20220303-招银国际-晶盛机电-300316.SZ-Solid_growth_of_solar_equipment__SiC_gaining_traction_6页_1mb

Zhejiang Jingsheng (300316 CH) Company Update Summary

Core Content

Zhejiang Jingsheng is a Chinese company involved in the production of solar equipment and semiconductor materials, with a focus on large-size wafers and Silicon Carbide (SiC) substrates. The company is expected to benefit from the global shift towards renewable energy, particularly solar power, and the ongoing transformation in the solar wafer industry.

Main Points

• Solar Wafer Capacity Expansion:

  • China's solar wafer capacity is projected to exceed $500\mathrm{GW}$ by end-2022E.
  • The transition to large-size wafers (210 & 180mm) is expected to accelerate, with the percentage of large-size wafer output increasing from 5% in 2020 to 43% in 2021E, and further to 80% in 2022E and over 90% in 2023E.
  • Over $100\mathrm{GW}$ of old capacity is anticipated to be phased out during this transition, leading to a lower effective capacity than the nameplate capacity.

• SiC Breakthrough:

  • SiC is a third-generation semiconductor material with advantages including reduced switching loss, higher power density, better heat dissipation, and increased bandwidth capability.
  • Demand for SiC spans industries such as smart grid, NEV (New Energy Vehicles), and solar power.
  • Wolfspeed, the world's largest SiC wafer maker, predicts the SiC material market will grow from US$700mn in 2022E to US$1.7bn in 2026E.
  • Jingsheng has secured a contract to deliver at least 230k pieces of SiC substrates from 2022E to 2025E, contributing approximately 2% to annual revenue.

• Earnings Forecast:

  • The company's earnings forecast for 2022E-23E has been slightly revised upward by 2%, reflecting improved performance and new opportunities.
  • The target price (TP) has been adjusted to RMB93 from RMB112, based on a 45x 2022E P/E, with a 20% discount applied to the previous target P/E of 56x.

• Market Performance:

  • The stock has shown mixed performance over different time periods, with a 1-month gain of 12.2%, a 3-month decline of 6.7%, and a 6-month decline of 16.4%.
  • The current price is RMB63.38, with a 46% upside to the new TP of RMB93.

• Key Financial Highlights:

  • Revenue is expected to grow significantly, with projections of RMB11,941mn in 2022E and RMB14,673mn in 2023E.
  • Net profit is forecasted to increase from RMB1,683mn in 2022E to RMB3,292mn in 2023E.
  • EPS is projected to rise from RMB2.07 in 2022E to RMB2.56 in 2023E.
  • P/E ratio is expected to decrease from 30.6x in 2022E to 24.8x in 2023E.
  • P/B ratio is projected to fall from 9.0x in 2022E to 6.9x in 2023E.

• Shareholding Structure:

  • Shaoxing Shangyu Jingsheng holds 48.32% of the shares.
  • Other major shareholders include QIU Minxiu (2.97%) and CAO Jianwei (2.77%).

• Risks:

  • Weaker-than-expected solar power capacity expansion.
  • Lower-than-expected gross margin.
  • Risk of semiconductor business expansion.

Key Information

• Maintain BUY Rating: The company is maintained at a BUY rating, with the TP revised to RMB93.
• Revenue Mix:
  • Crystal growing equipment accounts for the largest share of revenue, around 72% in 2021E and expected to increase to 77% in 2023E.
  • Intelligent processing equipment and Sapphire products contribute smaller but growing shares.
• Capital Structure:
  • The company maintains a net cash position in its balance sheet.
  • Share capital and reserves are stable, with retained earnings growing significantly.
• Financial Ratios:
  • Gross margin and core operating margin have improved over the years.
  • ROE has increased from 14.8% in FY19A to 33.7% in FY22E.
  • Net profit margin has also shown improvement.

Figures and Projections

• Figure 1: Global solar power installation history and projection.
• Figure 2 & 3: Wafer breakdown by size for Zhonghuan and LONGi.
• Figure 4: China solar wafer output by size.
• Figure 5: Large-size / total wafer output.
• Figure 6: Capacity expansion by major wafer manufacturers.
• Figure 7: Revenue forecast for Jingsheng.
• Figure 8: Total backlog reached RMB17.8bn as of end-Sep 2021.
• Figure 9: Change in earnings forecast.
• Figure 10: Forward P/E band.
• Figure 11: Forward P/B band.

Summary of Financial Statements

Conclusion

Zhejiang Jingsheng is positioned to benefit from the global shift towards renewable energy and the ongoing transformation in the solar wafer industry. The company's strategic focus on large-size wafers and SiC substrates offers significant growth potential, supported by a revised upward earnings forecast and a reduced target price. Despite the risks, the company's strong financial performance and expanding market share suggest a positive outlook.