The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

“New infrastructure” is a topic that has attracted much attention in the investment community recently, but it is not a new concept. As early as the Central Economic Work Conference held at the end of 2018, the positioning of “new infrastructure construction” such as 5G, artificial intelligence, industrial Internet, and Internet of Things was clarified, and then “strengthening the construction of new generation information infrastructure” was included in 2019. government working report.

The concept of “new infrastructure” has recently attracted much attention in the investment community, thanks to the many high-level meetings held since the beginning of 2020, focusing on the construction of new infrastructure.

On March 4, the government officially proposed to increase public health services, invest in emergency supplies, and speed up the construction of new infrastructure such as 5G networks and data centers.

It stands to reason that “new infrastructure” is enough to arouse the market’s reverie about the accelerated advancement of technological innovation, and will soon lead to the performance of a group of technological innovation companies that conform to the policy orientation in the secondary market.

In fact, the impact of the epidemic on the confidence of technology topics has caused the market to not completely relax until now. According to Wind data, as of March 7, the CSI Technology Index has fallen by 7.28% since February 26, and the semiconductor index in the sub-sector has fallen by 16%.

On March 4, the domestic chip design giant Zhaoyi Innovation was sold off by a total of 626 million yuan by two institutions; the domestic semiconductor equipment giant North Huachuang was sold by a total of 389 million yuan by three institutions, and the stock price fell by 6 .91%.

Among them, the recent market performance of the semiconductor equipment giant North Huachuang is particularly worth pondering. From the beginning of 2020 to the end of February, the stock price soared from more than 90 yuan to the highest stock price in history of 180.15 yuan, which doubled directly. However, after February 26, the stock price began to decline again, and the downward trend could no longer be stopped.

It is better to look at “fundamentals” than “traders” in the rise and fall of NAURA

The recent “falling and falling” stock market performance of NAURA has aroused discussions among many investors. Some investors believe that this is a direct result of the large-scale flight of institutional funds, while others believe that this stock was too hot before and has now entered a period of value return. In short, the root cause is the “chasing up and selling down” by institutions.

In the short term, the “chasing up and down” by institutions is indeed a major driving force behind the recent surge in NAURA’s stock price.

March 5, the day after a massive exodus of institutional funds. NAURA announced its 2019 performance report. The report showed that its revenue in 2019 increased by 22.10% year-on-year, operating profit increased by 25.93% year-on-year, and net profit attributable to shareholders of listed companies increased by 32.34% year-on-year. Indicators grew steadily.

Unexpectedly, the stock market’s response to the excellent performance of North China Creation was very cold. Shares of North China Creation rose only marginally by 4 percent on March 5, fell 2.39 percent on March 6, and fell another 8.88 percent on Monday, March 9. This shows that the stock market also recognizes the excellent performance of NAURA, but the institutions continue to take action, and the downward pull of the market is too strong.

However, if you lengthen the time axis, you will find that it is not these “traders” who engage in short-term speculation, but the “fundamentals” of NAURA itself. To judge the value of NAURA, it is necessary to analyze the macroeconomic situation and the basic situation of the company.

A little more recently, from December 2019 to February 25, 2020, the share price of North China Creation rose from about 90 yuan to 180 yuan. closely related to two major events.

First, the matter of NAURA raising 2 billion yuan from the National Integrated Circuit Fund, Beijing Electronic Controls, and Jingguorui Fund in the form of non-public offering in 2019 has been settled. NAURA has been intensively raising funds since December 5. publish relevant announcements;

Second, NAURA’s 2019 equity incentive plan involves the market-oriented reform of state-owned enterprises. After repeated demonstrations of related matters, a breakthrough was finally made, and the resolution of the board of directors was passed on February 22, 2020.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

If the timeline is longer, we can see that the stock price of North Huachuang has been in a downturn for a long time from 2012 to 2018. In fact, it was the six years when North Huachuang was struggling and profit was meager.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

In the first two years of listing in 2010 and 2011, the growth rate of NAURA’s revenue was 37.94% and 42.67% respectively, and the growth rate after deducting non-net profit was as high as 74.91% and 90.78% respectively. The rate of development is not low. However, the good times did not last long. From 2012 to 2015, the revenue performance of North Huachuang has been poor, and the deducted non-net profit has been declining year by year.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

After 2016, North Huachuang’s revenue recovered to double-digit growth, but in 2016 and 2017, there were huge losses of -261 million yuan and -208 million yuan in deducted non-net profit, and deducted in 2018. The non-net profit is less than 100 million yuan. Reflected in the stock price, the stock price of North Huachuang has gradually recovered in the three years from 2016 to 2018, but the speed is very slow.

