Item: the core focus of microelectronics
1. Based on the judgment of the development prospect of MEMS and GaN industry, the company made a major adjustment to its long-term development strategy in 2020, divesting avionics, navigation and other non-semiconductor businesses one after another, forming a business pattern with semiconductors as the core, focusing on MEMS and GaN. The proportion of MEMS business to revenue in 2020 and the first half of 2021 was 88.85% and 91.45%, respectively.
2. The company's MEMS business has developed smoothly after the acquisition of Swedish Silex. Beijing 8-inch MEMS international OEM line expands production capacity on the basis of replicating Swedish Silex production line and directly adopts Swedish Silex mature technology. Mass production has been announced in June 2021, indicating that the company has the ability of technology transfer. With the mass production of Beijing contract production line, the company will change from MEMS "boutique factory" to "mass production factory". At present, the annual production capacity of MEMS production line in Sweden is 84000, while that of Beijing MEMS production line is 60,000. We believe that the MEMS business will bring continued growth in revenue and profits to the company in the next few years.
3. The company began to cultivate GaN business in 2018. The existing GaN business includes epitaxial materials and device design. The construction of the 6-8-inch GaN epitaxial material manufacturing project (phase I) has been completed, with an 8-inch annual production capacity of 10,000 pieces, which has been officially sold to the market; GaN power devices have also begun to be introduced to the market, and we believe that this part of the business will become an important increase in the company's future revenue.
4. We estimate that the operating income of the company from 2021 to 2023 will be RMB 9391,571 million, respectively, and the net profit of return to the mother will be RMB 2.06 million and RMB 275 million, respectively, and the corresponding PE will be 11788max 59x. Cover for the first time, giving a "buy" rating.
Comments:
Transformed into a semiconductor enterprise, focus MEMS and the third generation semiconductor GaN Beijing Sai Microelectronics Co., Ltd. was established on May 15, 2008, and successfully listed on the gem on May 14, 2015. Since its establishment, the company has been engaged in the research, development, production and sales of inertial, satellite and integrated navigation products for a long time. In 2016, the company wholly acquired Sweden's SilexMicrosystems AB, a leading global MEMS chipmaker, and introduced a strategic shareholder Beijing Integrated Circuit Manufacturing and equipment Equity Investment Fund. At the same time, it launched the construction project of "8-inch MEMS International OEM Line" in Beijing. In 2018, the company set up the concentrating crystal source, the concentrating core, and laid out the third generation semiconductors. The concentrating crystal source successfully developed an 8-inch silicon-based gallium nitride epitaxial wafer that reached the leading level in the global industry. In 2019, the company completed its private offering, and the National Integrated Circuit Industry Investment Fund became the second largest shareholder. In the same year, it completed the construction of the 6-8 inch GaN epitaxial material manufacturing project (phase I). In 2020, the company made a major adjustment to its long-term development strategy and began to spin off its non-semiconductor business. In the third quarter of 2020, it spun off its avionics and partial navigation business, as well as auxiliary businesses such as maritime intelligent manufacturing software agency sales. In 2021, the company continued to spin off inertia and integrated navigation business, which has been approved by the State Administration of Science, Technology and Industry for National Defense. In June 2021, the company announced that the Beijing 8-inch MEMS international contract production line started mass production and began mass commercial production.
Upon completion of the spin-off of inertial and integrated navigation services, the company will be completely transformed into a semiconductor enterprise, focusing on MEMS and the third-generation semiconductor GaN. The future company takes semiconductor business as the core, facing the era of Internet of things and artificial intelligence. On the one hand, it focuses on developing MEMS process development and wafer manufacturing business, on the other hand, it actively arranges GaN materials and devices business. The company's main products and business include MEMS chip process development and wafer manufacturing, GaN epitaxial material growth and device design, downstream application fields including communications, biomedical, industrial science, consumer electronics, etc., serving customers including global DNA/RNA sequencer giants, new ultrasonic equipment giants, network communications and application giants, as well as leading companies in industrial and consumer segments.
As of June 30, 2021, the company's largest shareholder is the company's actual controller Yang Yunchun, with a shareholding ratio of 38.39%; the second largest shareholder is the National Integrated Circuit Fund, with a shareholding ratio of 13.83%; the third largest shareholder is the Beijing Integrated Circuit Manufacturing and equipment Equity Investment Center, with a shareholding ratio of 1.53%.
With the strategic change in the composition of corporate revenue, MEMS has become the main source. In 2015, all the company's revenue came from navigation products; after the acquisition of Swedish Silex in 2016, MEMS wafer manufacturing accounted for 20%. After that, MEMS business developed well, navigation and avionics business did not develop well, and the company's MEMS revenue share gradually increased. In 2020, the company decided to focus on semiconductor business and divest its existing non-semiconductor businesses such as navigation and avionics. MEMS wafer manufacturing accounted for 56% of MEMS process development accounted for 33%, and total revenue accounted for 89%.
