\u3000\u3 Guocheng Mining Co.Ltd(000688) 385 Shanghai Fudan Microelectronics Group Co.Ltd(688385) )
Event: the company released the annual report of 2021 on March 21. In 2021, the operating revenue was 2.577 billion yuan (+ 52.42%), the net profit attributable to the parent was 514 million yuan (+ 287.20%), the net profit not attributable to the parent was 444 million yuan (+ 101388%), the gross profit margin was 58.91% (+ 12.95 PCTs), and the net profit margin was 21.70% (+ 12.22 PCTs).
Key investment points:
The five business lines make concerted efforts, and high reliability IC has abundant growth momentum
Shanghai Shanghai Fudan Microelectronics Group Co.Ltd(688385) subsidiary Co., Ltd. was established in 1987 and successfully listed in Hong Kong in 2000, becoming the first listed company in China’s integrated circuit design industry; In 2014, the group transferred to the main board of Hong Kong for listing; In 2021, it landed on the science and Innovation Board of Shanghai Stock Exchange, forming a “a + H” capital pattern. The company is a professional company engaged in the design, development and testing of VLSI, and providing customers with system solutions. At present, the company has established and improved product lines such as ① security and identification chip, ② nonvolatile memory, ③ smart meter chip, ④ FPGA chip and ⑤ integrated circuit test service. The products are widely used in many fields such as finance, social security, urban public transport, electronic license, mobile payment, anti-counterfeiting traceability, smart phone, security monitoring, industrial control, signal processing, intelligent computing and so on. In 2021, the company seized the development opportunity of the industry, actively explored the market and new customers, optimized the product and customer structure, achieved rapid growth in the five business lines, significantly improved the operating indicators, achieved an annual operating revenue of 2.577 billion yuan (+ 52.42%), a significant increase in the net profit attributable to the parent company (514 million yuan, + 287.20%) and the net profit attributable to the parent company after deduction of Non Profits (444 million yuan, + 101388%), and the company’s roe also reached a record high (16.38%, + 9.50pcts), We believe that it is mainly due to the rapid growth of the company’s revenue, the significant increase of gross profit margin in several business segments and the decrease of expense rate during the period.
① security and identification chip: Shanghai Fudan Microelectronics Group Co.Ltd(688385) security and identification product line has formed many product series, such as RFID and sensor chip, smart card and security chip, smart identification device chip and so on, relying on self-developed RF, memory and security anti attack technology. The products cover dozens of products, such as memory card, high frequency / ultra-high frequency tag, nfctag, contact / non-contact / dual interface smart card, security se chip, security MCU chip, non-contact reader and writer equipment and mobile payment. It is one of the suppliers with a complete range of security and identification chip products in China. In 2021, the operating revenue was 866 million yuan (+ 42.19%), and the gross profit margin was 51.07% (+ 17.05 PCTs).
② nonvolatile memory: Shanghai Fudan Microelectronics Group Co.Ltd(688385) ‘s memory chip product line can provide nonvolatile memory products with various interfaces, various packages, comprehensive capacity and high cost performance. At present, the main products are EEPROM memory, norflash memory and slcnandflash memory, which have a variety of capacity, interfaces and packaging forms. In 2021, the operating revenue was 721 million yuan (+ 41.56%), and the gross profit margin was 55.65% (+ 10.32 PCTs).
③ smart meter chip: smart meter MCU is the core component of electronic energy meter and smart meter, which can realize the functions of power consumption information measurement, automatic reading, information transmission and so on for industrial and household power users; Low power general MCU products can be applied to many fields such as smart electricity meter, smart water gas heat meter, smart home, Internet of things and so on. In 2021, the operating revenue will be 296 million yuan (+ 64.18%), and the gross profit margin will be 56.60% (+ 22.79 PCTs).
④ FPGA chip: the company is one of the leading companies in the field of FPGA technology in China. It has three main varieties: 10 million gate FPGA chip, 100 million gate FPGA chip and embedded programmable device PSoC. Among them, 65 nm 10 million gate FPGA chip is suitable for high-performance and large-scale applications such as network communication, information security, industrial control and high reliability; 28nm 100 million gate FPGA chip is suitable for 5g communication, artificial intelligence, data center, high reliability and other high-performance, large bandwidth and large-scale applications; 28nm embedded programmable device PSoC is suitable for video, industrial control, security, AI, high reliability and other applications. In 2021, the operating revenue was 427 million yuan (+ 109.49%), and the gross profit margin was 84.71% (+ 261 PCTs).
