We are increasingly positive on Jingsheng’s growth outlook in FY21E-22E driven by robust demand for crystal growing furnaces as larger wafers are gaining market share more rapidly than expected and more new players are entering into the solar wafer manufacturing industry. Besides, progress in semiconductor equipment could drive up the Company’s valuation. We revise up FY20E-22E earnings by 7%-12% and lift our TP to RMB 50.20, reflecting 50x FY21E P/E on the back of 38% EPS CAGR during FY20E-22E. Maintain BUY.
- Prevailing larger wafer format spurs stronger equipment demand. Strong downstream demand for larger wafers (M10/G12) and their price premium have sped up wafer makers’ capacity expansion (Figure 1-3). We calculated that major solar wafer makers will add ~145GW new capacity in 2021E (20% higher than our prev. est.), mostly compatible for G12. Besides, we estimated that >1/3 of existing crystal growing furnaces cannot be upgraded to produce large wafers, which implies replacement demand in coming years.
- Jingsheng to gain share driven by Zhonghuan and new players’ expansion. Jingsheng’s core client, Zhonghuan (002129 CH, NR) announced a new 50GW G12 wafer facility in Feb and expected it to be completed by 2022, which will support Jingsheng’s revenue growth into 2022E-23E. In addition, we believe, by leveraging its technological strength of crystal growing furnaces, Jingsheng will expand its market share through winning orders from new wafer manufacturers, such as Shangji Automation (603185 CH, NR), Tongwei (600438 CH, NR) and Gaojing.
- Progress in semiconductor equipment could serve as valuation driver. Jingsheng announced on 8 Feb to inject RMB 50mn capital to its wholly-owned subsidiary Qiushi Semiconductor in order to enhance its competitiveness in semiconductor equipment production. The Company is currently able to provide most equipment for 8’ wafer production, crystal growing equipment for 12’ wafers as well as crystal and epitaxy growth equipment for SiC wafers, enabling it to benefit from the localization of semiconductor industry in China. As of 3Q20, Jingsheng’s semi equipment order value was RMB 410mn, 7% of its total order backlog. As A-share listed semiconductor equipment suppliers are trading at higher multiples (>100x FY21E P/E) than solar power equipment supplier (<50x FY21E P/E), progress in Jingsheng’s semiconductor equipment business will boost its valuation, in our view.
- Raise TP to RMB 50.20; Maintain BUY. Jingsheng released a profit alert in Jan, expecting FY20E net profit to grow 25%-50% YoY to RMB 797mn-956mn. The midpoint (RMB 877mn) implies 4Q20E earnings of RMB 353mn, up 113% YoY. We believe the upside surprise on earnings likely came from better GPM recovery and higher revenue growth. We revise up Jingsheng’s earning in FY20E-22E by 7%-12%, to reflect stronger order intakes and better margin trend. Our new target price is set at RMB 50.20, based on 1.3x PEG (vs. prev. 1.2x) on the back of 38% EPS CAGR over FY20E-22E, and reflects 50x FY21E P/E. Maintain BUY.
- Risk: 1) Weaker or slower-than-expected downstream capacity expansion; 2) worse-than-expected GPM trend; 3) Deterioration of clients’ ability to pay.
