20180118-川财证券-2018_China_Equity_Market_Electronics_Outlook_23页_2mb

2018: Opportunities for Semiconductor and Artificial Intelligence

Core Content

The 2018 report highlights the continued growth and prosperity of the electronics sector, driven by new technologies and industrial revival. It emphasizes the medium to long-term investment opportunities in the semiconductor industry and downstream segments of AI technology, such as security, consumer electronics, and automatic driving. It also predicts that automotive electronics will become the next major driver of the electronics industry, following the 3C sector.

Main Points

Semiconductor Industry: Growing Trend for Import Substitution

• Global Prosperity: The semiconductor industry is expected to maintain sustained growth from 2017 to 2019. Global semiconductor investment increased by 2.9% in 2017, reaching $69.937 billion, with a forecast of $73.614 billion in 2018 and $78.36 billion in 2019.
• Demand Shift: The demand for semiconductors is shifting from traditional 3C products to automotive electronics, IoT, and industrial applications. These areas are expected to outperform mobile phones and other smart devices in driving downstream demand.
• Import Dependency: China's IC self-sufficiency rate is only 30%, and it relies heavily on IC imports. In 2017, the value of imported ICs reached $207.197 billion, up 14.5% YoY.
• Government Support: Strong policy support, including the National Integrated Circuit Fund, is driving the development of the domestic semiconductor industry. China is expected to invest CNY 1 trillion in the semiconductor sector in the coming years.
• Production Expansion: China is set to build 26 of the 62 front-end semiconductor fabs planned globally, accounting for 42% of the global total. Major companies like JCET, Fullhan, and SMIC are involved in these projects.

Artificial Intelligence: Leading the Future

• AI Era Forecast: The AI era is expected to arrive over the next decade, with AI technology being one of the most significant technological and social changes. The Ministry of Science and Technology of China released a new AI development plan in 2017.
• AI as a Driving Force: AI is expected to revolutionize multiple industries, including security, face recognition, and automatic driving. The finance sector is considered the first to be transformed by AI.
• AI Chip Development: AI chip technology is critical to AI progress. Companies like NVIDIA and Intel are leading the market with strategic moves in AI chip development.
• China's AI Landscape: China has seen the emergence of notable AI chip companies like Cambricon. These companies are developing specialized AI chips for various applications.
• Investment Opportunities: Investors can focus on downstream segments of the AI chip industry, such as security, auto-driving, and consumer electronics, as these areas are expected to benefit from AI growth.

Automotive Electronics: The New Wave

• Market Growth: Automotive electronics is set to become the next major growth driver in the electronics industry. The market is expanding due to the growth of the automotive sector and the advancement of automotive technology.
• Semiconductor Consumption: The average semiconductor cost per vehicle is rising, expected to reach $610 in 2018. The share of automotive semiconductors in the downstream industry is projected to increase from 7.6% in 2014 to 9.4% in 2019.
• ADAS Chip Market: ADAS chips are the fastest-growing segment in automotive electronics, with a CAGR of 10% from 2016 to 2020. These chips are essential for smart driving systems.
• New Energy Vehicles: The rapid development of new energy vehicles is a key driver for the automotive electronics market. China's new energy vehicle sales have been growing, and the penetration rate is expected to increase significantly.

Key Information

• Recommended Companies: JCET (600584.SH), SAN'AN OPTO (600703.SH), Fullhan (300613.SZ), Sugon (603019, SH), NJEC (600699.SH)
• Risk Reminder: Weaker-than-expected industrial prosperity and the influence of technological innovation on traditional industry patterns could pose risks.
• Sector Outlook: The electronics sector is expected to outperform the A-share market in 2018, with semiconductor and automotive electronics leading the way.

Conclusion

The report outlines a positive outlook for the electronics sector in 2018, with semiconductor and AI-related industries presenting significant investment opportunities. The shift from 3C products to automotive electronics and AI technology is expected to drive future growth, supported by strong government policies and increasing domestic investment.