Sanan Optoelectronics: LED Chip Faucet Accelerates, Holding Compound Semiconductors And Micro-LED Highlights
May 08, 2018

Sanan’s annual profit growth rate was stable in 17 years, and gross profit margin broke through 50% again in the fourth quarter. In 2017, the company's revenue was 8.394 billion yuan, a year-on-year increase of 33.82%, and net profit attributable to the mother was 3.164 billion yuan, a year-on-year increase of 46.04%. In the fourth quarter, revenue was 2.111 billion yuan, and net profit was 787 million yuan. Among them, the company’s sales gross margins in the four quarters were 45.81%, 50.61%, 48.49% and 50.12%, respectively.

At this stage, the price of chips remains stable, and it is expected that there will be a decline of more than 10% in the whole year. From the Q4 quarter of 17 years, the prices of mainstream chip prices dropped by about 10 points. Considering from the demand side, the rapid growth of downstream growth is still lighting (more than 20% growth rate) and display (more than 25% growth rate). For a large supply of chips, the display is still a package manufacturer and a downstream application vendor. Selected seaports.

From the supply side, large companies in Taiwan, Japan and South Korea, and Europe and the United States are constantly being replaced. The original capacity of small businesses is at the time of equipment phase out, taking into account the fact that in 18 years Veeco and Sino Microelectronics reconciliation of patent lawsuits, mainstream chips Manufacturers will maintain their own expansion plan, including major manufacturers such as Sanan, Huacan, Aoyang and Qianzhao. The overall supply growth is steadily rising; we can predict that before the end of 18, LED chip prices will usher in a Wave drop.

The LED chip industry has clear production capacity, and Sanan expects its market share to increase substantially. The LED chip industry's heavy asset and heavy capital operating model will force many SMEs to be hesitant to start work.

The LED chip industry experienced a downturn and leading companies integrated the industry to form an oligopoly market. The future production capacity will change with the number of MOCVD of large companies. The ability of large supply companies to control production capacity will gradually increase, and the formation of leading positions will bring about potential expectations for further price increases. The company's LED chip market share in the global industry is not too high, the future goal to at least increase the market share to the existing double.

Compound semiconductors opened up new growth points for the company. GaAs has occupied a mainstream position in wireless communication applications. In 2015, the total size of the global GaAs component market was US$8.6 billion, a year-on-year increase of 15.75%. By 2020, the market size is expected to exceed US$13 billion. The downstream of GaN is mostly military, and the company researches and develops new markets. With the assistance of the National Fund, Sanan Compound Semiconductor progressed smoothly.

Micro-LEDs show upstarts and Sanan benefits from Samsung's purchases. For the new display technology, Micro-LED, it takes a while for massive transfer technology, but the application of large-screen displays (similar to small-pitch displays) has matured, and mainstream LED chip vendors will benefit significantly.

We expect the company's 2018/2019/2020 will achieve a net profit of 4.324 billion yuan / 5.212 billion yuan / 6.324 billion yuan, the next two years CAGR is 20.94%, the corresponding EPS is 1.06 yuan / 1.28 yuan / 1.55 yuan. Maintain the original profit forecast unchanged. Maintain Buy rating.

Risk Warning: Be alert to the rapid expansion of the LED chip market to bring about substantial loosening of prices. Downstream demand if not strong enough to affect upstream supply prices.

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