The company focuses on the advanced packaging field, and its products include SIP, QFN/DFN, FC and MEMS. In the past three years, it has nearly 60% of CAGR revenue, catching up with the first echelon manufacturers of independent closed testing in China in all aspects. In recent years, the company's product structure has been continuously optimized, high-end technology has been continuously improved, and at the same time, the company has actively expanded its production capacity. the company expects the second phase of the project to achieve annual sales of 11 billion yuan. We are optimistic about the long-term development of the company and give the target price 44 yuan. Cover for the first time, giving a "buy" rating.

Company profile: the company focuses on the advanced packaging field and sets foot in four categories to catch up with the first echelon manufacturers of independent closed testing in China. The company was founded in November 2017, engaged in integrated circuit packaging and testing business, integrated circuit design enterprises as the main downstream customers. Since its inception, the company has focused on the field of advanced packaging, the main products include high-density fine-pitch bump flip (FC products), system-level packaging (SiP), flat unpinned packaging (QFN/DFN), micro-electromechanical system sensors (MEMS) four categories, involving 9 main packaging forms, a total of more than 1900 production varieties, has accumulated more outstanding process advantages and technical capabilities in the cutting-edge fields of related industries. In recent years, the company's product structure has been continuously optimized and its technology reserve has been continuously improved, which has won a high degree of recognition from downstream customers, and its revenue scale has also grown at a high speed. In the past three years, its revenue CAGR has reached nearly 60%, and its net profit has increased steadily. It is actively catching up with the first echelon manufacturers of independent closed testing in China in all aspects.

Covering the market: the chip is the key technology to reduce cost and increase efficiency, and the global advanced packaging market is expected to exceed 50 billion US dollars in 2026. According to Yole, the global packaging market is growing steadily, reaching $66 billion in 2020, and is expected to rise to about $85 billion in 2025, corresponding to 5.2% of CAGR. In the closed test market, advanced packaging is the main growth momentum, and the market scale is growing rapidly every year. According to Yole, the market size is US $32.1 billion in 2021 and is expected to reach US $57.2 billion in 2027, corresponding to a CAGR of 10.1%, which is higher than the growth rate of the traditional packaging market. In addition, Yole predicts that by 2026, the advanced packaging market will catch up with the scale of traditional packaging, accounting for 50% of the total size. The concentration of the closed testing industry is high. According to ChipInsights data, the global closed testing manufacturer CR10 is nearly 80% in 2022, and each manufacturer has its own areas of expertise.

Company advantages: focus on advanced packaging areas, products include SIP, QFN/DFN, FC, MEMS four categories, downstream coverage of the fastest growing demand in recent years in most areas. In recent years, all the products of the company are QFN/DFN, WB-LGA, WB-BGA, Hybrid-BGA, FC-LGA and other advanced packaging forms, and have outstanding process advantages and advanced technology in advanced packaging fields such as system-level packaging (SiP), high-density fine-pitch bump flip products (FC products), large-size / fine-pitch flat unpinned packaging products (QFN/DFN). The company's packaging and testing service products include all kinds of application SoC chips, power management chips, WiFi/ Bluetooth and other Internet of things chips, all kinds of IC chips, mobile phone RF front-end chips, digital currency chips, etc., covering most of the areas where the demand for integrated circuit chips is growing fastest in recent years, and the capacity utilization is in the leading position in China. The company has established cooperative relations with Hengxuan Technology, Jingchen shares, Fuhanwei, MediaTek, Beijing Junzheng, Xinchuang Technology, Quanzhi Technology and other well-known chip companies in the industry. As of June 30, 2023, the company has obtained a total of 281 patents, including 111 invention patents.

Capacity layout: since its establishment, the company has actively expanded its production capacity and is expected to have an annual production capacity of 13 billion pieces of medium and high-end integrated circuits and annual sales of 11 billion yuan by 2030. The first phase of the company covers an area of 126mu, and the project plans to invest 3 billion yuan in five years and be implemented in two stages. after reaching production, it has an annual production capacity of 5 billion pieces of medium-and high-end integrated circuits and annual sales of 3 billion yuan. The construction of the second phase of Yongsi project has been started in 2020. the company estimates that the total investment of the project is 10 billion yuan. The second phase plans to grow to 15000 people by 2030. After reaching production, it has an annual production capacity of 13 billion medium and high-end integrated circuits and an annual sales capacity of 11 billion yuan.

Risk factors: the risk of product failure to upgrade, iteration and R & D failure; the risk of high asset-liability ratio and solvency; the risk of capacity digestion of fund-raising investment projects; the risk of high customer concentration; the risk of lower-than-expected industry prosperity or increased competition; the risk of global economic fluctuations; the risk of changes in industrial policy beyond expectations.

Earnings forecast, valuation and rating: benefit from the semiconductor industry is expected to improve, we expect the company's revenue is expected to achieve steady growth. At present, the company's major customer business is progressing smoothly, the market share is gradually increasing, and the volume of high-end products is gradually expanding. The prosperity of the semiconductor industry has rebounded, and the company's business is in an important closed test link of domestic replacement of high-end chips such as RF and SoC. At present, it is actively expanding production, and future growth is expected to continue. We estimate that the company's annual revenue in 23-24-25 will be 25.45 $3.362 billion. As the company is still in the stage of high input capacity layout, we expect short-term profit margins to remain relatively low and long-term profit flexibility, and we give priority to revenue as a measure of valuation. We refer to the market rate method of PS, a closed testing company in the same industry, and select Changdian Technology, Tonfu Micro Power, Huatian Technology, Jingfang Technology, Weisheng Technology, and Huicheng shares, which are also engaged in closed testing business in China, as comparable companies. As of October 16, 2023, the average PS of comparable companies was 6.8 times (based on the consensus forecast of Wind in 2023). As a rising star of domestic advanced packaging, the company has strong technical strength, strong customer resources, capacity utilization rate to maintain a leading position in China, and low income base and large space for future growth. With reference to the average valuation level of comparable companies, we give the company 7 times PS valuation in 2023, corresponding to a market capitalization of 17.8 billion yuan. In addition, according to the DCF valuation model, we estimate that the reasonable equity value of the company is 18.5 billion yuan. Taken together, we give the company a target market capitalization of 17.8 billion yuan and a corresponding target price of 44 yuan. Cover for the first time, giving a "buy" rating.