Won the bid for BOE's large order, and the order released high flexibility
The company announced that it won the bid for BOE's 8.6th generation AMOLED production line project cleaning project (P2 section). The winning bid amount was 0.713 billion yuan (tax included), accounting for about 14% of the new orders signed in '23. At the end of 2023, BOE announced the start of construction of the first domestic and the world's second 8.6th generation AMOLED production line, with a total investment of 63 billion yuan. It will become the world's production base for medium-sized OLED display devices with the most advanced technology and the largest production capacity.
Considering the good foundation of cooperation between the company and BOE, we expect the continuation of the company's orders.
Demand for the construction of new display production lines is expected to drive 11.8-17.7 billion in clean room demand. Demand for medium and 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. More than 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. Furthermore, the competitive pattern in the field of clean rooms with new display panels is superior. The main competitors are CLP 2, CLP 4, and Bai Cheng. We believe that the company is expected to benefit from investment in expanding production by leading panel manufacturers, and orders may usher in a new round of growth.
Per capita income generation is still expected to increase. Modularization & digitalization to 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. In 2023, the company established Gongyi Intelligent Manufacturing Technology Co., Ltd. to promote the application of new businesses such as prefabricated modularity, while using 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.
The downstream clean room boom is growing rapidly. They are optimistic about the company's medium- to long-term growth potential, maintain “buy” rating companies to deeply cultivate the middle and high-end clean room sector, and have good customer stickiness and high industry recognition. Benefiting from the new display panel ushered in a new round of production cycle, the release of the third phase of the Big Fund is expected to accelerate the domestic semiconductor substitution process, and the clean room industry continues to grow in popularity. The company issues equity incentives to enhance employee cohesion and stimulate internal growth momentum, performance, or enter a release cycle. The company attaches importance to shareholder returns. The cash dividend ratio for 23 years was 51%, and high dividends enhance investment attractiveness. We expect the company's net profit to be 0.27/0.34/0.41 billion yuan in 24-26, with 25 times PE over 24 years, and a target price of 12.82 yuan, maintaining a “buy” rating.
Risk warning: The company has not signed a formal contract with the tenderer, and there is still uncertainty about contract signing and contract terms; downstream demand falls short of expectations; industry competition intensifies; project implementation & repayment fall short of expectations; estimates are somewhat subjective.