20210802-招银国际-晶盛机电-300316.SZ-Acquisition_to_help_tap_into_solar_cell_equipment_6页_1mb

Summary of Zhejiang Jingsheng (300316 CH) Company Update

Core Content

Zhejiang Jingsheng, a Chinese capital goods company, has announced a strategic joint venture (JV) with Applied Materials (AMAT US) to acquire its screen printing equipment business in Italy, wafer inspection business in Singapore, and related businesses in China. This acquisition is a major step for Jingsheng to expand its product portfolio into the solar cell equipment sector. The JV will be structured with Jingsheng holding 65% and Applied Materials 35% of the shares, with a total registered capital of approximately RMB 970 million (US$150 million). The acquisition consideration is US$120 million (RMB 775 million), which is valued at 5x P/B based on Applied Materials' equity as of end-Jan 2021.

The move is expected to provide Jingsheng with access to Applied Materials' advanced technology and its manufacturing capabilities, enabling it to compete more effectively in the solar cell equipment market. Currently, Jingsheng focuses on crystal growing and wafer slicing equipment, but this acquisition will introduce wafer inspection and screen printing equipment into its offerings.

Key Highlights

• JV Structure: Jingsheng: 65%, Applied Materials: 35%
• Total Registered Capital: US$150 million (~RMB 970 million)
• Acquisition Consideration: US$120 million (~RMB 775 million)
• P/B Ratio: 5x (based on Applied Materials' equity at end-Jan 2021)
• Board Composition: Five members, with three from Jingsheng and two from Applied Materials
• Regulatory Approval: Required from both China and Italy
• Target Price (TP): Revised up to RMB 77.50 from RMB 60.90
• TP Basis: 67x FY21E P/E, equivalent to 1.4x PEG (previously 1.1x)
• Recent Breakthrough: Success in the 12-inch crystal growing furnace in the semiconductor segment

Main Points

• Strategic Expansion: The acquisition will significantly expand Jingsheng's product offerings and market presence in the solar cell equipment field.

• Competitive Advantage: By combining Applied Materials' technology with Jingsheng's manufacturing capabilities, the company is positioned to challenge existing market leaders.

• Market Position: Suzhou Maxwell is currently the leading screen printer maker in China, but Jingsheng's entry into this market could disrupt the status quo.

• Financial Performance:

  • Revenue Growth: Expected to increase significantly, with a 84% YoY growth in FY21E and 47% in FY22E.
  • Net Profit Growth: Projected to grow from RMB 637 million in FY19A to RMB 2,779 million in FY23E.
  • EPS Growth: From RMB 0.50 in FY19A to RMB 2.16 in FY23E.
  • P/E Ratio: Expected to decrease from 128.7x in FY19A to 29.5x in FY23E.
  • P/B Ratio: Expected to decrease from 18.0x in FY19A to 7.6x in FY23E.
  • ROE: Projected to increase from 14.8% in FY19A to 28.8% in FY23E.

• Key Risks:

  1. Weaker or slower-than-expected solar power capacity expansion.
  2. Lower-than-expected gross margin.
  3. Unsuccessful acquisition.

Share Performance

• 1-Month Return: 26.5% (Absolute), 37.3% (Relative)
• 3-Month Return: 65.1% (Absolute), 75.8% (Relative)
• 6-Month Return: 59.1% (Absolute), 77.0% (Relative)

Earnings Summary

Financial Ratios

Shareholding Structure

Financial Summary

• Total Assets: Expected to increase from RMB 7,863 million in FY19A to RMB 25,216 million in FY23E.
• Total Liabilities: Expected to increase from RMB 3,146 million in FY19A to RMB 14,394 million in FY23E.
• Shareholders' Fund: Expected to increase from RMB 4,716 million in FY19A to RMB 10,822 million in FY23E.
• Cash at the End: Expected to increase from RMB 542 million in FY19A to RMB 2,538 million in FY23E.

Key Financials of the Target Business

Capacity Expansion in the Wafer Market

• Total Announced Capacity (1H21): 184 GW
• Total Investment (1H21): RMB 54.5 billion
• Capex per GW: RMB 296 million

Market Outlook

• CPIA Estimates: Large wafers (M10/G12) will account for 50% of the market in 2021, up from 2.5% in 2020.
• Jingsheng's Backlog: Reached RMB 10.5 billion as of end-Mar 2021, including RMB 560 million from the semiconductor segment.

CMBIS Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• HOLD: Stock with potential return of +15% to -10% over the next 12 months.
• SELL: Stock with potential loss of over 10% over the next 12 months.

Conclusion

The acquisition is a strategic move to diversify Jingsheng's business into the solar cell equipment field, leveraging Applied Materials' technology and Jingsheng's manufacturing strength. This is expected to enhance its competitive position and growth potential, with a revised target price reflecting the increased value. The company is projected to see significant revenue and net profit growth over the next few years, driven by the expansion in the wafer manufacturing sector and the success of its 12-inch crystal growing furnace. However, the success of the acquisition and the company's ability to maintain its gross margin and operational efficiency remain key risks to monitor.