⑤ integrated circuit test service: the company provides customers with integrated circuit test service overall solutions from chip verification analysis, wafer test to finished product test through its holding subsidiary Hualing Co., Ltd. the specific contents of integrated circuit test include wafer test and finished product test. The testing capability covers a wide range of product fields, such as mobile intelligent terminal, information security, digital communication, FPGA, CIS, financial IC card, automotive electronics, IOT devices, MEMS devices, three-dimensional high-density devices, new materials, new structures and so on. In 2021, the operating revenue was 242 million yuan (+ 44.17%), and the gross profit margin was 53.90% (- 2.02pcts).
The overall cost rate shows a downward trend, and the company attaches great importance to R & D investment
On the expense side, the company’s revenue increased rapidly in 2021. Although the overall expenses maintained growth, the expense rate showed a downward trend (37.80%, – 4.43 PCTs), of which the management expenses were 112 million yuan (+ 8.81%), accounting for 31.18% (- 3.92 PCTs) of the revenue; The sales expense was 172 million yuan (+ 46.16%), accounting for 6.66% of the revenue (- 0.28pcts); Financial expenses -01 million yuan; The company’s R & D expenditure was 692 million yuan (+ 40.99%). According to the company’s announcement, the number of R & D personnel of the company in 2021 was 830, accounting for 54.21%. The increase in R & D expenditure was mainly due to the company’s continuous enhancement of R & D investment, especially the R & D of advanced process products, and the corresponding increase in IP investment, materials, processing fees and salary; Increase in amortization of intangible assets; At the same time, the social security expenses were reduced or exempted due to the epidemic last year, resulting in a low salary base; During the reporting period, the restricted stock incentive plan was implemented, and the share based payment fee increased; We believe that the company attaches great importance to R & D, maintains a high level of R & D investment for a long time, aims at emerging fields, adheres to technological innovation and constantly enriches products. The R & D investment of the company in 2021 was about 749 million yuan, accounting for 29.06% of the operating revenue of the year. Through R & D, the company continued to take the lead in the field of chip security and is expanding to the fields of software and system security, Internet of things security, AI security, privacy computing and so on; Actively build an intelligent computing platform based on FPGA product series, enhance product value with algorithms and overall solutions, and explore and expand new application fields.
Accounts receivable increased and operating cash flow improved significantly
In terms of assets and liabilities, the company’s accounts receivable + notes receivable in 2021 totaled 824 million yuan, an increase of 11.96% over the end of 2020. Among them, accounts receivable are mainly the combination of sales of highly reliable products, sales of industrial products and testing services. The proportion of total bad debt provision is only 3.69%, and the company’s asset liability ratio is 19.16% (- 1.99pcts), indicating that the overall asset quality is good.
On the cash flow side, the company’s net cash flow from operating activities was 602 million yuan (+ 173.64%), mainly due to the overall high growth of the five business lines in 2021, resulting in abundant cash flow.
Industry trend and competitiveness analysis of each business line
① FPGA business: high growth driven by three “accelerations” in the field of high reliability electronics. The company is in a leading position in the field of FPGA chip design in China and is the first manufacturer to launch 100 million gate FPGA products in China. By the end of 2021, the company had sold related FPGA products based on 28nm process to more than 300 customers, including customers in communication field, industrial control field and high reliability field. According to the prediction of market research future, the global FPGA market space is expected to reach US $12.521 billion in 2025, of which the Asia Pacific region’s share in the global FPGA market is expected to continue to increase to 43.94%. We believe that FPGA has a broad market space in the field of high reliability integrated circuits. According to the financial report of Xilinx, the world’s largest FPGA manufacturer, AIT (Aerospace and defense, industry and testing, testing and measurement) is its largest business segment. In fiscal year 2021, AIT’s business revenue was about US $1.4 billion, accounting for 44% of its operating revenue. At present, China’s highly reliable electronic field is facing major development opportunities, which are specifically reflected in three “accelerations”. ① the first acceleration: the large volume of special equipment and the improvement of prosperity; ② Second acceleration: referring to the informatization degree of overseas special equipment, the informatization content of China’s special equipment is expected to continue to improve; ③ Third acceleration: under the requirements of self-control, the localization rate of electronic components and chips in special equipment continues to increase. We believe that the growth rate of FPGA is expected to be significantly higher than that of the “top five” special equipment industry chain during the “Top 14” special equipment industry chain.
