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Today, we want to track the recent situation of the third-generation semiconductor material silicon carbide industry chain:
At present, the industry divides semiconductor materials into three generations: the first generation is represented by silicon and germanium; the second generation is represented by gallium arsenide; and the third generation refers to silicon carbide and gallium nitride.
For the classification method, the above classification is controversial, some industry experts believe that this is the domestic division, do not do this generation of sub-division method overseas, the three generations of semiconductors are collectively referred to as "compound semiconductors". From the perspective of the industry, the three generations of semiconductors are not an alternative relationship of either/or, and each has its own market.
The third generation of semiconductors, characterized by "Wide Band-Gap (WBG)", the bandgap width is 3 times that of silicon, and its core advantages are reflected in the ability to significantly reduce product power consumption, improve energy conversion efficiency, and achieve energy saving purposes.
Among them, the characteristics of silicon carbide power devices are that they can withstand high voltage and large current, and are mainly used in new energy vehicles, photovoltaics and other fields.
Gallium nitride power devices, with good high frequency, high power characteristics, are used in 5G communications and other RF fields. For gallium nitride, we have covered it before, see the map of the industrial chain of Youshu for details, which is not described in detail here.
Judging from the recent growth of participants in the silicon carbide industry chain:
Sanan Optoelectronics - in the third quarter of 2021, it achieved operating income of 9.532 billion yuan, an increase of 61.54% year-on-year; achieved a net profit attributable to the mother of 1.286 billion yuan, down 37.04% year-on-year.
Luxiao Technology - In the third quarter of 2021, the operating income was 2.676 billion yuan, an increase of 39.93% year-on-year; the net profit attributable to the mother was 165 million yuan, down 13.42% year-on-year.
Tianyue Advanced - in the third quarter of 2021, it achieved operating income of 370 million yuan, an increase of 29.91% year-on-year; and achieved a net profit attributable to the mother of 54 million yuan, an increase of 108.69% year-on-year.
On January 28, 2022, it released its 2021 performance forecast, and it is expected that the net profit attributable to the mother in 2021 will be 0.82-0.98 billion yuan, an increase of 212.81%-215.31% year-on-year; the net profit deducted from the non-attributable mother will be 0.12-0.14 billion yuan, down 47.11% -38.27% year-on-year, achieving a turnaround.
Judging from the expectations of the institution for the prosperity of the industrial chain:
Chart: Institutional consensus expectations for growth and industry prosperity
Source: Wind, Tajian Research
All aspects of the silicon carbide industry chain include:
Figure: Graph of silicon carbide industry chain
Source: Tajian Research
Upstream – mainly suppliers of equipment and raw materials. The equipment includes long crystal furnace, cutting and grinding, thin film deposition, etc., representing enterprises such as North Huachuang, Zhongwei Company, Jingsheng Electromechanical; raw materials are toner, silicon powder, graphite parts, graphite felt, polishing fluid, etc., on behalf of the enterprises are Shandong Tianyi, Sinosteel New Materials, Henan Chuangyan New Materials, Anji Technology, etc.
Midstream - silicon carbide wafer manufacturers, domestic enterprises include Sanan Optoelectronics, Tianyue Advanced, Luxiao Technology, Tianke Heda, overseas enterprises include Wolfspeed, II-VI, Germany SiCrystal, Sweden Norstel.
Downstream - for terminal applications, downstream areas should include new energy vehicles, 5G communications, photovoltaic power generation, rail transit, etc., representing tesla, Weilai, Qualcomm, Broadcom, Sunshine Power, Star Semiconductor, Times Electric, etc.
See here, there are a few questions worth thinking about:
1) How to measure the market size of silicon carbide, and what is the future growth driver of the industry?
2) From the perspective of key operating data, in the field of silicon carbide, what are the similarities and differences in the layout of various products, and how competitive are they?
This report will be updated to the industrial chain map
(I)
First of all, let's start with the volume of revenue and the business structure, and have a general understanding of each company.
Taking the 2020 revenue as an example, Sanan Optoelectronics (8.454 billion yuan) > Luxiao Technology (2.848 billion yuan) > Tianyue Advanced (425 million yuan).
From the perspective of silicon carbide product revenue, Tianyue Advanced (350 million yuan) > Luxiao Technology (about 200 million yuan) > Sanan Optoelectronics (about 0.2 billion yuan).
From the perspective of revenue composition:
First, Sanan Optoelectronics - about 70% of the operating income comes from compound semiconductor products, 27.35% is the sale of materials and about 2% of the rental property income.
Compound semiconductors - including arsenides, nitrides, phosphides and silicon carbide and other compound semiconductor new materials involved in epitaxial wafers, chips. Among them, the LED chip business accounts for more than 70%, the second and third generation semiconductors account for less than 30%, and there is no specific data disclosure for silicon carbide revenue.
Materials and scrap – Materials are precious metals such as platinum and gold needed to produce LED electrodes, and scrap is the gold scrap produced during the production process.
Chart: Revenue structure (unit: 100 million yuan)
Second, Luxiao Technology - the main income is enameled wire, accounting for about 62% of the revenue, and the rest are mechanical and electrical equipment (15%), photovoltaic power generation (21%), etc.
The original business was enameled wire, a conductive metal wire used in electrical products for the conversion of electromagnetic energy, and the new business was photovoltaic power generation and third-generation semiconductors. Photovoltaic power generation business, from the acquisition of Shunyu Clean Energy Company, the main product is electricity, there are centralized and distributed photovoltaic power generation, the main customer is the State Grid.
The third generation of semiconductors to silicon carbide sink substrate, according to industry research, in 2021, its silicon carbide revenue of about 200 million yuan, accounting for about 5% of revenue.
