Key investment points:

DDI packaging manufacturer focusing on high-value segments. The main business of Huicheng Co., Ltd. is centered on the previous stage of gold bump manufacturing (GoldBumping), and integrates wafer testing (CP), post-stage glass crystal coated packaging (COG) and thin film crystal coated packaging (COF) links to form a comprehensive service capability for packaging testing throughout the process. The company has been deeply involved in the field of display driver chips for many years. In 2020, display driver chip package shipments ranked third in the world, and mainland China ranked first.

Two major production bases have now been built in Yangzhou, Jiangsu and Hefei, Anhui. Since its establishment, the company has invested and expanded production lines many times. Among them, the main body of the Hefei production base is Huicheng Co., Ltd., which is a 12-inch wafer sealing and testing production line, which is mainly used for 12-inch wafer sealing and testing services, and the Yangzhou production base is Jiangsu Huicheng, which is an 8-inch wafer sealing and testing production line for 8-inch wafer sealing and testing services. At the end of 2023, the company's 12-inch annual production capacity was 0.3901 million tablets and 8-inch 0.396 million tablets.

The issuance of convertible bonds continues to actively expand 12-inch advanced production capacity. In 2024, the company issued convertible corporate bonds to raise capital for the “12-inch Advanced Process New Display Driver Chip Wafer Gold Bump Manufacturing and Wafer Testing and Expansion Project (Hefei)”, the “12-inch Advanced Process New Display Driver Chip Wafer Test and Chip Packaging Expansion Project (Yangzhou)” and supplementary working capital. The implementation of the investment project will increase the company's production capacity in processes such as Bumping, CP, COG and COF.

Most of the downstream customers are well-known DDI chip manufacturers, and the customer concentration is high. Since its establishment, the company has established stable cooperative relationships with well-known display driver chip design companies such as Lianyong Technology, Tianyu Technology, Jichuang North, Yili Technology, Ruiding Technology, Qijing Optoelectronics, Xinxiang, Yunying Valley, Shengxiangwei, Xinying Technology, and Aoxian Technology. The company's top two customers in 2023 were Lianyong and Tianyu, accounting for more than half of the revenue, with the top five customers accounting for more than 70%.

With the rise of the domestic display panel industry, display driver chips will accelerate localization and will also drive a simultaneous shift in the packaging and testing supply chain. The shift of the display panel industry chain to the domestic market is driving the development of the display driver chip industry. Relevant industrial chain companies in mainland China are gradually maturing, providing more opportunities for cooperation among local packaging and testing manufacturers. With mainland China's continuous support for chip design companies and the maturity of enterprise technology in recent years, the sharp rise in demand for display driver chip packaging and testing will drive the continuous expansion of production of existing display driver chip packaging and testing manufacturers and attract more leading packaging and testing manufacturers to enter the industry.

First coverage, giving a “buy” rating. We expect Huicheng's 2024-2026 PE to be 42/33/27X. The company is a leader in the segmented packaging circuit. In 2025, the company's PE was 33 times higher, lower than the average of comparable companies, and there was room for valuation growth of 45%, giving it a “buy” rating.

Risk warning: 1) the risk of technological upgrading and iteration; 2) the risk of increased market competition; 3) the risk of high customer concentration;