The recent rounds of solar wafer capacity expansion plans announced by major players offer high visibility to Jingsheng’s potential order intakes of crystal growing furnace over the coming two years, which reaffirms our bullish stance on the Company. Besides, the on-track progress on silicon carbide (SiC) equipment development will offer new growth opportunity. On the cost side, Jingsheng is managed to collaborate with suppliers to limit the component cost pressure. We revise up our 2021E-22E earnings by 14%/34% and lift our TP to RMB60.90, based on 53x FY21E P/E (previously 50x), equivalent to 1.1x PEG (48% EPS CAGR in 2021E-23E). Reiterate BUY.
- Aggressive capacity expansion by wafer manufacturers. Based on our project-by-project calculation, major solar wafer makers have announced in 1H21 a total of 184GW of wafer capacity construction plan with total capex of RMB55bn (Figure 1). Majority of these new capacities are scheduled to put into operation in 2022-23E. Such expansion is faster than our expectation and we believe Jingsheng is set to benefit from the strong spending growth.
- Jingsheng’s growth to be driven by both Zhonghuan (002129 CH, NR) and other new players. Zhonghuan, Jingsheng’s largest customer, plans to boost the wafer capacity significantly to 135GW by 2022E from 55GW as at end-2020 (Figure 2). Besides, Gaojing Solar, a fast-growing new player, plans to add 50GW of wafer capacity by 2023E. We believe Jingsheng, by leveraging its technological know-how, brand equity and solid track record, will be capable of winning orders from Gaojing and other fast growing wafer manufacturers.
- On-track progress on SiC equipment. SiC is the third-generation semiconductor materials. According to CASA, the global SiC power device industry size is expected to grow from ~US$0.7bn in 2020 to >US$3bn in 2025E, with major downstream demand coming from new energy vehicles. Jingsheng has planned to deliver 60-100 sets of SiC crystal growing equipment this year. Given that the development is still at the beginning stage, we have not modelled the earnings contribution but see potential upside from there.
- Risk: 1) Weaker or slower-than-expected solar power capacity expansion; 2) lower-than-expected gross margin.
