Introduction: be optimistic about the logic behind China Resources Micro's future growth.
Since July 2020, the A-share market has entered a volatile adjustment phase. as of October 28, the Shanghai Composite Index fell 5.5 per cent from a peak of 3458 to 3269.
And the leader in the semiconductor industry segment, experienced a long round of sharp decline in share prices, the decline of White Horse shares is particularly striking. White horse stocks such as Semiconductor Manufacturing International Corporation, Wentai Technology and Huiding Technology all fell by more than 30 per cent.
China Resources Microelectronics (hereinafter referred to as "China Resources Micro", 688396.SH), which has maintained a strong stock price, has experienced a panic decline in the market after three quarterly reports (down more than 12% on the day), with a cumulative decline of 24.5%. From the stock price performance, it is obviously better than other semiconductor segment leaders.
It is not difficult to find the "national team" in the list of the top 10 tradable shares of China Resources Weibo at the end of the third quarter. According to the announcement, the shares held by the National Social Security Fund accounted for 2.25%, making it the company's third largest shareholder.
The social security fund, a low-key super fund, has maintained a sound investment style since its inception, with an average annual return of 8.14% and a cumulative income of more than trillion yuan.
Throughout the third quarter, Huarun Wei's share price fluctuation range is between 46 and 65. The company's share price is currently about 50 yuan, which should be located near the cost line of increasing the position of the social security fund. What is the logic for the Social Security Fund to buy Huarunwei? Where is the excellence of Hua Runwei?
01 the company's performance continues to grow steadily.
As a long-term investor, the social security fund usually does not pay much attention to the short-term fluctuation of the stock price, but pays more attention to the continuous improvement of the company's future value, but whether it can realize the investment income and maintain and increase the value of the social security fund in the end. it mainly depends on the investment institutions' understanding of the development of the industry and the value of the enterprise.
As one of the "national teams" of the investment industry, the social security fund has always favored enterprises with stable operation and sustainable income, and stayed away from those companies with broad industry prospects but low certainty of enterprise growth.
In the words of Wang Zhongmin, former vice chairman of the Social Security Fund, "We dare not hit heavily in the explosive investment scene."
Reviewing the development of the semiconductor industry in recent years, it is obvious that it belongs to the category of "explosive investment scenario". What makes the Social Security Fund dare to build a large position in this "semiconductor" technology stock?
Looking at the financial reports of China Resources Micro in recent years, we can find that the company's financial performance is highly consistent with the investment purpose of the Social Security Fund of "stable operation and sustainable income".
Since 2016, the company's revenue has maintained steady growth. It rose from 4.4 billion yuan in 2016 to 6.27 billion yuan in 2018, with an average annual compound growth rate of 19.4%.
Industry demand was sluggish in 2019, while Huarun Wei's revenue fell only slightly to 5.74 billion. In 2020, with the rebound of the industry boom, the company's revenue returned to the growth trend, and the net profit also showed explosive growth.
According to the company's latest quarterly report for 2020, the company achieved a cumulative operating income of 4.89 billion yuan, an increase of 18.3% over the same period last year, and 1.83 billion yuan in the third quarter, an increase of 22.4% over the same period last year.
Since 2017, Huarun Wei's net profit has increased rapidly, with net profits of 70 million and 430 million respectively from 2017 to 2018. Even in the year of low prosperity in 2019, the company's net profit reached 400 million yuan.
In the first three quarters of this year, the company's net profit increased by 155% compared with the same period last year, reaching 690 million yuan, which has far exceeded the net profit for the whole of 2019.
Combing through the company's financial data over the past few years, it is not difficult to find that Huarun Wei's financial performance is very good, that is, annual revenue and homing profits can achieve steady growth, partially offset the impact of industry fluctuations.
From the perspective of the company's financial statements, we can see three phenomena:
First, from 2016 to 2020 Q3, China Resources Micro's profitability per share, EPS rose from-0.34 yuan to 0.61 yuan, earnings per share increased by almost one yuan.
Second,The company's operating cash flow is good, and the cash on hand is growing.The asset-liability ratio continues to decline, and the profit quality is better. Net assets per share have been accumulating, rising from 3.06 yuan in 2016 to 8.41 yuan today. This accumulation has not been affected by the industry downturn in 2019 and is still growing.
Third, the company's gross profit margin is rising, from 14.5% in 2016 to 28.1% in the first three quarters of 2020, with continuous improvement of the company's process and continuous upgrading of its products.
Huarun Wei's performance is significantly less volatile than the industry average, and revenue and net profit are growing steadily, which may be the reason why social security funds are attracted to take heavy positions in the stock.
But what is the logic behind this phenomenon?
02 moat of power semiconductors
First of all, the classification of semiconductor products can be divided into discrete devices and integrated circuit IC (including digital and analog). The production process of semiconductor products is divided into design, manufacturing, closed testing and other links.
Huarun Micro's business is divided into two categories, one is wafer foundry, this part of the business has a strong cyclical; the other is the IDM business, the core product is power semiconductors.
Power semiconductor, as its name implies, its main function is to achieve a variety of power conversion. In the era of the 742 factory, the predecessor of Huarunwei, it also had the name of "power semiconductor".
