Rating:ACCUMULATE* (Initiation)
Target price: RMB63.00
Share price (14 Sep): RMB53.30
Market Cap (RMBm): 5,664.2
Up/downside: 18.2%
We initiate coverage with an ACCUMULATE call and target price of RMB63. Chippacking has a wide product range in traditional packaging, with stable quality and cost effectiveness being core competitive advantages. It is also increasing R&D investment into the advanced packaging business. Product structure upgrades have helped to sustain core revenue growth.
South China market: scale business in IC packaging and testing
Chippacking has been in the business for more than 10 years and focuses on integrated circuits (IC) packaging and testing. It is one of the largest domestic-funded integrated circuit packaging and testing companies in terms of production and sales. Its advanced technology is offered in a comprehensive product matrix. Its core competitive advantages include stable quality and cost-effectiveness. It is stepping up R&D investment based on its technological foundation while building a position in advanced packaging. With product structure upgrades, its main revenue streams are stable.
Upstream boom, diverse downstream applications, advanced packaging foray
Three factors are driving the rapid development of China's packaging and testing market: 1)Upstream: The increase in IC localization is driving demand for packaging and testing. Various international events have raised consumer awareness of the importance of chip localization. The semiconductor industry is entering a third phase of global capacity transfer with China as the main area of expansion. The construction of China fabs is reaching a peak, which we expect to drive growth in the downstream packaging and testing market.
2) Downstream: New applications continue to come into the market and this maintains the growth momentum. The rapid development of 5G, smart cars, artificial intelligence (AI), Internet of Things (IOT) and other industries carves out new market potential in the semiconductor industry. We expect the global semiconductor industry to enter a new growth cycle.
3) Advanced packaging: the importance of packaging technology innovations has increased. Demand for miniaturization and low energy consumption in the downstream market has emerged and demand for chip packaging skills continues to increase. With the advent of the post-Moore era, packaging innovations have become crucial.
Tech structure: traditional packaging advantages; advanced packaging
Chippacking’s technology know-how in traditional packaging is similar to those of industry leaders, giving it a competitive advantage. It is stepping up its game in advanced packaging technology, which accounted for 24.60% of core revenue in 1H21. According to Yole forecasts, the traditional packaging market will continue to grow as there is growth headroom, while the advanced packaging market has enormous growth potential and is set to become a hot market. The company's existing R&D and pipeline packaging technologies are in line with future development trends in the packaging and testing market, in our view.
Chippacking has the following three advantages: 1) as a domestic IC packaging and testing leader, it has high-quality R&D based on a technical foundation, and has built up a production and quality management system that has narrowed the domestic-overseas gap between advanced packaging and tier-one manufacturers. This augurs well for its market position potential. 2) Its core technology advantages in traditional packaging help the company to grasp development opportunities in terms of domestic substitution and branded customer expansion in traditional packaging products. 3) It is actively deploying advanced packaging technologies, including 5G, MIMO base stations, GaN microwave radio frequency power amplifier plastic packaging technology, CPC, CDFN/CQFN packaging and FC packaging technology, which help Chinese leaders to narrow the technological gap with global leaders.
Valuation and risks
We expect net profit of RMB137m/167m/215m and EPS of RMB1.29/1.57/2.02 in 2021/22/23E. Relative to its packaging and testing peers, we set a corresponding PE of 40x in 2022E. We initiate coverage with a BUY rating and a target price of RMB63. Risks include: weak competitiveness in the advanced packaging business; iterative tech risks related to product upgrades in IC circuit packaging and testing; the risk of its independent defined packaging forms cannot be recognized by the market; the risk of increased market competition; industry fluctuations and demand changes risk; raw material price fluctuation risk; sales area concentration risk.
* Note: The investment ratings given by TFI Asset Management Limited may have taken reference to the research report previously issued by other entities of the TF Group. For details, please contact us at research_tfi@tfisec.com.
免责声明(DISCLAIMER):
此文件仅发给指定收件人或机构。其内容可能包含某种享有法律特权或者需要保密的信息。对于任何未经本公司授权而对本文件所载内容进行使用、披露、分发、变更之行为及由此产生的后果，天风国际证券集团有限公司及其联属公司和附属公司（“天风集团”）概不承担任何责任。如您并非此文件的指定收件人或机构，请立即通知天风集团，并立即销毁此文件。谢谢合作。
This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF International Securities Group Limited and its affiliates and subsidiaries (“TF Group”) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intended recipient, please inform TF Group and destroy this message immediately. Thank you.