\u3000\u3000 Tianjin Zhonghuan Semiconductor Co.Ltd(002129) (002129)
Rationality of market expectation
The market expects that the compound growth rate of the company's net profit attributable to the parent company in the next three years will be about 78%, mainly based on the following three points: 1) the company's production capacity will be released rapidly. The company's silicon wafer production capacity will be 55gw by the end of 2020 and is expected to reach about 135gw by the end of 2022, laying the foundation for performance growth; 2) The competition pattern of silicon wafer link in the industrial chain is weak and it is difficult to maintain a high profit level; 3) With the release of Youshang 210's production capacity, the company's market share in 210 silicon wafer field will decline and its competitive position will weaken.
Unexpected drivers
We expect the compound growth rate of the company's net profit attributable to the parent company in the next three years to be 94%, about 16pct higher than the market expectation, mainly due to:
I. the shipment exceeds the expectation. Driving factors: 1) release of new production capacity: it is estimated that by the end of 2022, the company will form a single crystal silicon wafer production capacity of about 135gw, of which 210 products will reach 116gw, accounting for 86%. The total scale of the company's silicon wafer production capacity will rank first in the world; 2) Market penetration of G12 silicon wafer increased: the market penetration of G12 silicon wafer increased from 6% at the beginning of 2021 to 20% at the end of 2021q3. The company's market share in G12 silicon wafer exceeded 90%. Driving mechanism: 1) large silicon wafers can effectively reduce the cost of the whole industry chain, and reduce the non silicon cost and the BOS cost of photovoltaic power generation system by increasing the single string power; 2) In the case of structural overcapacity in the industry, the demand for large-size silicon wafers remains strong. Due to the significant increase of 210 silicon wafer technical barriers, the release cycle of large-size capacity of new entrants is long. Driving effect: in the future, the industry's demand for 210 silicon wafer products will continue to grow rapidly, and the company will maintain a high market share level by virtue of its technology, scale and cost advantages.
II. Higher than expected profitability: driving factors: 1) capacity structure: it is expected that the production ratio of 210 capacity will reach 86% by the end of 2022; 2) Production process: with the full process application of industry 4.0, labor productivity has increased significantly; 3) Operation and management efficiency: the reform of mixed ownership is completed, and the operation decision-making mechanism is market-oriented. Driving mechanism: 1) new production capacity has lower investment cost and higher production efficiency; 2) The company is transitioning to industry 4.0 to achieve the effects of reducing operating costs, improving yield and shortening R & D cycle; 3) The management mechanism has been transformed to market-oriented, the decision-making efficiency has been greatly improved, the management incentives have been in place, and the financial expenses have been reduced with the help of TCL Group's financial advantages. Driving effect: after the completion of the company's mixed ownership reform, the production capacity construction will be comprehensively accelerated, the internal decision-making efficiency will be significantly improved, and the long-term incentive mechanism for managers will be in place. With the full application of industry 4.0, the profitability is expected to be greatly improved.
Tracking and inspection
We will continue to track the following indicators to test the above logic: 1) 210 silicon wafer shipments; 2) Market penetration of 210 components; 3) By tracking the company's silicon wafer quotation and silicon material price, the profitability of the company's silicon wafer is deduced.
Different understanding
Different understanding of silicon wafer competition pattern. The market is worried that under the background of overcapacity of silicon wafer in the industry, silicon wafer manufacturers may compete for market share through the strategy of reducing prices and making profits, resulting in the squeeze of the profit space of leading companies. We believe that there is a long-term oversupply of silicon wafers, but in the market pattern: 1) 210 has a significant advantage in the cost side of terminal photovoltaic power station system BOS, and the penetration rate will increase rapidly. Therefore, the overcapacity of silicon wafers is structural overcapacity, and 210 silicon wafers are expected to maintain a state of short supply; 2) The company has leading technology and cost advantages in the field of 210 silicon wafer manufacturing, and its profitability is significantly higher than the industry average.
Profit forecast and valuation
We expect the net profit attributable to the parent company from 2021 to 2023 to be 3.85 billion yuan, 6.0 billion yuan and 8 billion yuan respectively, with a year-on-year growth rate of 253.6%, 55.8% and 33.3% respectively, corresponding to EPS of 1.19, 1.86 and 2.48 yuan / share respectively, and corresponding PE of 36.0, 23.1 and 17.3 times respectively.
As the two business segments of the company's new energy materials and semiconductor materials belong to different industries, the segment valuation method is adopted to value the company.
We select Longi Green Energy Technology Co.Ltd(601012) , Trina Solar Co.Ltd(688599) , Ja Solar Technology Co.Ltd(002459) as comparable companies in the photovoltaic industry. The average PE of the same industry in 2021-2023 is 59, 36 and 28 times respectively. In the photovoltaic sector, we give the company 36 times the average PE of the industry in 2022. It is estimated that the net profit attributable to the parent company will be 5.696 billion yuan in 2022 and the corresponding market value will be 205.1 billion yuan.
We select Thinkon Semiconductor Jinzhou Corp(688233) , National Silicon Industry Group Co.Ltd(688126) - u, Hangzhou Lion Electronics Co.Ltd(605358) as comparable companies in the semiconductor industry. The three companies belong to the semiconductor silicon chip link together with Tianjin Zhonghuan Semiconductor Co.Ltd(002129) . The average PS of the same industry in 2021-2023 is 23, 16 and 12 times respectively. We give the company 16 times the average PS of the industry in 2022. It is estimated that the business of semiconducting materials will achieve an operating revenue of 3.648 billion yuan in 2022, with a corresponding market value of 58.4 billion yuan.
To sum up, the target market value of the company in 2022 is 263.5 billion yuan. When there is still 90% room for the current share price to rise, the company will be rated as "buy".
Risk tips
The global PV installation demand is lower than expected; The industrialization progress of 210 photovoltaic silicon wafer is less than expected; The customer expansion of 12 inch semiconductor silicon wafer was less than expected.
