Matters:
The company released its 2024 financial report. In the first quarter of 2024, the company achieved operating income of 5.282 billion yuan, an increase of 13.79% over the previous year; net profit to mother was 98 million yuan, an increase of 2064.01% over the previous year.
Ping An's point of view:
The downstream market gradually recovered, and 24Q1 profit increased dramatically: Thanks to the recovery in downstream demand for semiconductor integrated circuits, the company achieved rapid year-on-year growth in revenue in the first quarter of 2024. In addition, the company implemented open source savings measures, which also brought about significant profit side restoration. In the first quarter of 2024, the company achieved operating income of 5.282 billion yuan, an increase of 13.79% over the previous year, and realized net profit of 98 million yuan, an increase of 2064.01% over the previous year. Thanks to the company's efficient management, the company's overall gross margin increased to 12.14% in the first quarter of '24, up 2.69pct from the first quarter of last year, and the net margin increased 1.96pct to 2.19%. The overall increase was relatively significant for capital-intensive and labor-intensive sealing processes, and profitability increased.
Proposed acquisition of Jinglong Technology to improve testing business layout: Tongfu Microelectronics Co., Ltd. (“Tongfu Microelectronics” for short) plans to acquire 26% of Jinglong Technology's shares held by Jingyuan Electronics through KYEC for 1,378 billion yuan (tax included). Established on September 30, 2002, Jinglong Technology is the only testing subsidiary of Jingyuan Electronics, the world's largest semiconductor testing company, in mainland China. The service areas include wafer needle testing, IC product testing, and wafer grinding/cutting/grain picking. The product line covers Memory, Logic & Mixed-Signal, SoC, CIS/CCD, LCDDriver, and RF/Wireless. Among them, the test scale for driving ICs and eFlash has reached a leading position in China. Through this merger and acquisition, it will address the impact of the fragmentation of the global semiconductor industry chain caused by geopolitics and the conflict between China and the US. At the same time, it will improve the strategic layout of Tongfu Microelectronics and Jinglong Technology and deepen the development of their testing business.
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, etc., and the products 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 1,135 billion yuan and 2,256 billion yuan respectively (previous values were 1,103 billion yuan and 2,294 million yuan, respectively), and an additional 2026 net profit forecast of 2,947 billion yuan. EPS for 2024-2026 will be 0.75/1.49/1.94 yuan, respectively. PE corresponding to the closing price on April 26 will be 28.2/14.2/10.9 times, respectively. Based on the deep binding between Tongfu Microelectronics and AMD Ultrafine Semiconductors, 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 to benefit from this AI wave, be optimistic about the company's future development, and maintain the company's “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.