Key points of investment

The semiconductor cycle is recovering, and demand for AI-driven advanced packaging is growing as consumer market demand stabilizes, driven by hot application fields such as artificial intelligence and high-performance computing, and due to multiple factors such as obvious market inventory removal effects and the drive of the memory market, the global semiconductor market is expected to return to a growth trajectory in 2024. Among them, storage is expected to become the main driving force for growth, and the implementation and penetration of applications such as AI servers/PCs/mobile phones will also become a new driver for the growth of the industry. As the third largest OSAT manufacturer in the world and the number one in mainland China, the company provides high-end customized package testing solutions and supporting production capacity for the global market. In 2024, the company announced that it plans to acquire 80% of Shengdi Semiconductor's shares to further strengthen its storage and testing capabilities and layout; it plans to invest RMB 6 billion in fixed assets.

Continue to promote advanced packaging upgrades and maintain leading technical advantages

In the field of 2.5D high-performance advanced packaging, in 2023, the company continued to promote the development and production of the three technology paths of rewiring layer (RDL) adapter board, silicon adapter board, and silicon bridge as an intermediate layer, covering the current mainstream 2.5DChiplet solutions in the market, and has achieved production at various subsidiaries under the Group. In 2024, XDFOI will be further promoted in the field of high-performance computing? Technology also invests in 3D, memory chips, and optoelectronic encapsulation (CPO) packaging research and development; in the automotive electronics field, we continue to invest in packaging and testing of high-power modules, radar, lidar, and high-performance ADAS chips; and in the communications field, we continue to focus on next-generation packaging technology with world-leading RF testing capabilities to meet the deployment and R&D needs of 5G/6G networks in various application fields.

Product structure optimization, focusing on high-value-added application areas

Accelerate the strategic layout of high-value-added markets such as automotive electronics, high-performance computing, storage, and 5G communications, where demand is growing rapidly from consumer to market. In 2023, communications electronics accounted for 43.9% of revenue, yoy+4.6pct; consumer electronics accounted for 25.2%, yoy-4.1pct; computational electronics accounted for 14.2%, yoy-3.2pct; industrial and medical electronics accounted for 8.8%, yoy-0.8pct; automotive electronics accounted for 7.9%, yoy+3.5pct. The company continues to focus on high value-added applications of high-performance packaging technology, which is expected to further enhance its core competitiveness.

Profit forecasting and valuation

The company's 2024-2026 revenue is expected to be 330.45/364.51/42.136 billion yuan, respectively, with a year-on-year growth rate of 11.41%/10.31%/15.60%; net profit to mother is 19.88/27.08/3.447 billion yuan, a year-on-year growth rate of 35.19%/36.22%/27.26%. The PE corresponding to the current stock price is 22.62/16.60/13.05 times, and EPS is 1.11/1.51/ 1.93 yuan. The year 2023 was affected by the global recession. The global consumer electronics market was weak, the semiconductor market was in a downward cycle, and the company's operating rate and prices were under pressure, leading to a marked decline in business performance. Considering that the company is the largest sealing and testing factory in China, its advantages in customer, scale, and product technology are outstanding. As downstream prosperity recovers, the company is expected to take the lead in benefiting from innovative upgrades such as mobile phones, PCs, and servers, and the development of high-growth application fields such as storage and automobiles, and maintain a “buy” rating.

Risk warning

Risks such as new technology and product development falling short of expectations, industry fluctuations, increased market competition, and trade frictions.