In the past two years, the world's leading semiconductor companies have successively launched CPUs for AI modules, and major domestic PC manufacturers have started to explore new AI PCs.
For example, Lenovo has released more than 10 new AI PC products, such as ThinkBook 16p Gen 5, Yoga Pro9i, etc., and ASUS has also launched the Vivobook Pro 15 series.
It is estimated that by 2027, AI-compatible PC shipments are expected to exceed 175 million units, accounting for more than 60% of total PC shipments.
Computing power is the foundation of AI technology, which is inseparable from the support of AI chips, and the packaging and testing industry will usher in rapid performance growth.
The semiconductor industry chain involves a number of businesses, why is the packaging and testing business the first to respond?
First, it is related to the expansion cycle. Generally speaking, the expansion cycle of foundries is about 2 years, while the packaging and testing only takes 6-8 months, so when the cycle is up, packaging and testing manufacturers can rely on rapid expansion to obtain the flexibility of the profit side.
Second, it is related to the speed of technology change. At present, the upgrade speed of advanced manufacturing processes is gradually slowing down, and the marginal cost of moving forward is gradually rising, and the use of advanced packaging technology to improve the overall performance of chips has become an important trend in the technology development of the integrated circuit industry.
In addition, the packaging and testing business is also a highly competitive part of the semiconductor industry chain in the mainland, and its development is relatively mature.
In the packaging and testing industry, ASE ranks first in the industry with a market share of 27%, and Changdian Technology, Tongfu Microelectronics and Huatian Technology in A-shares are also in the first echelon.
With the update and iteration of artificial intelligence and intelligent driving, the only technologies that can adapt to their development needs are the fourth (such as SiP, Bumping, FC) or the fifth stage wafer-level packaging technology (such as TSV, Fan-Out/In).
Among them, Chiplet technology has gradually become the development consensus of many packaging and testing manufacturers by decomposing the chip into multiple specific modules, which has the advantages of high yield, good flexibility and low comprehensive cost compared with traditional packaging. Its implementation methods mainly include MCM (Multi-Chip Component Technology), RDL (Rewiring Layer)/Silicon Intermediate Package, and 2.5D/3D Package.
At present, Changdian Technology, Tongfu Microelectronics and Huatian Technology have the mass production capacity of all or part of the fourth-stage packaging technology, and have carried out technical reserves or industrial layout in the fifth-stage packaging field.
However, in the past three years, there has been a large gap in the profitability of the three companies.
Since the competitiveness of packaging and testing enterprises is mainly reflected in the advanced production capacity, equipment renewal often brings large depreciation costs, which affects the company's profitability.
From the perspective of depreciation period, the depreciation period of Tongfu Microelectronics is less, so the pressure on the profit side is greater.
If the impact of depreciation and amortization is removed, Tongfu Microelectronics still achieved positive growth in the downward cycle, and the company's EBITDA in 2023 will reach 4.348 billion yuan, a year-on-year increase of 13.7%.
With the gradual recovery of the market, the company's net profit in the first quarter of 2024 soared by 2064% to 98 million yuan, attracting 119 institutions to scramble.
The EBITDA of Changdian Technology and Huatian Technology in 2023 fell by 27.49% and 19.21%, respectively.
Why can Tongfu Microelectronics' performance be so strong?
First, it is highly bound to the head of the big customers.
Through the acquisition of 85% of the shares of AMD Suzhou and AMD Penang, the company has production bases in Suzhou, Jiangsu Province and Penang, Malaysia, and has become AMD's largest packaging and testing supplier, accounting for more than 80% of its total orders.
Even in the market environment of declining industry prosperity in 2023, Tongfu Chaowei Suzhou and Tongfu Chaowei Penang achieved a total revenue of 15.529 billion yuan, a year-on-year increase of 7.95%, and a total net profit of 671 million yuan, and the revenue of key customer business has increased for 7 consecutive years.
Second, technological breakthroughs continue to enhance product competitiveness.
As one of the company's seven production bases, Nantong Park has become the world's leading advanced packaging and testing base, with a production capacity of 3.6 billion integrated circuit products and 1.32 million wafer tests per year.
And the company has made varying degrees of progress in advanced packaging subdivision technology. Rely on FC, FO, RDL and other technologies to form differentiated advantages.
The company has completed the FC technology product certification of the 5nm process, and has carried out the development of FC packaging technology for high-performance processor chips for 5G mobile phones. FO technology has reached the world's advanced level, and the high-density fan-out packaging platform has completed the development of 6-layer RDL; RDL has implemented 5-layer RDL ultra-large 65×65nm package.
In terms of chiplet products, the 7nm products produced by the company have been mass-produced, and the revenue accounts for about 80% of the total revenue of Tongfu Chaowei Suzhou and Tongfu Chaowei Penang, reaching 6.6 billion yuan; At the same time, 5nm products have been gradually mass-produced, and 4nm products are under development.
Third, product diversification has improved the revenue structure.
In addition to the packaging and testing business, the company's memory production line and display drive production line that have been laid out for many years have steadily entered the mass production stage and significantly increased the company's market share in related fields. Among them, display drive products have achieved a 20% growth.
In addition, the company actively promotes the automotive electronics and power semiconductor business, and the revenue of automotive product projects will increase by 200% year-on-year in 2023; The sales of photovoltaic high-power modules increased by more than 200 million yuan.
Fourth, we will continue to enhance our ability to control costs.
In 2023, the company's expense ratio increased by 0.33% year-on-year to 6.18%, mainly due to the increase in financial expenses.
In order to further increase its market share, Tongfu Chaowei Penang increased the purchase of materials and equipment, and due to the impact of exchange rate fluctuations, the company incurred a large foreign exchange loss, reducing the net profit attributable to the parent company by 190 million yuan, and the financial expense ratio increased by 0.61% to 3.57% year-on-year.
However, in terms of management expenses, with the gradual improvement of the construction of Suzhou and Penang parks, the management has gradually matured, making the company's management expense ratio a downward trend in the past three years, reaching 2.31% in 2023. In addition, there has been a slow decline in selling expenses.
In addition, the company's cash flow performance is also relatively healthy, the company's cash inflow from operating activities in the past three years can basically cover the cash outflow of investment and financing activities, coupled with the hematopoietic ability brought by its own profit transformation, the company's sustainable operation ability is strong.
To sum up, packaging and testing, as the most flexible part of the semiconductor industry chain to expand production, will give priority to responding in the environment of picking up chip demand.
Among them, Tongfu Microelectronics has enhanced the stability of performance by deeply binding the head enterprises, passed through the downward cycle of the industry, and achieved many breakthroughs in advanced packaging technology in technology, and at the same time optimized the business structure through the layout of automotive electronics and power semiconductor business, and further enhanced the certainty of performance.
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Source: Flying Whale Investment Research