20210827-招银国际-韦尔股份-603501.SH-The_next_chapter_beyond_mobile_CIS_is_coming_6页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

Willsemi (603501 CH) released its 1H21 results, showing strong revenue and net profit growth of 55% and 127% YoY respectively. The results were in line with previous expectations, and the company's performance accounted for 43% and 45% of the FY21E revenue and net profit estimates. The gross profit margin (GPM) improved to 33.7% in 1H21 from 29.9% in FY20, driven by a favorable product mix.

The company is positioned to benefit from expansion in non-mobile CIS segments, which are expected to surpass mobile CIS in terms of earnings contribution by FY22E. These segments include automobile, security, AR/VR, and medical, which are experiencing rapid growth. CMBIS maintains a BUY rating with an unchanged target price (TP) of RMB 370.75, which is 44% above the current price of RMB 258.30.

Main Points

• 1H21 Performance:

  • Revenue growth: 55% YoY
  • Net profit growth: 127% YoY
  • Revenue and net profit reached 43% and 45% of FY21E estimates, respectively.
  • GPM improved to 33.7% from 29.9% in FY20 due to better product mix.

• Future Outlook:

  • The company is expected to maintain strong performance in mobile CIS and benefit from growth in non-mobile CIS segments.
  • Non-mobile CIS segments are anticipated to contribute more than mobile CIS by FY22E due to the growing demand in automobile, security, AR/VR, and medical sectors.
  • The TP of RMB 370.75 is based on a 50x FY22E P/E multiple, which is 1 SD above the 2-year historical average.

• Valuation:

  • The current P/E ratio for FY22E is 34.5x, significantly lower than the peer average of 53.4x.
  • The stock is currently trading at 1 SD below its historical P/E, indicating an attractive valuation.

• Key Financial Highlights:

  • Revenue is projected to grow from RMB 13,632 million in FY19A to RMB 45,061 million in FY21E, with continued growth in subsequent years.
  • Gross profit is expected to rise from RMB 3,734 million in FY19A to RMB 14,987 million in FY21E, with GPM improving to 33.3% in FY21E.
  • Net profit is forecasted to increase from RMB 466 million in FY19A to RMB 7,904 million in FY21E, with a net profit margin of 17.5% in FY21E.
  • Earnings per share (EPS) are expected to rise from RMB 0.76 in FY19A to RMB 9.11 in FY21E.

Key Information

• Target Price: RMB 370.75 (44% upside from current price)

• Current Price: RMB 258.30

• Market Capitalization: RMB 224,354 million

• 12-month Price Performance:

  • 1-month: -14.2%
  • 3-months: -12.2%
  • 6-months: -9.2%

• Shareholding Structure:

  • Yu Renrong: 31.48%
  • SX Weihao Equity Invest. FD: 9.31%
  • HKSCC: 5.18%

• Peer Comparison:

  • Willsemi's P/E is significantly lower than the peer average, making it an attractive investment.
  • Willsemi's P/B is also lower than the peer average, indicating a potential undervaluation.
  • The company has a strong ROE, expected to remain above 25% in FY23E.

• Financial Summary:

  • Operating profit is projected to grow from RMB 785 million in FY19A to RMB 8,918 million in FY21E.
  • The company maintains a strong cash position, with net cash from operating activities increasing over the years.
  • Capital expenditures (Capex) are expected to remain stable, with net cash from investing activities fluctuating.

• Key Ratios:

  • Gross margin is expected to stabilize around 33.3% in FY21E.
  • Net profit margin is projected to increase to 17.5% in FY21E.
  • Debt/EBITDA ratio is expected to decrease, indicating improved financial health.
  • Interest coverage ratio is expected to remain strong, showing the company's ability to meet interest obligations.

Risks

• Market Growth: Potential for slower-than-expected growth in the CIS market.
• Competition: Increased competition in the semiconductor industry.
• Semiconductor Shortage: Possible intensification of the global semiconductor shortage, which could affect the company's operations.
• Disruptive Technology: The emergence of new technologies that could disrupt the current market dynamics.

Analyst Certification

The research analyst certifies that the views expressed in the report accurately reflect their personal views and that there are no conflicts of interest affecting the report's objectivity. The analyst also confirms that they have not traded in the stock covered in the report within 30 days prior to its release and will not do so within 3 business days after release.

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• SELL: Stock with potential loss of over 10% over next 12 months
• NOT RATED: Stock not rated by CMBIS
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months

Important Disclosures

• There are risks involved in transacting in any securities.
• The report is not tailored to individual investors and should not be construed as an offer or solicitation to buy or sell any security.
• CMBIS is not a registered broker-dealer in the United States and may not be subject to U.S. rules regarding research reports.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.