After 2019, the stock price of North Huachuang has soared. In general, it is the result of the joint efforts of the four major advantages: new products, performance, non-public fundraising of 2 billion, and equity incentive plans.

In fact, NAURA is very suitable for long-term investment. If you want to make long-term investment, you should pay attention to the fundamental analysis of NAURA.

From small to large

Chips are the foundation of 5G, AI, and IOT, as well as the foundation of “new infrastructure”. In every process of wafer manufacturing such as cleaning, resist, lithography, etching, degumming, ion implantation, thin film deposition, etc., the participation of related semiconductor equipment is inseparable, so semiconductor equipment is the cornerstone of chip manufacturing.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

North Huachuang is one of the two major semiconductor equipment oligarchs in China. In the wave of “localization of integrated circuits” and under the tuyere of “new infrastructure”, semiconductor equipment is a well-deserved “national weapon”. Among them, North Huachuang importance cannot be ignored.

When we look at NAURA from a macro perspective, we can see that behind the 19 years of bumpy development of NAURA since its establishment in 2001, there are also domestic semiconductor equipment industries from 1 to 10, from small to large for 19 years. Rong development history.

Although China’s semiconductor industry started later than developed countries such as Europe, America and Japan, it has also laid its own foundation since the reform and opening up.

In September 2001, Beijing Electronic Controls integrated the former state-owned 700, 706, 707, 718, and 797 factories and initiated the establishment of Seven Star Electronics, mainly engaged in semiconductor equipment and precision electronic components. In October of the same year, Beijing Electronic Controls, together with Seven Star Group, Tsinghua University, Peking University and the Chinese Academy of Sciences, jointly funded the establishment of North Microelectronics, which is mainly engaged in high-end semiconductor equipment.

Seven Star Electronics has been immersed in development for nearly ten years, and by 2010, it successfully landed in A-shares. After the listing, the performance in the first two years was outstanding. However, when the demand for smartphones began to explode and the global demand for semiconductor equipment shifted from mature processes to advanced processes below 28nm, Seven Star Electronics failed to catch up with this wave of technology trends, which directly led to the poor performance of the group in the years after 2012.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

Under the crisis, in 2015, Qixing Electronics started the road of strategic reorganization with North Microelectronics. In 2016, this reorganization strategy was approved, and the reorganized group introduced strategic investments such as the National Integrated Circuit Industry Fund and Jingguorui Fund, realizing the combination of industry and capital and becoming a leader in domestic semiconductor equipment.

After 2016, the platform construction of the restructured group has become more and more perfect, and the development has begun to be on the right track, returning to a double-digit revenue growth rate.

In 2017, the group officially changed its name to “North Huachuang”, and formed four subsidiary platforms of semiconductor equipment, precision components, vacuum equipment, and new energy lithium battery equipment. Among them, semiconductor equipment and tight components are still the revenue pillars of North Huachuang. , the combined revenue and profit share of the two exceeded 99%.

As of 2017, NAURA’s 12-inch 90-28nm integrated circuit process equipment has been industrialized, and the 12-inch 14nm integrated circuit process equipment has entered the process verification stage. At the same time, in 2018, NAURA completed the acquisition of Akrion, an American cleaning equipment company, which enriched its integrated circuit product line.

In 2019, NAURA raised 2 billion yuan, mainly for the R&D and industrialization projects of semiconductor equipment, and to expand the production of high-precision electronic components.

