2023 results fall short of our expectations
The company announced its 2023 results, achieving revenue of 3.19 billion yuan, -11.39%; gross profit margin of 16.46%, year-on-year -6.26ppt; net profit to mother of 187 million yuan, or -42.61% year-on-year; net profit after deducting non-return to mother of 166 million yuan. 4Q23 achieved revenue of 800 million yuan, -20.32% year-on-month, -2% month-on-month; gross profit margin of 9.42%, year-on-year -14.21ppt; month-on-month -5.66ppt; and net profit to mother of -0.26 million yuan. Continued weakness in downstream demand and high inventories led to lower performance than we expected.
Development trends
Looking back at 2023: On the business side, the overall operating rate of fab plants (including storage) was low in 2023 when downstream inventories were high, which affected demand for silicon wafers, leading to a sharp decline in the company's gross margin. Weak global macroeconomic conditions and the intensification of high inflation and high interest rates have also affected the global semiconductor market recovery and inventory adjustment cycle. The global semiconductor market as a whole showed a downward trend in 2023. In terms of production capacity, Xinsheng added 150,000 wafers/month in 2023, and the company's total production capacity of 300mm silicon wafers has reached 450,000 wafers/month; Xinao Technology and Okmetic have a total production capacity of 200mm and below polishing wafers and epitaxial wafers exceeding 500,000 wafers/month; and the total production capacity of the subsidiary Xinao Technology and Okmetic 200mm and below SOI silicon wafers exceeds 65,000 wafers per month. In addition, Shanghai Xinsheng plans to invest in the construction of a 300mm new production line in Taiyuan, with a total investment of 9.1 billion yuan. It is expected that the construction of the pilot line will be completed in 2024.
Looking ahead to 2024: As a semiconductor material, silicon wafers are mainly affected by factors such as the operating rate and inventory of the wafer factory, and are the last part of the cycle fluctuation. We believe that although terminal inventories have been adjusted to a reasonable level in the first half of 2024, demand is still weak, leading to insufficient chip delivery, and the operating rate of wafers is still low, so demand for silicon wafers is still insufficient. However, we think the point of domestic silicon wafer manufacturers is that currently the pace of expansion of production in mainland China is still relatively fast, and there will be more customer reserves in the future.
Profit forecasting and valuation
We think the overall recovery in customer demand in the first half of 2024 is likely to fall short of our expectations. The company's 2024 revenue was reduced by 14% to 3,999 million yuan, and net profit was reduced by 14% to 247 million yuan; for the first time, a revenue forecast of 4.867 billion yuan and net profit of 393 million yuan were introduced for the first time. The 2026 EBITDA was lowered to 2.02 billion yuan, and the target price was lowered by 24% to 17.34 yuan, corresponding to the 2026 30xEbitda/EV, with 40% upside compared to the current stock price.
risks
The recovery of customer fab capacity utilization falls short of expectations; customer capacity construction falls short of expectations; industry competition intensifies.