Key points of investment

Market recovery has driven the company's performance to recover quarter by quarter. 23Q3 revenue and profit have reached record highs. As downstream inventory removal nears the end, compounding the impact of a gradual recovery in demand for larger panels, the driver chip market has been picking up rapidly since March 2023, and demand for closed testing has increased rapidly, driving the company's performance to recover from quarter to quarter. The three indicators of 23Q3 revenue, net profit, and net profit withheld from non-return have all reached record highs. 23Q3 achieved revenue of 458 million yuan, a year-on-year increase of 73.09%, a year-on-month increase of 20.53%; net profit of 123 million yuan, a year-on-year increase of 85.79%, a year-on-month increase of 33.98%; a net profit margin of 114 million yuan, a year-on-year increase of 151.46%, a year-on-year increase of 50.81%; a gross profit margin of 39.69%, a year-on-year increase of 4.33pcts, a month-on-month increase of 6.25pcts; net profit ratio of 26.78%, a year-on-year increase of 1.83pcts, and a month-on-month increase of 2.pc69ts.

Leading display-driven packaging and testing leaders continue to develop high-end products, expand production to seize industrial transfer+terminal recovery opportunities. The company focuses on the field of display driver chip packaging and the non-display chip packaging field represented by power management chips and RF front-end chips.

In the field of display driver chip packaging and testing, the company is one of the first enterprises in mainland China to achieve full-process sealing and testing capabilities for display driver chips; according to the 23H1 revenue scale ranking, the company has become the third largest display driver packaging enterprise in the world and number one in mainland China. The company continues to develop high-end products, and now has the industry's most advanced 28nm process display driver chip packaging and measurement capacity. Aiming at AMOLED screens for high-end smartphones, the company has forward-looking developed “125mm large-format crystal packaging technology”, which can exponentially increase the number of pins in the packaged chip. According to investor research records for November 2023, the company's AMOLED revenue for the first three quarters of 2023 accounted for about 18%, of which AMOLED revenue in the 23Q3 single quarter accounted for more than 20%, showing a gradual upward trend.

Looking at downstream applications, in the first three quarters of 2023, HDTVs and smart phones both accounted for more than 40% of the company's display driver chip packaging and testing business, while laptop revenue accounted for about 10%. 1) Television: According to data from Qunzhi Consulting, global television shipments in 2023 fell to 215 million units, a record low of nearly ten years; with the moderate recovery of the economy and the hosting of major events such as the European Cup and Olympics, TV shipments and shipping area are both expected to resume growth in 2024. 2) Mobile phones: Due to weak smartphone demand, terminal brand manufacturers have been de-stocked since 21H2; according to Statista data, global smartphone shipments in 23Q2 were 265 million units, the lowest point in nearly 10 years. As terminal inventory removal comes to an end, and with the frequent release of new Android models such as the Mate 60, the global smartphone recovery has been significantly promoted, and the supply chain has entered a peak stocking season. Statista data shows that in 23Q3, 303 million smartphones were shipped globally, achieving a month-on-month increase for the first time since 2021. 3) Laptops: TrendForce said that as market inventories turn healthy and inflationary pressure is expected to stabilize, global laptop shipments are expected to bottom out and surpass pre-pandemic levels in 2024.

The company continues to increase the construction of new production capacity and has selected a new plant in Hefei to form a good synergy with upstream and downstream enterprises in the display industry such as Jinghe Integration, BOE, and Visinnuo. The plant completed the civil construction part in June '23, and construction began in August. It is expected that the infrastructure part will be completed within the year, and mass production will begin in 24Q1. The initial production capacity is planned to be about 10,000 units/month for BP/CP, and a production capacity of about 30 million EA/month for COF. We believe that under the general trend of shifting the focus of the panel industry chain to mainland China and the gradual recovery of downstream terminal applications such as television and mobile phones, the company is actively expanding production to fully seize development opportunities, and there is sufficient momentum for future growth.

The layout of non-obvious business is moving towards a comprehensive packaging and testing enterprise, and large-scale mass production of full-process fan-in packaging. The company aims to become a comprehensive packaging enterprise. In 2015, it laid out non-display chip packaging business. Using technically difficult bump manufacturing as a breakthrough, it successfully mastered various types of bump manufacturing technology such as copper-nickel-gold bumps, copper column bumps, tin bumps, etc., and developed “low stress convex bottom metal layer technology”, “micro pitch coil surround bump manufacturing technology” and “high dielectric layer processing technology”, etc., can guarantee core technologies such as “micro pitch coil surround bump manufacturing technology” and “high dielectric layer processing technology” At the same time, it effectively improves the performance of products such as power management chips at low cost. Furthermore, the company has successfully developed post-stage DPS packaging technology, and has achieved large-scale mass production of full-process fan-in wafer-level chip size packages.

Judging from the product structure, the products of the company's non-display chip packaging and testing business are mainly power management chips and RF front-end chips, with a small number of MCU and MEMS chips; in the first three quarters of 2023, power management chips accounted for more than 50% of revenue, and RF front-end chips accounted for more than 40% of revenue in the company's non-display chip packaging business.

With leading packaging and testing capabilities and high-quality product quality, the company has accumulated high-quality customer resources; the main customers for power management chip packaging include Silicon, Aiwei Electronics, Gewalt, Nanxin Semiconductor, etc., and the main customers for RF front-end chip packaging include Weijie Chuangxin and Onruiwei.

Investment suggestions: We expect that in 2023-2025, the company's revenue will be 15.75/19.17/2,311 billion yuan, 19.6%/21.7%/20.5%, respectively, and net profit of 3.39/4.54/566 billion yuan, 11.7%/34.0%/24.7%, respectively; PE is 50.0/37.3/29.9, respectively. Qizhong Technology has strong technical strength in the main process of display driver chips. At the same time, it actively lays out non-display chip packaging services to achieve large-scale mass production of full-process fan-in wafer-level chip size packaging. Under the general trend of shifting the focus of the panel industry chain to mainland China, combined with the gradual recovery of downstream terminal applications, the company continues to increase the construction of new production capacity, fully seize development opportunities, and have sufficient momentum for future growth. First coverage, giving a “buy” rating.

Risk warning: the risk that demand in the downstream terminal market falls short of expectations, the risk that new technology, new processes, and new products will not be industrialized as scheduled, the risk that market competition will intensify, the risk that production capacity expansion will fall short of expectations, systemic risks, etc.