It can accurately adjust the voltage, current, frequency and other parameters in the circuit, so it is known as the "CPU" in power electronic devices.
Power semiconductors can be divided into two categories: power devices and power IC. Among them, power device products mainly include MOSFET, IGBT and other transistors, and power IC products mainly include various series of power management chips.
In Huarunwei's power semiconductor products, MOSFET accounts for the largest proportion, the company is the largest domestic revenue scale, the most complete series of MOSFET manufacturers, but also has all the mainstream MOSFET device structure R & D and manufacturing capabilities of enterprises, can meet the needs of different customers and all kinds of application scenarios.
In terms of sales, China Resources Micro ranks third in China's MOSFET market and is the largest MOSFET manufacturer in China. The first two are Infineon and on, the two overseas giants.
Investors who are familiar with the semiconductor industry will know a common sense: there are two business models in the industry: IDM and vertical division of labor.The former has higher requirements for enterprise technology, capital and market share; the vertical division of labor model only needs to focus on a certain link in the industrial chain, which can effectively control investment and business risks.
Counting the top ten power semiconductor enterprises in the world, there is a common factor between them, that is, all of them have adopted the production and management model of IDM.
The threshold of the business model of vertical division of labor is relatively low, while the IDM model is obviously more difficult and the threshold is higher. However, difficult things tend to be more valuable, which is no exception in the semiconductor industry.
For power semiconductors, especially for high-end products, its research and development is often a very comprehensive technical activity, which involves close cooperation from product design to process research and development.
The advantage of IDM model is that the experience of R & D and production can be accumulated for a long time, which will make the ability of the enterprise deeper, which is conducive to the precipitation and accumulation of core technology and the formation of larger product groups.
In addition, IDM enterprises have the advantage of internal integration of resources, in IDM enterprises, because neither silicon verification nor process docking is needed, so the time from chip design to manufacturing is shorter, which can speed up the introduction of new products. At the same time, it can also be customized with efficient characteristics according to customer needs, and it can also be closer to market demand in all aspects of the industrial chain for innovation.
For China Resources Micro, the operating capacity of the whole industry chain undoubtedly constitutes a faster product iteration speed and stronger production line coordination ability.
This constitutes a huge competitive advantage of China Resources Micro, which is difficult to be copied by its competitors: even if new entrants have the funds to do IDM, they are likely to lack experience accumulation; if the vertical division of labor mode is adopted and the synergy between various links cannot be produced, it is difficult to enhance the competitiveness of products.
In addition, for China Resources Micro, a power device company in the first camp, its cooperative relationship with customers is stable and close.
This "stable and close" relationship mainly comes from two factors:
First, the downstream users of power devices are distributed in industry, automobile, consumer electronics, communications and other industries. Take Huarunwei's two important customers as an example, the markets of Diodes services include consumer electronics, computers, communications and automobiles, while MPS International involves industrial control, cloud computing, automotive, telecommunications and other fields.
For the sake of system safety and quality rate, these customers have high requirements for suppliers in terms of device stability and safety. Would rather buy reliable products at high prices, but also resolutely put an end to failures.
This feature sets a high threshold in front of new entrants. Even if new entrants barely squeeze into users' supplier system through operation, they still have to face a long verification period, during which leaders like China Resources Micro are likely to introduce technology to optimize performance.
This is a typical "always catch up, always late, late beat, step by step" double dance state.
Second, in the field of power devices, design capability is only an indicator of competitiveness, and more often it is industry experience that plays a role.
Even if the two power device companies use the same material, the same process, and the same ratio, as long as there are differences in any one of the human, machine, material, law, and ring variables, they will eventually produce devices with completely different efficiency. the performance gap can even be as high as 10%.
Just like Infineon and on, the two international giants, relying on the mountains of the advanced industrial systems of Germany and the United States, have firmly occupied the market through first-mover advantage. Frankly speaking, in a normal business environment, it is extremely difficult for domestic products to replace Infineon, on and other international companies.
For China Resources Micro, which ranks third in the industry and first in the mainland, this dominant position also exists. It ensures that China Resources Micro can maintain its stable and profitable industry status through this "well-known moat within the industry" without making big mistakes.
In many cases, it is this "moat known to everyone within the industry" that is precisely the hidden message that "no one outside the industry knows". This kind of information, once captured by institutions with a deep understanding of the industry and enterprises, constitutes the confidence of daring to buy heavily and firmly hold.
03 future growth prospects
If it is said that the wide range of application scenarios constitute the characteristics of power devices "consumer stocks", it helps China Resources Micro to be in a long logic track. China Resources Micro's IDM model and its long-term investment in research and development constitute the source of its competitive advantage, helping China Resources Micro to hold on to the basic market.
In that case, we will naturally have a new question: how can Huarun Wei achieve further development? This is related to what kind of growth logic the Social Security Fund and the Abu Dhabi Investment Authority have found to stick to their investments.
This logic depends on two factors: first, the high economic growth of the MOSFET industry; second, the increase in the share of the company through domestic substitution; and third, the continuous optimization of the company's advanced production capacity and advanced technology.