So far, after nearly 20 years of bumpy development, NAURA has finally grown into a semiconductor equipment giant with the most extensive coverage in China, with a unique position in China.

big but not strong

North Huachuang’s products cover a wide range of fields. In the field of semiconductor equipment, except for lithography machines, it covers most of the core of the front line such as PVD, CVD, etching machines, ALD, oxidation furnaces, annealing furnaces, MFC, cleaning machines, etc. equipment. Such a complete product line coverage is not only unique in China, but also extremely scarce in the world, even enough to standardize the old international giant Applied Materials (AMAT.US).

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

But Applied Materials had a 23 percent share of the global semiconductor equipment market in 2017, with sales reaching $14.5 billion. In contrast, in 2017, NAURA’s global market share was only 0.3%, with sales of US$170 million, which was less than a fraction of the former.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

The poor market performance of NAURA reveals the embarrassing dilemma that it is far from catching up with the international mainstream advanced process technology trend.

As early as 2016, NAURA launched its own 14-nanometer etching machine, and after 2017, it entered the customer verification stage, but three years later, NAURA has not been able to go further.

Considering that the international mainstream mature process has transitioned from 28nm to 14nm, the advanced process is sprinting from 7nm to 5nm. If NAURA’s 14nm integrated circuit process equipment cannot enter the market as soon as possible, after two or three years, the 14nm process will be eliminated by the international mainstream market, and the predicament of NAURA around 2012 will likely be repeated again.

And the current competitive pressure on North China Creation is not only from international giants, but also the threat of domestic competitors should not be underestimated.

As another of the two major semiconductor equipment oligarchs in China, China Micro Semiconductor MOCVD has achieved mass supply and has become the mainstream of the domestic market. In the field of chip manufacturing, the 5-nanometer plasma etching machine independently developed by China Micro Semiconductor has been verified by TSMC and has excellent performance, and will be used in the world’s first 5-nanometer process production line.

Therefore, in general, as a semiconductor equipment giant with the most complete product line in China, although NAURA currently has a wide range of fields, it only makes the platform large enough and does not have comprehensive market competitiveness.

an inescapable test

As early as a few years ago, international semiconductor equipment giants have already begun to prepare for the upcoming tide of technological change, continuously increase investment in research and development, and promote the progress of advanced process technology.

As the advanced process node transitions from 14nm to 12/10nm and then to 7nm, the process is becoming more and more complex, and the requirements for semiconductor equipment suppliers are getting higher and higher. In the global semiconductor equipment market, the Matthew effect is becoming more and more prominent.

At present, the world’s most advanced process technology has transitioned from 7nm to 5nm. Currently, only TSMC is the wafer foundry company with the ability to put 5nm process technology into production. It is expected that in the second quarter of 2020, TSMC’s 5nm process technology can be mass-produced.

In TSMC’s supply list of 5nm production line equipment manufacturers, the world’s top five semiconductor equipment suppliers account for 75% of TSMC’s procurement. In fact, this is also a manifestation of the strong.

Over the years, the global semiconductor market has continued to focus on the head. By 2018, the top ten international semiconductor equipment giants accounted for more than 96% of the global market.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

Fundamentally speaking, the reliance of these giants to attack the market is the solid technological barriers they have built with their unremitting R&D investment.

Taking Applied Materials as an example, from 2010 to 2018, Applied Materials’ cumulative R&D investment exceeded 13.03 billion US dollars, with an average annual investment of more than 1.478 billion US dollars. During the 20 years from 1998 to 2018, Applied Materials’ R&D investment accounted for about 15% of its revenue.

As a result, Applied Materials not only covers a wide range of semiconductor devices, but also remains a leader in technology. By 2018, Applied Materials had more than 12,500 patents.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

Domestic semiconductor equipment manufacturers generally started late, and have been trying to catch up with these international giants. Among them, China Micro Semiconductor’s plasma etching machine successfully entered TSMC’s 5nm supply chain, demonstrating its impressive scientific research achievements.

In contrast, the main purpose of NAURA’s financing of 2 billion yuan in 2019 is to engage in 5nm/7nm research and development, which means that NAURA’s 5nm/7nm process equipment is still in the research and development stage. Huachuang’s related equipment can be put into production.

The gap between North Huachuang and the international giants is very obvious, but there is not much time left for it to catch up.

Under the trend of localization of integrated circuits, mainland China has ushered in a wave of fab construction. From 2017 to 2020, there are 62 new semiconductor production lines in the world, of which 26 are located in the mainland. The domestic demand for semiconductor equipment accelerated to expand.