MEMS is the company's main source of income, transforming MEMS (Micro-Electro-MechanicaSystems) from "boutique factory" to "mass production factory", that is, micro-electro-mechanical system (MEMS). It refers to a micro-to mm-sized micro device or system constructed by semiconductor production process, which integrates micro-sensor, signal processing and control circuit, micro-actuator, communication interface and power supply. MEMS organically combines the electronic system with the surrounding environment. Micro-sensors receive motion, light, heat, sound, magnetic and other signals, and the signals are converted into electrical signals that can be recognized and processed by the electronic system. Some MEMS devices can operate on external media through micro-actuators. MEMS can greatly improve the automation and intelligence level of the system. According to the Yole Development report, the global MEMS market is worth US $12.1 billion in 2020 and is expected to reach US $18.2 billion by 2026, with an average annual compound growth rate of 7.2% from 2020 to 2026.
Silex is the world's leading pure MEMS contract manufacturing company. The company entered the MEMS business through the acquisition of Silex Microsystems AB in 2016. according to YoleDevelopment, Silex has been ranked in the top five in global MEMS foundry revenue since 2012, and has been ranked in the top two in the field of MEMS pure foundry. It has been in continuous competition with TELEDYNE DALSA, Sony Group Corp (SONY), Taiwan Semiconductor Manufacturing Co Ltd (TSMC), X-FAB and other manufacturers, and has long been in the first echelon of global MEMS wafer foundry, ranking first in the world in 2019 and 2020. The share of the global contract manufacturing market for MEMS chips (excluding the statistics of IDM manufacturers' own manufacturing) is about 8 per cent in 2020.
Expand MEMS contract manufacturing capacity, from a "boutique factory" to a "mass production factory". With the rise of high-frequency communications and the Internet of things, the variety of MEMS products has increased and the market scale has expanded. The industry has put forward higher requirements for shortening the production cycle and reducing production costs. At the same time, the rapid rise in MEMS process research and development costs and the high cost of building factories in the future have prompted more semiconductor design manufacturers to outsource process development and production-related manufacturing processes. The business model developed by pure MEMS foundry and MEMS product design company will become the mainstream trend in the future. To this end, the company continues to expand the production capacity of Silex in Sweden. On the one hand, it upgrades the original 6-inch production line to 8 inches, on the other hand, it continues to increase the overall production capacity of 8-inch production line by purchasing key equipment, which was completed in the third quarter of 2020. At present, the production capacity of Swedish Silex has been increased to 7000 pieces per month. In addition to expanding the production capacity of Silex in Sweden, the company also built an 8-inch MEMS international contract production line (Beijing FAB3) in Beijing, which was successfully mass-produced in June 2021. The mass production of Beijing FAB3 means that the company's MEMS business begins to have standardized scale production capacity, which will cooperate with the company's Swedish FAB1&FAB2 to help the company transform from a "boutique factory" to a "mass production factory" of MEMS, which can further meet the growing needs of customers in global communications, biomedical, industrial automotive, consumer electronics and other fields for MEMS process development and wafer manufacturing. Enhance the company's global market competitiveness in the field of MEMS. In addition, the company plans to expand the second and third phases of Beijing FAB3 production capacity at the same time, that is, the monthly production capacity will be directly increased from 10,000 to 30,000.
The company's existing MEMS business includes process development and wafer manufacturing. MEMS process development business refers to the development of product manufacturing process based on the chip design scheme provided by customers, with the goal of satisfying product performance, realizing product "producibility" and balancing economic benefits, making use of process technology reserve and project development experience, and providing customized product manufacturing process for customers. MEMS wafer manufacturing business refers to providing customers with batch wafer manufacturing services after the completion of MEMS chip process development, product design solidification and production process solidification. The company can manufacture flow, infrared, acceleration, pressure, inertia and other sensors, microfluidic, microultrasound, micromirror, optical switch, high-performance gyroscope, silicon microphone, radio frequency and other devices, as well as a variety of MEMS basic structure modules. In 2020, the company realized MEMS wafer manufacturing income of 430 million yuan, an increase of 40% over the same period last year; MEMS process development income of 250 million yuan, an increase of 9% over the same period last year; the comprehensive gross profit margin of MEMS business reached 48.35%, up 5.27% over 2019. Specifically, on the one hand, the increase in wafer unit price driven by strong market demand and the initial scale effect in the context of capacity expansion, the gross profit margin of MEMS wafer manufacturing is 38.4%, an increase of 12.79% over 2019. On the other hand, in the case of tight production capacity and sufficient orders, in order to serve the long-term business planning, the company selected to undertake MEMS process development business, the gross profit margin of this business is as high as 65.6%, keeping at a high level.
