20210218-招银国际-晶盛机电-300316.SZ-Riding_on_the_wave_of_large_wafers_5页_1mb

Zhejiang Jingsheng (300316 CH) Company Update Summary

Core Content

Zhejiang Jingsheng, a Chinese company in the manufacturing sector, is experiencing a positive growth outlook due to increasing demand for large wafers in the solar and semiconductor industries. The company is expected to benefit from the shift towards larger wafer formats such as M10 and G12, which are gaining market share more rapidly than anticipated. This trend is driving demand for crystal growing furnaces, which Jingsheng specializes in.

Main Points

Market Trends

• Large Wafer Demand: The demand for large wafers (M10/G12) is growing significantly, with CPIA estimating that these formats will capture 50% of the market in 2021, up from 2.5% in 2020.
• Price Premium: Large wafers have a clear price premium over smaller formats, further incentivizing manufacturers to adopt them.
• Capacity Expansion: Major solar wafer manufacturers are expected to add approximately 145GW of new capacity in 2021, which is 20% higher than previous estimates. This capacity is mostly compatible with G12 wafers.

Company Performance

• Order Backlog: Jingsheng's semi equipment order value reached RMB 410 million as of 3Q20, which is 7% of its total order backlog.
• Earnings Growth: Jingsheng's earnings for FY20E-22E are revised upward by 7% to 12%, with an estimated 38% EPS CAGR over the same period.
• Target Price: The target price is raised to RMB 50.20, reflecting a 50x FY21E P/E multiple and a 20.4% upside from the current price of RMB 41.69.

Strategic Initiatives

• Expansion Plans: Jingsheng's core client, Zhonghuan, announced a new 50GW G12 wafer facility expected to be completed by 2022, which will support Jingsheng's revenue growth into 2023.
• New Clients: Jingsheng is expected to win orders from new wafer manufacturers such as Shangji Automation, Tongwei, and Gaojing due to its technological strength in crystal growing furnaces.
• Capital Injection: Jingsheng injected RMB 50 million into its subsidiary Qiushi Semiconductor to enhance its competitiveness in semiconductor equipment production.

Financial Highlights

• Revenue Growth: Expected to grow from RMB 4,151 million in FY20E to RMB 7,845 million in FY22E, with a 48% growth in FY21E.
• Net Profit Growth: Net profit is expected to increase from RMB 869 million in FY20E to RMB 1,661 million in FY22E, with a 27% YoY growth in FY21E.
• EPS Growth: EPS is projected to rise from RMB 0.68 in FY20E to RMB 1.29 in FY22E, with a 50% growth in FY21E.
• P/E and P/B Ratios: The company's P/E is projected to decrease from 41.2x in FY20E to 32.3x in FY22E, while the P/B ratio is expected to fall from 8.7x to 6.9x.
• Profitability: ROE is expected to increase from 18.2% in FY20E to 23.9% in FY22E, indicating improved returns on equity.

Shareholding and Performance

• Shareholding Structure: Shaoxing Shangyu Jingsheng holds 48.32% of the company, while QIU Minxiu and CAO Jianwei hold 2.97% and 2.77%, respectively.
• Share Performance: The company has shown strong performance over the past year, with a 64.9% 6-month return and a 45.4% 3-month return.
• Market Cap: The market capitalization is RMB 53,600 million, with an average 3-month trading volume of RMB 990 million.

Key Information

Risks

• Downstream Capacity Expansion: Weaker or slower-than-expected downstream capacity expansion could impact demand.
• GPM Trend: A worse-than-expected gross profit margin (GPM) trend could affect profitability.
• Client Ability to Pay: Deterioration in the ability of clients to pay could lead to financial strain.

Valuation and Investment Outlook

• Target Price: The target price is set at RMB 50.20, based on a 1.3x PEG ratio and a 50x FY21E P/E.
• CMBIS Ratings: The company is rated "BUY," indicating a potential return of over 15% over the next 12 months.

Financial Summary

Income Statement

• Revenue: Expected to grow from RMB 2,536 million in FY18A to RMB 7,845 million in FY22E.
• Gross Profit: Projected to increase from RMB 1,002 million in FY18A to RMB 2,867 million in FY22E.
• Net Profit: Anticipated to rise from RMB 582 million in FY18A to RMB 1,661 million in FY22E.

Balance Sheet

• Total Assets: Expected to increase from RMB 6,335 million in FY18A to RMB 14,923 million in FY22E.
• Total Liabilities: Projected to grow from RMB 2,104 million in FY18A to RMB 7,005 million in FY22E.
• Shareholders' Fund: Expected to increase from RMB 4,058 million in FY18A to RMB 7,712 million in FY22E.

Key Ratios

• Revenue Mix: Crystal growing equipment dominates with 74% to 77% of total revenue.
• Gross Margin: Expected to improve from 35.8% in FY20E to 36.5% in FY22E.
• Net Profit Margin: Projected to rise from 20.9% in FY20E to 21.2% in FY22E.
• ROE: Expected to increase from 18.2% in FY20E to 23.9% in FY22E.

Conclusion

Zhejiang Jingsheng is well-positioned to benefit from the growing demand for large wafers in both solar and semiconductor industries. The company's strategic investments and technological strengths are expected to drive its growth and improve its financial performance. Despite the risks associated with the industry, the positive outlook and revised earnings estimates support the "BUY" rating and the new target price of RMB 50.20.