\u3000\u3000 Hangzhou Lion Electronics Co.Ltd(605358) (605358)
China’s leading enterprise in large-size silicon wafers to build a power and compound semiconductor manufacturing platform: the company’s main products are semiconductor silicon wafers and discrete devices. In 2004 and 2009, the company began mass production of 6-inch and 8-inch silicon wafers respectively, which is at the leading level in China. In 2017, the company’s 12 inch semiconductor silicon wafer technology passed the national 02 special acceptance. In the field of discrete devices, the company is a first-class Schottky diode chip supplier in China. At the same time, the company relies on its advantages in discrete power devices to march into compound semiconductors.
The silicon wafer industry is booming, and the company leads the domestic substitution: sumco data show that from January 2021, the inventory level and turnover days of downstream customers of 12 inch silicon wafer continue to decline, and the supply of silicon wafer is tight. The price of silicon wafer is expected to maintain the rising trend: the 8-inch silicon wafer in 2022 signed by sumco, Xinyue and other manufacturers with customers increased by about 10%, and the 12 inch silicon wafer increased by 15%. China’s major silicon wafer manufacturers only occupy about 30% of China’s silicon wafer market, mainly in the size of 8 inches and below, and the localization rate of 12 inch silicon wafer is low. The company takes the lead in the technology of heavily doped silicon wafers. It plans to realize the production capacity of 150000 pieces / month of 12 inch silicon wafers by the end of 2021. In the future, it will further expand the production capacity, which is expected to lead the domestic substitution of large-size silicon wafers.
Performance improvement of power devices driven by new energy vehicles and photovoltaic: the company’s power device products are mainly used in automotive electronics, photovoltaic and other fields. Automobile electrification drives the demand for power semiconductors, and the increase of photovoltaic installed capacity also drives the demand for supporting power devices. At present, the power devices are in short supply, the delivery period continues to be extended, or the price may be further increased. The company has strong competitiveness in subdivided fields, accounting for 35% of the global share of photovoltaic special SBD. It will benefit from the rapid growth of downstream demand in the long term and the improvement of profitability brought by rising prices in the short term.
Actively layout compound semiconductors to further open up growth space: GaAs is mainly used in RF field at present, and it is expected to be gradually used in 3D camera, automobile lidar and other fields in the future. At present, the company’s subsidiary Leong Dongxin has a foundry manufacturing capacity of 70000 GaAs RF chips / year. Meanwhile, the company’s Haining base is also under planning and is expected to form a production capacity of 360000 pieces / year.
We predict that the earnings per share of the company will be 1.27 yuan, 1.96 yuan and 2.80 yuan respectively in 21-23 years. Considering that the localization rate of large-size silicon wafers is still at a low level and the company has broad growth space in the future, we choose the absolute valuation method (FCFF) to give the company a target price of 160.52 yuan and a buy in rating for the first time.
Risk tips
The prosperity of silicon wafer industry is lower than expected; The downstream demand of power devices is lower than expected; Localization progress is less than expected; The business expansion of compound semiconductor is less than expected; Capacity deployment and construction were not as expected.
