The downstream clean room boom is booming and orders are highly flexible. For the first time, it covers companies with “buy” ratings that are deeply involved in the middle and high-end cleanroom sector. They have rich engineering performance, good customer stickiness, and high industry recognition.
The company's active orders in '23 were 2.87 billion (before tax), +57.9% year-on-year. The amount of new orders signed was 4.95 billion yuan, +48.24% year over year. Considering that the order conversion cycle is 6-12 months, equity incentives enhance employee cohesion and stimulate internal growth momentum, performance, or enter a release cycle. Benefiting from the upgrading of display panels and industry expansion brought about by autonomous control of semiconductors, modular application and digitalization enable cleanroom integration efficiency. The company values shareholder returns. The cash dividend ratio for 23 years was 51%, and high dividends enhance investment attractiveness. We expect net profit to be 0.27/0.34/0.41 billion yuan for 24-26, 25 times PE in 24 years, and a target price of 12.82 yuan. This is the first coverage, giving it a “buy” rating.
Highlight 1: Demand for the construction of new display production lines is increasing, which is expected to drive demand for clean rooms at 11.8-17.7 billion. Demand for high-end panel displays is strong. According to Qunzhi Consulting, global OLED panel shipments will reach 12.4 million pieces in 2024, an increase of more than 200% over the previous year. Multiple 8.X OLED production lines will gradually be put into mass production in 2026-2027. At the end of 2023, BOE began construction of the first 8.6th generation AMOLED production line in China, with a total investment of 63 billion yuan; in May '24, Vicino announced that it will invest in the 8.6th generation flexible AMOLED production line project. The estimated total investment amount of the project is RMB 55 billion. The two leading manufacturers invest about 120 billion yuan. Clean room construction accounts for 10% to 15% of the total investment, which is expected to drive the demand for clean room construction to 11.8-17.7 billion yuan. The main competitors in the field of new display panel cleanrooms are CLP 2, CLP 4, and Bai Cheng. We believe that the company can benefit from investment in expanding production in head panel factories, and orders are expected to grow rapidly.
Highlight 2: The industry concentration is high. The third phase of the big fund may drive semiconductors to preserve higher capital expenses. The clean room industry has complex technical barriers and high barriers. Customers value past project performance, and the bidding model greatly increases the probability of leading companies getting orders. The middle and high-end clean room market concentration is high. CR5 is 33% in 2023, and Baicheng's market share is 1.5%, and there is still plenty of room for improvement.
The third phase of the Big Fund was released, with a registered capital of 344 billion yuan. Autonomous control of semiconductors is expected to accelerate further. The CAGR of global semiconductor capital expenditure can reach 7.33% from 2023-2028. China's semiconductor investment accounts for about half of the world. The domestic semiconductor industry will still be booming in the next 3-4 years. There is a phased overcapacity in the photovoltaic industry. Large-size, high-power modules have become the focus of tenders for central state-owned enterprises. The market share of N-type modules may increase. The 24M1-5 photovoltaic manufacturing industry has signed a new investment amount of more than 260 billion yuan. The scale of mass production of advanced technology is still expected to expand, or bring new opportunities to clean room construction needs.
Highlight 3: Per capita income generation is still expected to increase. Modularization and digitalization improve cleanroom system integration efficiency The company's personnel increased 21% year-on-year in 2023. We estimate that the per capita income generation in 2023 reached 3.57 million yuan. Considering that it is still in the climbing stage after adding new personnel, compared to the industry's highest per capita income of 4.48 million, there is still room for improvement. The company promotes the application of new businesses such as prefabricated modularization, and uses BIM technology to digitize the entire clean room system integration process, effectively improving the efficiency of clean room integration. Baicheng has accelerated the establishment of a global strategic layout, established subsidiaries in Vietnam, Thailand, etc., and actively laid out the Southeast Asian market.
Risk warning: downstream demand falls short of expectations; industry competition intensifies; project implementation & repayment falls short of expectations; estimates are somewhat subjective.