Incident reviews

On September 20, 2024, the first equipment entry ceremony for Tongfu Tongke (Nantong) Microelectronics Co., Ltd.'s Memory Phase II project was successfully held; the subsidiary Tongfu Tongda Advanced Packaging and Testing Base Project held a commencement ceremony in Nantong City.

The first equipment of the Tongfu Tongke (Nantong) Memory Phase II project was installed, and the construction of the memory sealing and testing base achieved phased results. The Tongfu Tongke Memory Phase II project added a purification workshop area of 8,000 square meters, introducing the most advanced sealing and testing technology and equipment in the world. After it is put into use, it can provide 0.15 million wafer production capacity per month, which is expected to form a leading level of memory sealing and testing at the technical level. Up to now, the total investment in the Tongfu Tongke project is about 3 billion yuan, and the cumulative output value has reached 1 billion yuan. At the same time, 0.16 billion yuan of equipment investment was added, mainly the key equipment required for mass production of high-end products such as embedded FCCSP and uPOP, which can better meet the localization needs of high-end memory products in the fields of mobile phones, solid state drives, and servers. According to CFM data, the three major initiatives of storage manufacturers to adjust production capacity, control supply, and strong price increases, as well as artificial intelligence (AI) investment competition among technology companies, will drive the global storage market to grow 64% to 148.8 billion US dollars in 2024. Among them, the NAND Flash market is expected to grow 70.6% to $68 billion; the DRAM market is expected to grow 58.1% to $80.8 billion. According to CFM data, due to the increase in smartphone capacity, mobile applications will account for 37% of NandFlash production capacity in 2024; however, due to the high inventory levels of major customers, AI PCs are not yet able to bring about substantial sales growth, and the NAND Flash production capacity consumed by PC applications this year is expected to be basically the same as last year; in terms of enterprise-level applications, as Internet vendors actively invest in AI competition construction and enterprise-level servers usher in a wave of switching machines this year, demand performance is relatively impressive. It is expected that NAND Flash will consume NAND Flash this year Production capacity is about 17%; in 2024, servers, PCs, and mobile phones will consume 80% of NAND Flash production capacity.

Tongfu Tongda advanced packaging and testing base started, focusing on advanced packaging such as layer stacking/flipping/wick-level/panel-level packaging. According to Future Semiconductor's “2024 China Advanced Packaging Third-Party Market Research Report”, the construction entity of the Tongfu Tongda Advanced Packaging and Testing Base project is Tongfu Tongda (Nantong) Microelectronics Co., Ltd., which was established in March 2023. The total investment of the project is 7.5 billion yuan, including 3 billion yuan in equipment. It is planned to build new R&D, production, office and supporting facilities, and plans to build packaging and testing lines for automotive electronics, 5G, high-performance computing, etc. After the project is fully delivered, it is expected to produce 2112 million blocks of advanced integrated circuit packaging products per year The annual sales volume is not less than 5.7 billion yuan (of which 1.2 billion yuan is invested in the early period, and is expected to be completed in July 2026, with a total construction area of about 0.066 million square meters). After completion, the Tongfu Tongda Advanced Packaging and Testing Center project will mainly be involved in applications such as communication, memory, and computing power, focusing on integrated circuit packaging products encouraged and supported by the country, such as multi-layer stacking, flip-up, wick-level, and panel-level packaging.

In terms of advanced packaging layout, the company continues to invest in high-end processors and other product fields, further increase research and development efforts, lay out higher quality, higher performance and more advanced packaging platforms, comprehensively meet the development needs of domestic and foreign customers, expand the advanced packaging industry map, solidify the foundation for a new round of demand and business growth, and drive the company's performance growth in the field of advanced packaging products. In the first half of 2024, the company upgraded its large-size multi-chip Chiplet packaging technology and developed new processes such as Corner Fill and CPB for the characteristics of large-size multi-chip Chiplet packaging to enhance chip protection and further improve chip reliability. The company launched FCBGA chip packaging technology based on glass core substrates and glass adapter plates to develop the demand for high-performance chips in the fields of optoelectronic communications, consumer electronics, artificial intelligence, etc. This technology helps promote the development of chip packaging technology with high interconnection density, excellent high frequency electrical characteristics, and high reliability. Preliminary verification has now been completed. In terms of power, the company completed the R&D of the Easy3B module in the first half of the year and began mass production in small batches. It was the first in China to use a Cu bottom plate gluing module, which is used in solar inverters. Compared with traditional Easy1B and 2B modules in the market, it can reduce the thermal resistance and power consumption of the system more effectively. In the first half of 2024, the company shipped large quantities of 16-layer chip stacked packaging products, and the pass rate was at the leading level in the industry; the first domestic WB split cavity shielding technology and Plasma dicing technology entered the mass production stage.

Investment advice: We maintain our original performance expectations. Revenue from 2024 to 2026 is estimated to be 25.28/29.231/34.56 billion yuan, respectively, with growth rates of 13.5%/15.6%/18.2%; net profit to mother of 0.957/1.205/1.613 billion yuan, respectively, with growth rates of 465.0%/25.9%/33.8%, respectively; and PE of 28.9/23.0/17.2, respectively. Considering Tongfu Microelectronics's accumulation of product technology in the xPU field, and the company continues to promote the development of new 5nm, 4nm, and 3nm products. With the advantages of advanced packaging technology such as FCBGA and Chiplet, it is expected that the penetration of superimposed AI/large models in various fields such as mobile phones/PC/automobiles will drive up demand for advanced packaging. Maintain a “buy-A” rating.

Risk warning: risk of industry and market fluctuations; risk of international trade friction; risk of artificial intelligence development falling short of expectations; risk of failure to industrialize new technologies, new processes, new products, and new projects as scheduled; risk of changes in the supply and price of major raw materials; risk of deviations in asset depreciation expectations; risk of dependence on major customers.