② security and identification chip business: the interconnection of all things puts forward higher requirements for identification accuracy and security
According to Sullivan statistics, from 2014 to 2018, China’s smart card chip shipments increased from 3.671 billion to 6.766 billion, with a compound annual growth rate of 16.52%, and the market scale increased from 7.691 billion yuan to 9.591 billion yuan; The compound annual growth rate was 5.67%.. It is estimated that by 2023, the shipment volume of smart card chips in China will reach 13.936 billion and the market scale will reach 12.982 billion yuan. In the future application of Internet of things, the security chip based on smart card chip will also be applied on a large scale. In the Internet of things application, each item will need a unique digital ID card. Each item needs at least one security chip to complete its identity security identification, communication security connection and data security storage. The security technology centered on the security chip (including security Se and security MCU) will be deeply and widely applied to the perception, network connection and application of the Internet of things. With the advancement of 5g technology, especially the Internet of vehicles and other applications that pay special attention to safety, security chip will become one of the most important modules of electronic equipment.
The company’s security and identification product line has three product directions: RFID and sensor chip, smart card and security chip and smart identification chip. It is a leading chip supplier of RFID, smart card, security module and NFC products in China. In 2021, the security and identification product line shipped more than 1.5 billion chips. On the basis of maintaining the competitive advantage of traditional chip products, it is actively expanding its product portfolio and overall solutions to RFID chips and anti-counterfeiting applications, Internet of things security, NFC application solutions, etc.
③ nonvolatile memory business: further enhance the indicators of high speed, low power consumption, low cost and high stability
Memory chips occupy a very important position in the integrated circuit market. According to the statistics of the World Semiconductor Trade Statistics Association (WSTS), the scale of the global integrated circuit market in 2020 was US $361226 billion, including memory chips and logic chips, accounting for 32.52% and 32.78% of the market share respectively; Analog chips and microprocessors account for 15.41% and 19.29% of the market share of integrated circuits respectively. In terms of EEPROM, at present, the main process node is 0.13um, and manufacturers also actively promote the realization of alternative process devices below 9xnm (non FLOTOX) in order to obtain continuous optimization of cost and reliability. The demand for EEPROM in fields with high reliability requirements (such as variable frequency motor, Netcom equipment, instrument, automotive electronics, new energy system, industrial control, etc.) will also continue to increase, and the product technology will gradually develop to higher reliability. In terms of norflash, it is gradually evolving to 50nm and 40nm process nodes. The mainstream etox architecture has evolved to 55nm / 50nm process nodes, and the subsequent iteration speed will gradually slow down, while new devices and architectures are still being explored, and the reliability and product stability need to be strengthened. Norflash’s product specifications are gradually developing in the direction of high speed, low power consumption and high reliability. Network communication (5g base station / PON, CPE), mobile phone module (screen module, touch module, face recognition module, etc.), Internet of things IOT (WiFi, ble, ZigBee, 4glte, etc.), security monitoring, wearable devices (bracelet, watch, TWS headset) and other emerging applications are increasing and in great demand, which greatly improves the market capacity of norflash. In terms of slcnandflash, after further optimization of cost and reliability, slcnandflash products will enter more application fields, such as network communication, set-top box, wearable devices and smart home, and the market capacity will further increase. With the rapid development of Netcom equipment, security monitoring, mobile Internet, big data and Internet of things, users have put forward higher and higher requirements for the capacity of memory chips. Nandflash in some fields even shows the trend of replacing norflash to undertake the application of program code storage.
The company’s memory chips mainly focus on serial interface EEPROM, norflash and slcnandflash products with high reliability. The process technology level of this product type can be divided into two aspects: the level of flow process and the level of packaging process. In terms of the technology level of streaming, different memory devices are at different process nodes due to their different physical operation mechanisms and limits. In the field of EEPROM products, the mature process node is 0.13 μ m. It has basically reached the physical performance limit of the device mechanism, and China is at the same level as the world. In the field of norflash products, at present, 55nm nodes have entered the stage of mass production, 50nm-40nm nodes are in the stage of development, and basically reach the physical performance limit of the device mechanism, which is at the same level in China and the world. In the field of slcnandflash products, 2xnm is a mature process of international mainstream IDM manufacturers, and the Chinese OEM is still at the 3xnm node. In terms of packaging process level, at present, plastic packaging forms such as SOP / tssop / DFN are the mainstream packaging forms of conventional consumer industrial products. WLCSP packaging forms are widely used in volume sensitive fields such as mobile phones and CCM modules, and sip and 3D packaging are also widely used in specific customers and specific application fields.
④ smart meter chip business: MCU chips have developed rapidly, and domestic products have penetrated from low-end applications to high-end applications
The iterative development of MCU chip products is rapid. At the technical level, 8 / 32 bits occupy the mainstream. Among them, 8 bits have the advantages of low cost, low power consumption and easy development, while 32 bits are mainly used in medium and high-end scenarios. Taking the smart meter MCU as an example, the current main control MCU chip generally adopts 32-bit core. With the rise of artificial intelligence and Internet of things, MCU will be set up in the future
