21Q1 business performance increased sharply year over year. On April 7, 2021, the company released its 20-year performance report and first-quarter forecast. (1) It achieved revenue of 694 million yuan in 2020, an increase of 8.3% over the previous year; realized net profit of 274 million yuan, an increase of 30.4% over the previous year. Changes in the fair value of the company's indirect holdings of SMIC shares (688981.SH) increased net profit by 225 million yuan. (2) 21Q1 deducts non-net profit of 220-23 million yuan, a year-on-year increase of 132%-142%. The main reason is that sales of key process chemical materials used in integrated circuit manufacturing increased 60% year-on-year. Due to the decline in SMIC shares, the 21Q1 fair value change is expected to reduce net profit by about 20 million yuan, so 21Q1 net profit is about 2 to 3 million yuan.
Short to medium term: Semiconductor plating solutions and cleaning solutions are growing rapidly. Shanghai Xinyang is a leading enterprise of key process materials for integrated circuit manufacturing and testing in China. It is already a core supplier to semiconductor manufacturing and testing companies such as SMIC, Changcun, Changxin, Changdian, Tongfu, and Huatian. The company is based on the three core technologies of electronic electroplating, electronic cleaning, and electronic lithography.
(1) The company has the highest sales volume and market share of functional chemical materials in the field of traditional semiconductor packaging in the country; (2) The company has achieved large-scale industrialization of chip copper interconnection electroplating solutions, additives, and post-etching cleaning solutions in the field of key process materials for integrated circuit manufacturing, and the number of baselines (benchmark lines/reference materials) recognized by domestic integrated circuit production lines is 25. The company is the only local enterprise in China that can provide ultra-pure electroplating solutions and additives for the 90-28nm technology node in the copper wafer process, and has repeatedly won first place in the global supplier evaluations of many customers. We expect the company's semiconductor business to generate revenue of 3, 5, 700 million yuan in 20-23.
Long-term: strategically lay out high-end photoresist projects for integrated circuit manufacturing. The company plans to raise funds to develop photoresist used in the ArF dry process in integrated circuit manufacturing and KrF thick film photoresist products for 3D NAND step etching, and strive to industrialize these products by 2023. The company expects small sales of KrF thick film photoresist to begin in 2021 and mass production in 2022. It is expected that the ArF (dry) photoresist project will achieve small sales in 2022, and mass production will begin in 2023. The total sales revenue of various products for that year is expected to reach nearly 200 million yuan.
Purchase a lithography machine for the development of high-end photoresist projects. (1) Since Shanghai Xinyang set up a research and development and industrialization project to develop 193-nm ArF dry photoresist, it has arranged to purchase core equipment such as the ASML-1400 lithography machine. The lithography machine has arrived domestically before the end of 2020. The lithography equipment entered the site of the partner North Integrated Circuit Technology Innovation Center (Beijing) Co., Ltd. in March '21, and related work such as installation and commissioning will be carried out later. (2) Xinyang, a subsidiary holding 38% of the shares in Xinyang, Shanghai, purchased an ASML XT 1900 Gi used lithography machine. The equipment can be used to develop high-end photoresists with a resolution of 28 nm.
Profit forecasting, valuation, and ratings. Considering the rapid growth of the company's semiconductor core business, we adjusted Shanghai Xinyang's net profit to 130 million yuan (+2.4%) and 1.69 billion yuan (+7.0%) of 1921 and 22 million yuan. Shanghai Xinyang's semiconductor business refers to the PS level of about 20 to 24x of Anji Technology and the Shanghai Silicon Industry in 2021. The company's semiconductor business revenue of about 500 million yuan corresponds to a valuation of about 10-12 billion yuan; in addition, the Shanghai Silicon Industry and SMIC shares held by Shanghai Xinyang correspond to a market value of about 4 billion yuan. In summary, the current market value is still underestimated, so the “buy” rating is maintained.
Risk warning: Risk of core technology leakage; US sanctions against the semiconductor industry have intensified.