Key points of investment:
Established for eight years, it has taken advantage of Hefei's geographical location to become a global leader in DDI foundry. Since its establishment, the company has always focused on DDIC chips. In its early development, it mostly relied on the help of Lijing Technology in terms of personnel and technology, and then gradually developed its own core technology independently as the company continued to develop its own core technology. The core technology platforms in the fields of LED display drivers, CIS, e-Tag, MCU, PMIC, and 55nm logic and DDIC were all independently developed. In terms of process nodes, the company has now achieved mass production of 150nm-55nm platforms, and is currently developing 40nm and 28nm platforms. In 2022, the company's 12-inch foundry production capacity reached 1.2621 million pieces. Of the 20% global market share of local driver ICs, Crystal Integration contributed more than 80% of production capacity. According to the 2022 global market sales ranking of the pure wafer foundry industry published by TrendForce, the company ranked in the top ten in the world and ranked third among mainland Chinese companies.
Mainland Foundry builds advantages in circulation and cost within the supply chain. Since 2018, as panel manufacturing capacity continues to shift domestically, mainland China has established its position as a global panel manufacturing center and has also become a major global DDIC market. While accelerating the localization of midstream displays, it will also drive the simultaneous shift in the upstream supply chain. From the perspective of supply chain security and collaboration, domestic manufacturers with low costs, short certification cycles, and convenient local services will definitely be the first choice.
OLED and new display technology are the main growth points for the future DDIC market. The company's 40nm HV OLED platform already has product design and streaming capabilities. In the future, the 28nm logic platform and 28nm OLED DDIC process platform will be further developed for higher-end terminal applications. The development is expected to be completed by the end of 2025. Furthermore, the company is developing silicon-based OLED technology for miniature display technologies such as AR/VR, and has developed in-depth cooperation with leading domestic panel companies.
Build a multi-technology process platform and continue to expand CIS, MCU, PMIC, e-TAG and other businesses. The company continues to expand its customer base and has established long-term and stable cooperative relationships with leading IC design manufacturers in the domestic and foreign industry. In 2022, CIS leader Stevie entered the company's top five customers for the first time, with sales revenue reaching 1,106 billion yuan, accounting for 11% of revenue; on the PMIC side, the company cooperated with Jewart to develop a technology platform to lay out the automotive field; in the MCU field, the company's 110nm high-end platform has completed development and entered the risky mass production stage. The company's non-DDIC business is expected to account for close to 20% in 2023, opening up room for future growth with its diversified platform layout and continuous R&D investment.
First coverage, giving a “buy” rating. We expect the company's revenue for 2023-2025 to be 73.40/116.7/14.642 billion yuan, net profit to mother of 479 million/1,044 million/1,737 million, and the corresponding PE is 67/31/19X. We used the 2024 profit forecast for the valuation, which is comparable to the company's 24-year average PE of 41.1X. <6BDB>Considering that Crystal Integration is currently the third largest fab in mainland China, leading the DDIC foundry field, and has strong diversified development growth potential, we gave the company 41.1XPE in 2024, with a target space of 34.3%, corresponding to a target price of 21.72 yuan. For the first time, we covered it for the first time, and gave it a “buy” rating.
Core hypothetical risks: 1) risk of process platform development falling short of expectations; 2) risk of increased industry competition; 3) risk of semiconductor cycle fluctuations.