Looking at the recent market of the MOSFET industry, we can draw the conclusion that the industry is in a high boom cycle.
From the supply side, domestic MOSFET products are mainly based on the 8-inch semiconductor power device process platform, and only a few companies such as Huarun Micro have mature OEM capabilities.At the same time, from 2019 to now, the rise of applications such as fingerprint identification and video surveillance has led to an increase in the demand for fingerprint identification chips and CIS, occupying a large amount of OEM capacity for 8-inch chips, causing a shortage of supply.
At the same time, the twists and turns of the epidemic has also brought restrictions on the production capacity and logistics of overseas MOSFET manufacturers, which obviously means the optimization of the supply-side competition pattern for China Resources Weibo, which is in China.
From the perspective of demand, the rapid development of consumer electronics such as fast charging of mobile phones, Type-C interface, two-wheeled electric vehicles, new energy vehicles, lighting and other downstream applications, superimposed PC processors, graphics cards and other products upgradeAll have led to a substantial increase in the amount of MOSFET, making the overall domestic demand for MOSFET devices exuberant.
With the superposition of supply and demand factors, the demand boom and price upward trend of MOSFET will be maintained for a long time.
While observing the trend of domestic substitution in MOSFET industry, there are also several favorable factors.
First of all, with foreign trade frictions, domestic application enterprises have to shift their procurement share to local enterprises to prevent the occurrence of supply cuts. Secondly, the future increments of the industry are also concentrated in China. In new energy vehicles, industrial control, wind power, cloud computing, consumer electronics and other fields, are the focus of domestic industry development.
According to the estimates of the Yin Yanji team of Huaan Securities, from the perspective of market space, the global MOSFET market will reach US $7.9 billion in 2020, of which China accounts for 40% of the US $6.7 billion global market in 2017, or about US $2.7 billion. According to the 40% still accounted for in 2020, the market space is expected to be US $3.16 billion, or 22.1 billion yuan.
Compared with several listed companies in the same industry in China, it is found that most of the competitors' production processes are still above 6-inch wafers or even 4-inch wafers, few competitors break through 8-inch wafers, and the 12-inch production capacity built by the company will be put into production next year.
The acquisition of Dongguan Jiequn, to enhance the company's shortcomings-closed testing link, obvious benefits. The increased advanced packaging capacity will not only provide a solid foundation for the company's capacity expansion in the next few years, but also give full play to the technical synergy of design, manufacturing and closed testing, optimize product structure, and ultimately improve product performance.
Under the above three major development trends, for China Resources Micro, which has a market share of 8.7%, it means a broad space for development.
From this point of view, although the Chinese moment of power semiconductor substitution has not really arrived, buying the present with explicit information and betting on the future with implicit information may be the best manifestation of the social security fund's "seeking stability without seeking differences." the best embodiment of the investment way of "seeking truth without seeking China".
45 billion yuan fixed increase project
Prior to this, China Resources Micro announced that it intends to raise no more than 5 billion yuan from no more than 35 issuers, mainly for the construction of a closed test base for power semiconductors, covering a total area of about 100mu, with an estimated construction period of three years.
After the completion and production of the project, it is mainly used for packaging and testing standard power semiconductors, advanced panel-level power products and characteristic power semiconductors; the production products are mainly used in consumer electronics, industrial control, automotive electronics, 5G, AIOT and other new infrastructure fields.
The IDM model operated by China Resources Micro is different from the vertical division mode of light assets. IDM enterprises have a great demand for funds, including the construction and upgrading of advanced production capacity, R & D and expansion of product lines, recruitment and motivation of talents, and so on.
Huarun Micro's business is divided into wafer foundry and power semiconductor IDM. Wafer foundry enterprises, such as Taiwan Semiconductor Manufacturing Co Ltd and Semiconductor Manufacturing International Corporation, consume a hundred dollars a day. China Resources Micro, as the top three domestic foundry foundry enterprises, the fund-raising of IPO is mainly used to support the development of wafer business.
This increase is mainly used in the development of power analog semiconductors (IDM mode), especially in the closed testing link where the proportion of the company's current products is weak.
It is understood that China Resources Micro is currently mainly responsible for the design, manufacturing and a small number of closed tests of power semiconductors, most of which mainly rely on outsourcing. The weakness of the closed test link will lead to the shortage of production capacity of the contract manufacturing enterprises when the prosperity of the industry is high, and the company's products can not be guaranteed by the closed test link.
At the same time, the closed test link has a great impact on the final performance of power semiconductors, especially high-end power semiconductors. Self-built closed test capacity can not only improve the security of the company's supply chain, but also enhance the competitiveness of the company's products.
As for the final issue price of the fixed increase, it is not yet known. From the recent completion of several fixed increase cases, such as Changan Automobile, Tongda shares, etc., the amount of shares announced by listed companies have been fully realized, and the final number of shares issued is often only 1-2 of the maximum number of shares issued in the plan.
Compared with companies in these traditional industries, China Resources Micro has a better track and better prospects. Huarun Wei, which has obtained sufficient financial guarantee, will further widen the gap with its domestic competitors and keep up with foreign giants.