semiconductor revenue has steadily increased. In 2022, Semiconductor business revenue reached $1,149 billion, accounting for 21.46% of total revenue. Currently, the company is expanding production capacity in the fields of PCB models, high-end HDI boards, carrier-like boards, IC carrier boards, etc., and new growth is ready to begin.
IC carrier board industry demand and changes in the competitive landscape: Domestic IC carrier boards are mainly used in semiconductor packaging. Their demand is closely related to the size of the semiconductor market. Since 2005, along with the rapid development of global information technology and the iterative upgrading of smart terminals, IC carrier board shipments have basically maintained a trend of increasing year by year. According to Prismark statistics, in 2022, the global IC carrier board output value reached 17.415 billion US dollars. In the future, the increase in demand for AI and high-speed data computation is expected to drive demand for logic chips and related advanced packages such as 2.5D/3D and HD-FO (high-density fan-out), which will strongly drive the FCBGA package substrate (high-order crystal ball array carrier board, also known as ABF carrier board) market size.
The migration of the semiconductor market and industry, and the upgrading and iteration of packaging process technology are the core factors driving changes in the IC carrier board market pattern. Currently, China is catching up at an accelerated pace in chip applications such as memory chips, RF chips, mobile phone APs, CPU/GPUs; there is a gap between the upstream advanced packaging field and European and American companies, but it's not too big yet. Under these circumstances, it is essential to achieve local support for core raw materials such as IC carrier boards, but in mainland China, only Xing Sen Technology, Zhuhai Yueya, and Shennan Circuits, which have real domestic capital and the ability to mass-produce carrier boards, first appeared on the stage, and there is still a long way to go to achieve domestic support in the supply chain.
“Starting a Business Again” for the Third Time: The Road Is Still Long, and the Road Is Approaching
If the establishment of the company and the layout of the BT carrier board in 2012 are Xing Sen's first two ventures, the ABF carrier board, which began layout in 2021, can be regarded as the company's third “re-establishment”. For Xing Sen, who has persisted in achieving BT carrier boards from zero to one, and eventually saw profit hopes, at this point, it was a very difficult decision: on the basis that China's ABF carrier board upstream, that is, the communications, base stations, servers, AI and other chip terminal industry chains are not yet complete, the company also has to go through a new and more difficult round of “crossing the river by touching a stone”. During the customer development period after the construction of the ABF carrier board, labor costs, depreciation, and expenses when the operating rate of production line equipment is unsatisfactory will have a negative impact on the company's overall performance. The company is currently actively introducing new customers and striving to improve production line utilization and delivery levels. With the gradual release of domestic core customer orders, the ABF carrier board business will reverse into an important support for the company's further growth.
Profit forecasting and valuation
This article is our team's third in-depth follow-up report on Xing Sen Technology in a cycle of more than five years. From 2013 to 2023, the company embarked on its own IC carrier board localization journey step by step. We acknowledge the company's continuous investment and continuous improvement. The last two years have coincided with a global economic downturn, falling demand in terminals, communications, industrial and other industries, and a decline in traditional business profits. It is inevitable that customers will be dragged down in operating rate during the verification and introduction period, but localization replacement is imperative. As an industry pioneer, future landing expectations and growth space are also impressive. It is predicted that the company will achieve net profit of 314/527/794 million yuan in 2024-2026. The current market value of PE corresponds to PE 64.18/ 38.26/25.38 times, raised to “buy” rating.
Risk warning
1. The pace of recovery in the model business is lower than expected. 2. The speed of certification and introduction of key customers of ABF carrier boards is lower than expected. 3. The introduction of BT carrier boards has been delayed. 4. The process of localization replacement of domestic carrier boards has been disrupted.