As AI mobile phones have higher requirements for integration, power consumption, and reliability, they are loaded with more and more components to achieve more complex functions.
However, mobile phone space is limited, so both components and system packages must be miniaturized.
SiP packaging is a packaging technology that integrates multiple electronic components in one package to achieve miniaturization, lightweight, and high reliability of electronic systems, and also has the advantages of low manufacturing difficulty and low cost.
The SiP market is expected to reach $18.9 billion by 2026.
Apple has joined the AI competition, and it is expected to be boosted by performance in the industrial chain.
Apple, the world's largest mobile phone manufacturer with 20% of the global market share in terms of shipments this year, has launched a large model, Apple Intelligence, and the iPhone 16 equipped with this large model has also entered the competition of generative AI.
In Apple's industrial chain, ASE Investment Control has successfully won Apple's SiP order, and will exclusively provide newly designed capacitive button SiP modules for the iPhone 16 series.
ASE Investment Holding is the parent company of USI that we are going to talk about today, and the two companies directly supply to Apple in the form of joint research and development.
In other words, with the advantage of exclusive supply of Apple's SiP, USI's performance is expected to grow further.
Let's estimate the unit value of USI's SiP module for the iPhone 16.
In the iPhone 16 series, Apple has removed the physical buttons that have been used for many years, and installed at least two SiP modules on each phone to integrate related components such as capacitive buttons and Taptic Engine vibration modules.
According to the sales revenue and sales volume of the company's SiP module in 2023, the unit price of the company's SiP module is 42 yuan, so the value of the SiP module carried by an iPhone 16 is 84 yuan.
In addition to the increase in performance brought by the iPhone 16, USI's performance in the first quarter of 2024 has been restored due to the recovery of consumer electronics market demand and the replenishment of manufacturers' inventory.
The company's revenue increased by 3.8% year-on-year to 13.492 billion yuan, and net profit increased by 20.63% year-on-year to 335 million yuan.
In addition to the recovery of the demand side, the company's performance in the first quarter of 2024 also lies in the optimization of the revenue structure.
In addition to the outstanding SiP business, the company has built a more balanced product portfolio around automotive electronics and cloud and storage products, so as to reduce the company's exposure to fluctuations in a single industry and a single customer.
1. Automotive electronics
In the first quarter of 2024, the company's automotive electronic products achieved revenue of 1.629 billion yuan, a year-on-year increase of 35.63%.
The company focuses on the three major development directions of automotive electronics: electrification, intelligence and networking.
The main products of this business are intelligent cockpit central control screens, domain control boards for in-vehicle entertainment systems, and automotive antenna products.
In 2023, the company will acquire Hirschmann, an automotive antenna company, which will help the company further enhance its product design capabilities and technical advantages in the field of automotive electronics, thereby enhancing the added value of products and increasing the gross profit margin of the business.
It is expected that in 2024, the consolidated increase brought by Hersmann will reach about 10%, and the revenue of the automotive antenna business will account for 20% of the revenue of the automotive electronics business.
In addition, the company can use Hersmann's management and sales advantages to provide better services for customers in Europe and the United States, thereby effectively reducing the difficulty of the company to open the European and American markets.
2. Cloud and storage products
AI servers have driven the growth of demand for general-purpose servers, as well as the demand for storage and switch services, making the company's cloud and storage products continue the trend of performance recovery in the fourth quarter of last year.
In the first quarter of 2024, the company's cloud and storage products achieved revenue of 1.552 billion yuan, a year-on-year increase of 41.86%.
In the future, the company will focus its cloud and storage business on AI and EdgeServer (CDN edge server) to explore opportunities in related motherboard and smart card businesses.
In addition to actively expanding its business areas, USI has also expanded into overseas markets by building production bases.
At present, the company has 30 production bases around the world, and many projects in Mexico and Poland are under construction, and it is expected that by 2026, the company will have 35 production bases in Europe, the United States, Asia and Africa to meet the local to local needs of global customers.
At present, the company's overseas production base has reached 35%, and according to the current capacity plan, it is expected that the business proportion of overseas production base will increase to 40% in the next 2-3 years.
However, at present, overseas factories are still in the early stage of investment, so the capacity utilization rate is low, and the depreciation and amortization costs are high, resulting in low profitability.
In response to this situation, the company will reduce the cost of overseas factories and improve profitability by optimizing the supply chain, improving the level of intelligent production and strengthening expense management.
Finally, let's look at the company's operational efficiency from a cash flow perspective.
1. Cash flow from operating activities
In the first quarter of 2024, the company's cash flow from operating activities showed a net inflow of 1.14 billion due to the timely collection of payments and the strengthening of procurement and inventory control.
Among them, inventory decreased by 17.55% year-on-year to 8.22 billion yuan, inventory turnover days decreased by 18 days year-on-year, and accounts receivable turnover days decreased by 5 days year-on-year.
2. Cash flow from investment activities
At present, the company's capital expenditure has increased compared to 2023, totaling 2 billion, of which 1.3 billion is production equipment, and of this 1.3 billion, 40% will be invested in SiP equipment, and the remaining 710 million will be invested in construction.
In the face of large capital expenditures, the company has maintained stable cash flow since 2021 to reduce the liquidity risk of funds, and the company's closing cash and cash equivalents balance increased by 26.42% year-on-year to 12.599 billion yuan in the first quarter of 2024.
3. Cash flow from financing activities
In the first quarter of 2024, the company obtained short-term borrowings of 1.79 billion yuan, resulting in a net cash flow of 610 million yuan from financing activities.
Since 2020, the company's interest-bearing debt ratio has shown a trend of increasing year by year, and the company's interest-bearing debt ratio reached 39.94% in the first quarter of 2024.
However, compared with other companies in the industry, USI's interest-bearing debt ratio is still relatively low. For example, the interest-bearing debt ratio of Lixun Precision in the first quarter of 2024 reached 55.66%, and Changdian Technology reached 58.37%.
As mentioned earlier, in the first quarter of this year, USI's closing cash and cash equivalents balance reached 12.599 billion yuan, which can cover 8.69 billion yuan of interest-bearing liabilities, and the company's solvency is still good.
Consumer electronics is at the starting point of a new round of rise, and in the first quarter of this year, social security also increased its position in USI, holding a market value of nearly 100 million.
To sum up, under the development trend of AI, SiP packaging occupies many advantages such as high integration and low cost, and is expected to usher in rapid development.
At the same time, the Internet of Vehicles and memory business also provides a new growth momentum for the company's performance, and the company's development space is huge in the future, and the development route will be more balanced.
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Source: Flying Whale Investment Research