20221118-招银国际-闻泰科技-600745.SH-NWF_divesture_order_will_have_trivial_impact_on_operation__Will_reinforce_self-sufficiency_trend_4页_885kb

Wingtech (600745 CH) Company Update Summary

Core Content

Wingtech has received an official notice from the UK government on 17 November 2022 requiring the sale of at least 86% of its stake in Newport Wafer Fab (NWF), which it acquired in 2021 with 100% ownership. The company believes this divesture order will have a trivial impact on operations, as NWF's revenue accounted for less than 1% of Wingtech's 2022-2024E revenue. The potential loss from the sale is limited, and the company has adjusted its estimates accordingly, removing NWF from its revenue projections and revising down 2022-2024E EPS by 1%-2%. The target price (TP) has been slightly adjusted to RMB88.6, with a +45.5% upside from the current price of RMB60.89, based on a 25x 2023E P/E multiple.

Main Points

• Impact of NWF Divesture: The divesture is expected to have minimal operational impact due to NWF's small revenue contribution and the company's ability to offset any potential losses.
• Self-Sufficiency Trend: The order aligns with China's push for semiconductor self-sufficiency, which may enhance the value of Wingtech's existing semiconductor IDM (Integrated Device Manufacturer) business. Future acquisitions of global semiconductor assets by Chinese companies may become more difficult due to rising protectionism and national security considerations.
• Nexperia Acquisition: Wingtech acquired Nexperia, a leading provider of discrete and MOSFET components and analog & logic ICs, in 2019. Nexperia holds top positions in several key markets, including:
  • No.1 in small-signal diodes
  • No.1 in ESD protection devices
  • No.2 in PowerMOS automotive
  • No.2 in Logic devices
  • No.3 in small-signal MOSFETs
• Investment Recommendation: CMB International Global Markets (CMBIGM) maintains a BUY rating for Wingtech, citing its strong position in the recent semiconductor rally and resilient downstream demand.
• Upside Catalysts:
  • New 12-inch factory beginning production
  • ODM and optical modules' new projects entering mass production
• Downside Risks:
  • Macroeconomic challenges such as overseas inflation and economic slowdown
  • Operational delays or disruptions

Key Financial Information

Earnings Summary (FY20A - FY24E)

Metric	FY20A	FY21A	FY22E	FY23E	FY24E
Revenue (RMB mn)	51,707	52,729	56,400	70,609	88,943
YoY Growth (%)	24.4%	2.0%	7.0%	25.2%	26.0%
Gross Margin (%)	14.7%	16.2%	18.9%	19.0%	19.2%
Net Profit (RMB mn)	2,415	2,612	2,926	4,416	5,892
EPS (RMB)	2.06	2.11	2.35	3.54	4.73
YoY Growth (%)	17.0%	2.4%	11.3%	50.9%	33.4%
P/E (x)	29.6	28.9	25.9	17.2	12.9
Yield (%)	0.3%	0.3%	0.4%	0.6%	0.8%
ROE (%)	8.3%	7.7%	7.9%	10.6%	12.3%

Earnings Revision (New vs. Old Estimates)

Metric	New Estimate (RMB mn)	Old Estimate (RMB mn)	Diff (%)
Revenue	56,400	56,659	0%
EBITDA	10,664	10,749	-1%
Operating Profit	3,754	3,796	-1%
Net Profit	2,926	2,959	-1%
EPS (RMB)	2.35	2.37	-1%
Gross Margin	18.9%	19.0%	-0.1 ppt
Operating Margin	6.7%	6.7%	0 ppt
Net Margin	5.2%	5.2%	0 ppt

Key Ratios

Ratio	FY20A	FY21A	FY22E	FY23E	FY24E
Gross Margin (%)	14.7%	16.2%	18.9%	19.0%	19.2%
Operating Margin (%)	5.2%	5.6%	6.7%	7.7%	8.1%
Net Profit Margin (%)	4.7%	5.0%	5.2%	6.3%	6.6%
Net Debt/Total Equity (%)	8.6%	Net cash	5.6%	9.2%	9.4%
Current Ratio (x)	1.2	1.3	1.3	1.2	1.2
ROE (%)	8.3%	7.7%	7.9%	10.6%	12.3%
EPS (RMB)	2.06	2.11	2.35	3.54	4.73

Financial Highlights

• Revenue Growth: Expected to grow steadily over the next few years, with a notable 25.2% and 26.0% growth in 2023E and 2024E, respectively.
• Profitability: Net profit is projected to increase from RMB2,415 million in FY20A to RMB5,892 million in FY24E, with EPS rising from RMB2.06 to RMB4.73.
• Cash Flow: Wingtech has shown positive net cash from operations in recent years, with a significant increase in cash reserves by the end of FY24E.
• Balance Sheet: The company maintains a healthy balance sheet, with growing total assets and equity. The current ratio remains stable at around 1.2, indicating good short-term liquidity.

Conclusion

CMBIGM maintains a BUY recommendation for Wingtech, citing its strong growth trajectory, resilient demand, and the strategic value of its semiconductor IDM business in the context of China's self-sufficiency goals. The divesture of NWF is unlikely to significantly affect the company's operations, and the adjusted target price reflects a slight downward revision due to the removal of NWF from revenue estimates. The company's financials show a positive outlook, with improving profitability and strong cash flow generation. Investors should remain cautious of macroeconomic risks and operational delays, but the upside potential remains attractive.