Key points of investment

Net profit due to mother increased significantly, and 24H1 increased by more than 200% year over year. In the first half of 2024, the integrated circuit boom rebounded under the influence of a recovery in demand for related electronic terminal products. Affected by this, the company's orders increased, capacity utilization increased, and operating income increased significantly compared to the same period last year, thereby greatly improving the company's operating performance. According to the company's 2024 semi-annual performance forecast, 2024Q2 expects to achieve net profit of 0.133 billion yuan to 0.173 billion yuan, a year-on-year increase of -21.44% to 2.20%, and a month-on-month increase of 133.13% to 203.27%. With 2024H1, the company expects to achieve net profit of 0.19 billion yuan to 0.23 billion yuan, an increase of 202.17%-265.78% year-on-year.

Embrace the AI era and strive to create the “eSInc 2.5D Packaging Technology Platform”. As advanced integrated circuit processes continue to shrink, they are getting closer to the physical limit and facing technical bottlenecks. On the other hand, emerging industries such as artificial intelligence, 5G, and autonomous driving are booming, and requirements for the performance of computing power chips are gradually rising, leading to multiple challenges. In this context, relying on advanced packaging to achieve “More than Moore” (more than Moore) has become the key to competition for industrial giants. Among them, 2.5D advanced packaging is a major technical highlight in the development of semiconductor products from 2D to 3D. It is usually used in high-end ASICs, FPGAs, GPUs, and HBM, and has broad prospects.

According to Yole data, the advanced packaging market will have a compound growth rate of 9.81% from 2021 to 2027, and the market size will reach 59.1 billion US dollars by 2027; in addition, 2.5D/3D packaging technology will achieve significant growth, and its compound growth rate is expected to reach 13.73%, and the 2.5D/3D packaging market is expected to reach 18 billion US dollars by 2027. While expanding and improving the scale and level of the existing integrated circuit packaging business, Huatian Technology is vigorously developing advanced packaging technologies and products such as SiP, FC, TSV, Fan-Out, WLP, 2.5D, 3D, Chiplet, and FOPLP. In particular, for the 2.5D advanced packaging circuit, Huatian Technology is committed to building the eSInc (EmbeddedSystem in Chip) 2.5D packaging technology platform to meet the needs of high-end packaging and testing in the era of artificial intelligence. (1) Silicon adapter plate core particle system SiCS: Benchmark CoWoS-s, SiCS is a 2.5D advanced packaging technology that uses silicon adapter plates to achieve multi-core interconnection. This structure usually has high-density I/O interconnections and is suitable for high-performance computing and large-scale integrated circuit requirements. The advantage of SiCS lies in its precision manufacturing process and superior electrical performance. (2) Fan-out core system FOCS: Compared to CoWoS-R, FOCS uses a rewiring layer (RDL) as an intermediary layer to achieve interconnection between chips. It is mainly used to reduce costs and adapt to the connection requirements of different types of devices, has greater design flexibility, and can support more chip connections. (3) Key features of BiCS include the use of LSI chips to achieve high-density inter-chip interconnections. These chips can have various connection architectures and can be reused in multiple products. Based on the wide RDL layer spacing of the mold intermediate layer, they use holes that penetrate the intermediate layer to achieve low-loss high-speed transmission of signals and electricity, and can integrate additional components.

Actively lay out FOPLP to seize opportunities for domestic packaging technology transformation. According to Huatian Technology's “Notice Concerning the Establishment of Holding Subsidiaries and Related Transactions” of December 12, 2023, the total share capital of Pangu Company is 100 million yuan, of which Huatian Jiangsu invested 60 million yuan, with a shareholding ratio of 60%. The Pangu Semiconductor Advanced Packaging and Testing Project plans to invest a total of 3 billion yuan. The first phase of construction will be carried out in two stages. The first phase of construction will be from 2024 to 2028. A new plant with a total construction area of about 0.12 million square meters and related ancillary facilities will be built to promote the development and application of panel-level packaging technology. Partially put into operation in 2025, the project is expected to have an annual output value of not less than 0.9 billion yuan and an annual economic contribution of not less than 40 million yuan after delivery. At present, many international giants have completed the layout and application of board-level packaging technology to achieve mass production, and the country is still in its infancy. Huatian Technology established Pangu Company to promote the development and application of board-level packaging technology in order to seize opportunities, seize market share, and enhance the company's competitiveness in future market competition.

Investment advice: We maintain our original performance expectations. We expect revenue of 13.02/15.393/17.283 billion yuan from 2024 to 2026, with growth rates of 15.2%/18.2%/12.3% respectively; net profit to mother of 0.592/0.91/1.283 billion yuan, respectively, with growth rates of 161.6%/53.6%/41.1%, respectively; corresponding PE is 44.3/28.8/20.4 times, respectively. As the development of artificial intelligence intensifies demand for computing power chips, it is expected to drive demand for advanced packaging. Considering that Huatian Technology can achieve high-density, high-reliability 3D heterogeneous integration of multiple chips based on the 3D Matrix platform through integrated silicon-based fan-out packaging, bumping, TSV, C2W and W2W technologies. Combined with the company's continuous release of production capacity over 24 years and the cost advantages of future board-level packaging-related products, its market share in the advanced packaging field is expected to continue to grow. Maintain an “Accumulated Holding-A” rating.

Risk warning: risk of industry and market fluctuations; risk of international trade friction; risk of failure to industrialize new technologies, new processes, and products as scheduled; risk of production expansion falling short of expectations; risk of changes in supply and price of major raw materials/equipment; risk of impairment of goodwill, etc.