Ping An's point of view:

The world's leading semiconductor integrated circuit packaging and testing manufacturer, with seven production bases around the world: Tongfu Microelectronics is a leading domestic and world-advanced semiconductor integrated circuit package testing service provider, focusing on providing global customers with one-stop solutions from design simulation to package testing. The company's packaging technology covers everything from traditional packaging to advanced packaging, and has almost all packaging forms. Its products cover various fields such as smartphones, artificial intelligence, 5G communications, consumer terminals, the Internet of Things, automotive electronics, industrial control, etc., to meet the diverse needs of customers. The company is headquartered in Nantong, Jiangsu, and has a global manufacturing and service base. It has a total of seven production bases in Nantong, Hefei, Xiamen, Suzhou, and Penang, Malaysia. In recent years, with the rapid development of emerging fields such as smart phones, new energy vehicles, and artificial intelligence, demand for semiconductor integrated circuit packaging and testing services has continued to grow. The company achieved operating revenue of 107.69/158.12/214.29/15.907 billion yuan in the first three quarters of 2020-2023, respectively, an increase of 30.27%/46.84%/35.52%/3.84% over the previous year.

Deeply bind to AMD and expand the global packaging and testing industry layout: Tongfu Microelectronics and AMD, the world's leading chip design company, have formed a strong “joint venture+cooperation” model to expand the company's global industrial layout through the acquisition of Chaowei Suzhou and Chaowei Penang. The company has seven major production bases around the world. Among them, the production sites in Suzhou and Malaysia are originally Chaowei semiconductor core packaging and testing plants, which mainly provide AMD with packaging tests for high-end products such as CPUs, GPUs, APUs, and game console chips. Tongfu Microelectronics is AMD's largest packaging testing supplier, accounting for more than 80% of its total orders. As the top manufacturers in their respective racetracks, Tongfu Microelectronics and AMD Ultrafice Semiconductors each provide integrated services such as chip design, simulation, packaging, and testing through in-depth cooperation. In an increasingly competitive global semiconductor environment, with differentiated competitive advantages, they continuously improve the performance of middle and high-end chips while improving the global industrial layout.

In the AI era, the company will shine with 2.5D/3D advanced packaging technology: with the advent of technologies such as ChatGPT and the advent of the AI era, the industrialization of AI applications has entered a new stage. In June 2023, AMD released the MI300 AI chip, which will greatly improve the processing speed of various generative AI big language models. As a key technology to improve chip performance, advanced packaging will also bring about a new round of rapid development in packaging demand as demand for high-performance computing and AI is released. According to TIP, the global share of advanced packaging in the integrated circuit packaging and testing market will continue to increase, and is expected to account for more than 50% of the total packaging market in 2025. The advanced packaging Visions technology and 2.5D/3D Chiplet technology independently developed by Tongfu Microelectronics are mainly aimed at high-performance computing. At the same time, relying on years of cooperation with industry leaders such as AMD, they will continue to increase the market share in the packaging and testing field and enhance the company's core competitiveness.

Investment advice: Tongfu Microelectronics is a domestic semiconductor integrated circuit packaging and testing leader, and has been among the top ten global semiconductor packaging and testing companies for many years. The company provides a one-stop service for integrated circuit packaging testing, including integrated circuit design and characteristic simulation, wafer midway packaging and testing, and system-level packaging and testing services. The products are mainly used in electronic equipment and intelligent fields such as 5G communication networks, intelligent mobile terminals, automotive electronics, big data centers and storage, artificial intelligence and industrial automation control. The products basically achieve full coverage from traditional packaging to high-end packaging. With the rapid development of technologies such as smartphones, new energy, and artificial intelligence, the company's performance as a semiconductor integrated circuit packaging and testing OEM side will grow steadily. We expect the company's net profit to be 173/11.03/2,294 billion yuan respectively, EPS 0.11/0.73/1.51 yuan, and PE corresponding to the closing price on April 8 is 186.5/29.2/14.0 times, respectively. Based on the deep bond between Tongfu Microelectronics and AMD Ultrafine Semiconductor, in the era of artificial intelligence, its leading VisionS platform and 2.5D/3D advanced packaging technology have obvious advantages, continuously breaking through the high-end packaging field. We expect the company's performance to benefit from this AI wave, cover it for the first time, and give it a “recommended” rating.

Risk warning: (1) Risk of loss of key advanced packaging technicians. If the company fails to effectively stabilize the company's core technical team, provide competitive treatment in the market, and maintain the introduction and cultivation of new talents, then there may be a risk of brain loss or shortage, which will adversely affect the company's ability to continue R&D. (2) Risk of fluctuations in business performance due to the cyclical nature of semiconductors. If the semiconductor industry enters a downward cycle and product prices fall, the sales revenue, gross profit margin, net profit, etc. of the company's products will also decline or even lose money. (3) Risk of being affected by international trade frictions. If the company fails to successfully expand new customers or suppliers in a timely manner, under extreme circumstances, the company's operating income may decline, causing the company's operating performance to decline significantly. Therefore, there is a risk that the company's production and operation will be affected by international trade frictions.