But these fabs themselves face fierce market competition, although they tend to prefer domestic semiconductor equipment. However, if the difference between the domestic equipment manufacturers such as NAURA and the products of international manufacturers is too great, it is impossible for these manufacturers to hang themselves on a tree and only use the products of domestic manufacturers such as NAURA.

Opportunities and challenges come together

In 2020, the “new infrastructure” outlet will start. The market categorizes 7 major fields including 5G infrastructure and application, photovoltaic power grid and UHV, industrial Internet, intercity high-speed railway and intercity rail transit, new energy vehicles and charging piles, artificial intelligence, and cloud computing big data centers as ” New Infrastructure”.

In these seven fields, there is no shortage of the four platforms of NAURA’s semiconductor equipment, vacuum equipment, new energy lithium battery equipment and precision components.

Especially in 5G infrastructure and applications, industrial Internet, artificial intelligence, and cloud computing big data centers, which are more focused on information infrastructure construction, the role of chips is decisive, and the huge market demand is self-evident. . As the cornerstone of chip manufacturing, it can be said that semiconductor equipment has ushered in unprecedented market opportunities.

For domestic semiconductor equipment manufacturers, such market opportunities are even superimposed with rare historical opportunities. From a macro perspective, after 2015, the historical trend of the semiconductor industry’s migration to mainland China has become very obvious.

First of all, the proportion of IC design, wafer foundry and packaging and testing industries in mainland China in the corresponding links of the global industrial chain is constantly increasing.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

More importantly, the market size of semiconductor equipment itself in mainland China is growing rapidly.

According to SEMI (International Semiconductor Industry Association) data, in 2016, the Chinese mainland market surpassed North America and Japan for the first time, with semiconductor equipment sales reaching US$6.46 billion, a year-on-year increase of 13%, making it the third largest market for semiconductor equipment sales in the world. In 2017, mainland China was still the third largest market for global semiconductor sales, reaching a market size of US$8.23 billion with a growth rate of 27%.

The new infrastructure is ignited, and the crisis and opportunity of the semiconductor equipment giant North Huachuang

By 2018, mainland China reached US$13.11 billion with a growth rate of 59%, making it the world’s second largest semiconductor equipment market for the first time, second only to South Korea. South Korea’s semiconductor equipment sales in 2018 were US$17.71 billion, but fell 1% year-on-year.

In the trade frictions since 2018, the United States has blocked Chinese technology companies in an attempt to remove Chinese mainland technology companies from the global industrial chain, causing many companies to lose confidence in trade freedom and the global industrial chain of division of labor. However, this has made the localization of integrated circuits become a trend, and the semiconductor equipment market in mainland China has accelerated growth.

For NAURA, the transfer of the semiconductor industry to China, the trend of localization of integrated circuits, and “new infrastructure”, this opportunity is just right.

In the three years from 2016 to 2018, NAURA, which has completed the reorganization, continued to consolidate its platform construction, increased investment in research and development, and launched relevant new products that meet market demand. Therefore, revenue has grown rapidly, and non-net profit has been deducted. It has also turned losses into wins.

In 2019, NAURA completed financing of 2 billion yuan, and once again increased investment in research and development. In fact, North Huachuang is not unprepared for the current opportunities. In its previous estimates, 2020 will enter the peak period of equipment procurement by the National Bank, and then the demand will drop, but the localization rate will continue to increase.

Therefore, for the market opportunities after 2020, for North Huachuang, which has been prepared, everything is ready, and it will come to the east again.

But from a more realistic perspective, opportunities always come with challenges. In the historical trend of the semiconductor industry shifting to mainland China, the scale of the semiconductor equipment market in mainland China has accelerated. For the Chinese mainland market, international semiconductor equipment giants will definitely pay more and more attention. The question is, in the face of the surging attack of international giants, can NAURA be able to resist?

The general trend of the global semiconductor industry shifting to mainland China is irreversible, but in the market competition, NAURA lacks enough time to make up the gap with international giants. Therefore, the biggest competitor NAURA faces now is time.

Author: Yoyokuo