Company Profile

Hebei Sinopack Electronic Technology Co Ltd is a China-based company mainly engaged in the research, development, production and sales of electronic ceramic products. The Company's main products are electronic ceramic products, which mainly include electronic ceramic housings for communication devices, electronic ceramic housings for industrial lasers, consumer electronic ceramic housings and substrates, and automotive electronics. The Company's products are used in optical communications, wireless communications, automotive electronics, consumer electronics and other fields. The Company mainly conducts business within domestic and foreign markets. (Source: Reuters)

Event

Hebei Sinopack Electronic Technology Co Ltd ("Sinopack"/ the company) announced its first-half financial results of 2023.

In 1H23, the company reported its revenue/ net income attributable to shareholders/ net income deducting non-recurring items at CNY 700 million/ CNY 79 million/ CNY 70 million, up 10.60%/ 1.18%/ 6.83% from a year earlier, with CNY 371 million/ CNY 43 million/ CNY 37 million in 2Q23, up 8.89%/ 1.01%/ 6.07% from a year ago and 12.8%/ 19.4%/ 8.8% from a quarter prior.

Comments

The company grew steadily despite sluggish demand in the industry, thanks to the accelerated sales volume increases in electrostatic chucks and ceramic heating plates.

In 1H23, the company's market share grew steadily despite the sluggish demand globally, which drove up its overall revenue.

Its gross margin declined by 2.24 percentage points (pps) to 25.90% and its net margin dropped by 1.05pps to 11.26%, owing to the rise in selling and administrative expense rates.

Thanks to major breakthroughs in ceramic for semiconductor devices, its profit headroom lifted remarkably.

The company has achieved massive shipment of ceramic electrostatic chucks and ceramic heaters for semiconductor devices, further consolidating the tendency of domestic substitution.

Owing to their extremely high moats, their profitability significantly beat the company's overall level, very likely significantly lifting its profit headroom.

The ceramic case for optical module outshone others, with its 800G surpassing top manufacturers.

As its ceramic case for high-speed optical module outperformed peers in China, and with the continuous more-than-expected orders for 800G optical modules, the company, as a rare manufacturer in China in ceramic cases for high-speed optical modules, will deeply benefit from it.

As its silicon carbide MOS for main drive progressed smoothly, GaN continuously lifted its overseas market share.

Beijing Advanced Semiconductor Innovation Co., Ltd. took the lead in surpassing China's leading players in new energy in terms of silicon carbide MOS for main drive, and is to see sales volume increases.

GaN PA steadily lifted its overseas market share and continuously expanded market of its new businesses such as 6G and satellite communications.

Earnings forecast and investment recommendation

Its net income attributable to shareholders is expected at CNY 599 million in 2023, CNY 1.003 billion in 2024, and CNY 1.514 billion in 2025, implying a P/E ratio to 51.2x, 30.6x, and 20.3x. And its CAGR in the upcoming three years is expected to top 50%, significantly undervalued.

Potential risks

slower-than-expected production capacity expansion; slower-than-expected new product research and development