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China WFE and Semiconductor Import Trends Summary

Core Content

The document provides an analysis of China's semiconductor and wafer fabrication equipment (SPE) import trends, highlighting the performance of different categories and countries, along with key risks and valuation insights for related companies.

Key Trends in WFE and SPE Imports

• April 2024 WFE Imports:

  • China's WFE imports fell by 8% YoY, slightly less severe than the 10% decline in March.
  • The decline was largely due to all categories except etching falling by double digits (DD).
  • Etching imports saw a 66% YoY increase, primarily driven by Japan, which is likely due to CXMT being banned from purchasing US tools.
  • YTD WFE imports fell by 6%, with etching growing by 33% (likely pulled in by CXMT) and deposition/litho/ion implanting declining by 9% / 17% / 27%, respectively.

• April 2024 SPE Imports:

  • China's SPE imports fell by 9% YoY, the worst month of the year so far, with WFE and packaging parts declining by 8% / 30% / 11%.
  • SPE import growth accelerated to 11%, driven by US (41%), Taiwan (9%), and Korea (15%).
  • The growth is attributed to tariff-driven pull-in rather than a recovery in consumer electronics demand.
  • April 2024 WFE imports saw a slower sequential decline compared to March, with etching being the only category showing growth.

Country-Specific Insights

• Netherlands:

  • WFE imports fell by -44% YoY, the largest decline among key countries.
  • SPE imports also declined sharply, with -24% YoY in April.

• Singapore:

  • WFE imports fell by -30% YoY, while SPE imports declined by -28% YoY.

• Japan:

  • WFE imports grew by 9% YoY, likely due to CXMT's pull-in from Japan.
  • SPE imports saw a 25% YoY increase in April.

• Malaysia:

  • WFE imports increased by 254% YoY, although from a low base.
  • SPE imports rose significantly, with a 194% YoY increase in April.

• Taiwan:

  • WFE imports grew by 41% YoY, indicating increased demand.
  • SPE imports also showed growth, with a 63% YoY increase in April.

Key Players and Market Outlook

• Huawei:

  • Previously the largest WFE buyer in China.
  • May experience a significant slowdown due to mass production challenges and unlikely to receive additional government subsidies for fab expansion.
  • Expansion is likely to be supported by SiCarrier, which could impact Western and Chinese SPE players.

• SiCarrier:

  • A newly-established Chinese SPE vendor.
  • Expected to be a key negative for both Western and Chinese SPE players.
  • Likely to gain market share from other local players through government lobbying and testing in mass production.

• Company Valuation and Risks:

  • ACM Research Inc.:

    • Price target of Rmb210.00 based on DCF and multiple-based valuation.
    • Key risks include US sanctions, slow customer expansion, new customer acquisition, and tool development delays.

  • Applied Materials Inc.:

    • Price target of $200 implies 16x CY27E EPS.
    • Upside risks: faster demand recovery, market share gains in deposition, etch, and process control.
    • Downside risks: demand stagnation, revenue decline, and poor execution in technology transitions.

  • LAM Research Corporation:

    • Price target of $90 implies 17x CY27E EPS.
    • Risks: inventory correction delays, secular drivers stagnating, and lower customer capex.

Summary of Import Data

Key Takeaways

• WFE decline is moderating but still significant, with etching being the only growth area.
• SPE imports are declining, but semi imports are growing due to tariff-related pull-in.
• SiCarrier is expected to disrupt the market and gain share from other local players.
• Huawei's slowdown could impact WFE demand, especially for Western suppliers.
• Valuation and risks are company-specific, with geopolitical factors and customer dynamics being major concerns.

Analysts and Compliance

• Analysts: Edison Lee, Nick Cheng, Jacky He, Matt Ma, and Annie Ping.
• Compliance Note: Non-US analysts are not registered with FINRA, and thus not subject to certain restrictions.