GaN business is in the early stage of cultivation and revenue is waiting to be released
GaN devices are in the stage of growth. GaN is a category of the third generation semiconductor materials and devices. Because its band gap (Eg) is greater than or equal to 2.3electron volts (eV), it is also called a wide band gap semiconductor material. Compared with the first and second generation semiconductor materials such as silicon (Si) and gallium arsenide (GaAs), the third generation semiconductor materials and devices have the advantages of high thermal conductivity, high breakdown field strength and high saturated electron rate. It can meet the new requirements of modern electronic technology for harsh conditions such as high temperature, high power, high voltage, high frequency and anti-radiation. According to the report of Yole Development, the global market size of GaN power devices is US $46 million in 2020, and is expected to reach US $1.1 billion in 2026. The average annual compound growth rate in 2020-2026 is 70%. The global GaN RF device market is expected to reach US $891 million in 2020, is expected to reach US $2.4 billion in 2026, and the average annual compound growth rate is 18% in 2026-2026.
The company's existing GaN business includes epitaxial materials and device design. GaN epitaxial materials business refers to the growth of 6-8 inch silicon-based gallium nitride (GaN-on-Si), silicon carbide-based gallium nitride (GaN-on-SiC) and other GaN epitaxial materials through MOCVD equipment based on self-mastered process know-how, according to the established technical parameters or customer-specified parameters, and sell to GaN device designers and manufacturers. At present, the company has completed the construction of the 6-8 inch GaN epitaxial material manufacturing project (phase I), with an 8-inch annual production capacity of 10,000 tablets, has established cooperation with downstream customers and officially sold to the market. GaN device design business refers to the accumulation of technology-based design and development of GaN power and microwave devices, and sales to downstream customer communication equipment, data centers, new power supplies, smart home appliances and other manufacturers. At present, the company has launched several GaN power device products, completed the system-level verification and testing, and signed a batch sales contract after a small batch trial production; the company continues to cooperate with downstream well-known power supply, home appliance and communication companies, while continuing to promote the research and development of microwave device products. With the introduction of GaN products to the market, this business will become a new source of revenue for the company.
The scale of income reaches a new high and investment in research and development is increased.
In the case of divesting the old business, the company's revenue reached a new high. In 2020, the company achieved an income of 765 million yuan, an increase of 6.55% over the same period last year, a record high; gross profit and net profit were 45.49% and 24.50%, respectively; and the net profit was 201 million yuan, an increase of 74.20% over the same period last year. However, most of the net profit in 2020 is non-recurrent profit and loss, including profit and loss on disposal of non-current assets, government subsidies, etc., and the net profit after deducting non-current assets accounts for only 2.77%. Mainly because the company continues to increase R & D investment, R & D rates are on the high side, 15.39% and 25.54% in 2019 and 2020, respectively, and R & D expenses have greatly reduced the company's operating income.
According to the company's semi-annual report of 2021, the income in the first half of 2021 was 395 million yuan, an increase of 9.74% over the same period last year; the net profit was 72.06 million yuan, an increase of 515.57% over the same period last year; and the net profit loss was 5.49 million yuan, mainly due to the fact that the new Beijing production line had just been put into operation.
Financial forecasts and investment recommendations
We make assumptions about the company's core data based on the following logic:
1. With the completion of the upgrading of the Swedish MEMS production line in the third quarter of 2020 and the announcement of mass production by Beijing FAB3, the revenue from MEMS wafer manufacturing and process development will continue to grow. 2. GaN business includes other businesses and products have been introduced to the market one after another. We expect a high revenue growth rate, but due to the low base, the short-term contribution to income is limited. 3, with the completion of the divestiture of the non-semiconductor business, the revenue of avionics business in 2021 is 0min and the income of navigation products is also 0b4. In terms of gross profit margin, with the transformation of Beijing FAB3 into mass production, it takes time to start mass production to reach full production, which will have a negative impact on gross profit margin in the short term; 5, in addition to R & D rates, the rates for other periods have declined steadily due to the growth of revenue scale.
Based on the above assumptions, we estimate that the operating income of the company from 2021 to 2023 will be RMB 9391,571 million, respectively, and the net profit attributable to the company will be RMB 2.06 million, respectively, and the corresponding PE will be RMB 275 million and 59x, respectively. At present, A shares can not be directly targeted with the company. We select some similar companies, such as Minxin shares of MEMS chip design company, Sanan Optoelectronics with layout of third-generation semiconductors, and chip foundry Semiconductor Manufacturing International Corporation. The valuation level of the company is slightly higher than the average value. Considering the company's first market position in the world of MEMS foundry, the imminent release of new production capacity in Beijing and the growth of GaN business, it is covered for the first time. Give a "buy" rating.
Risk hint
1. Systemic risks caused by macroeconomic fluctuations, major natural disasters and contagious epidemics lead to lower-than-expected downstream demand. 2. Beijing plant's production expansion is not as expected or the good rate is slow, resulting in the company's performance falling short of expectations. 3. GaN new product development and market promotion are not as expected, unable to release revenue 4. The global trade conflict may lead to the lower-than-expected localization process of the semiconductor industry chain. 5. The management risk of the enterprise itself may lead to lower-than-expected performance.