Third, Tianyue advanced - the main income is mainly silicon carbide substrate (accounting for 82.2%) and crystal rod (17.8%).
In 2020, the revenue of silicon carbide substrates was 350 million yuan, accounting for 82.2%.
In summary, Tianyue Advanced takes silicon carbide as the main industry, and the other two are transformed from the original main business, and silicon carbide accounts for a relatively small proportion.
(2)
Next, we'll put together revenue and profit growth in recent quarters to sense the growth trend:
First, the growth rate of operating income
Chart: Revenue growth rate (unit: %)
In 2019, the operating income of Sanan Optoelectronics and Luxiao Technology both declined, at 10.81% and 14.25% respectively.
Sanan Optoelectronics, affected by the 40% year-on-year decline in the price of LED chips, the price of its LED products fell sharply, resulting in negative growth in operating income.
In 2019, due to the decline in the performance of its subsidiaries Shanghai Zhengyun and Jiangsu Dingyang acquired in 2016, the revenue of its auto parts and photovoltaic power plant EPC business fell by 49.1% and 94.09% respectively.
In 2020, the operating income growth rate of Sanan Optoelectronics and Luxiao Technology achieved growth, which was 13.32% and 16.16% respectively.
Sanan Optoelectronics, revenue growth in 2020, mainly from the subsidiary Sanan integrated mass production (including gallium arsenide RF, filter, gallium nitride power devices and other products mass production), the annual revenue of 974 million yuan, an increase of 304.83%, gallium arsenide production capacity climbed quarter by quarter, shipments smoothly.
Luxiao Technology, in 2020, Vietnam built a factory and began to put into production, and the annual revenue of the mechanical and electrical equipment business increased by 96.39% year-on-year. (Mechanical and electrical equipment, the main products are series motors, permanent magnet DC motors, brushless motors, is expected to be 12 million units / year, )
Tianyue advanced, and the growth rate of operating income decreased from 97.28% in 2019 to 29.91% in the third quarter of 2021.
Tianyue Advanced's revenue grew rapidly, mainly because of its low base, and revenue growth was due to the continuous growth in sales and revenue of its semi-insulated silicon carbide substrates.
Semi-insulated silicon carbide substrate for the production of gallium nitride RF devices, mainly used for base station PA, driven by 5G base station construction and the demand in the radar downstream market, driving its performance growth. According to the prospectus, its large customer Huawei, due to environmental changes, overseas silicon carbide procurement is limited, and Huawei's proportion of revenue increased from 8.56% in 2019 to 40.29% in 2020.
Second, the growth rate of net profit attributable to the mother
Figure: Growth rate of net profit attributable to the mother (unit: %),
Sanan Optoelectronics, in 2019, 2020 net profit growth rate fell by 54.12%, 21.73%, respectively, mainly due to the continuous decline in LED chip prices, while raw material prices rose in 2020, resulting in a continuous decline in net profit.
Luxiao Technology, the net profit in 2020 increased by 258.85%, because the industrial manufacturing end of the boom is higher, its mechanical and electrical equipment and enameled wire business revenue increased by 96.39%, 15.04% respectively.
Tianyue Advanced, the net profit growth rate in 2019 and 2020 was -376.24% and -219.71%, respectively, because of its implementation of equity incentives to confirm high share payment fees. Share-based payment expenses were $230 million in 2019 and $660 million in 2020.
(III)
After perceiving the growth trend, we then take apart the revenue and profit of each company and look at the recent financial report data.
I. Sanan Optoelectronics - In the first three quarters of 2021, the cumulative revenue was 9.532 billion yuan, an increase of 61.54% year-on-year; the net profit attributable to the mother was 1.286 billion yuan, an increase of 37.04% year-on-year.
1) Analyze from the growth rate of a single quarter:
In the single quarter of Q3 2021, the revenue was 3.417 billion yuan, an increase of 46.49% year-on-year, down 0.59% month-on-month; the net profit attributable to the mother was 402 million yuan, an increase of 32.56% year-on-year, and an increase of 22.94% month-on-month.
The growth in the third quarter, on the one hand, is the strong demand for LED terminal markets, led chip prices continue to rise; on the other hand, its subsidiaries, Hubei San'an, Quanzhou San'an, San'an Integration and other parts of the production capacity release, of which, San'an Integration achieved 1.669 billion yuan in the third quarter, an increase of 152.11% year-on-year.
Among them, Hubei Sanan is responsible for the production of Mini/Micro display chips; Quanzhou Sanan production of gallium arsenide, gallium nitride LED substrate, epitaxial, chip; Sanan integration is the production of gallium arsenide RF, filter, silicon carbide Mosfet, silicon-based gallium nitride power devices, etc., the planned production capacity of 400,000 pieces / year 6-inch silicon carbide wafers.
By the end of 2021, Sanan Integration can achieve 400,000 silicon carbide wafers/year, and gallium arsenide RF production capacity of 96,000 pieces/year.
Figure: Revenue, net profit and growth of Sanan Optoelectronics in the past 8 quarters
Chart: Single-quarter operating income (left), single-quarter attributable net profit (right)
2) Trace the growth of the previous quarters:
Q1-Q3 of 2021, its revenue and net profit increased significantly, mainly due to the strong downstream demand for LEDs, and the landing of superimposed subsidiary capacity, bringing about increased revenue.
Second, Luxiao Technology - In the first three quarters of 2021, the cumulative revenue was 2.676 billion yuan, an increase of 39.93% year-on-year; the net profit attributable to the mother was 165 million yuan, down 13.42% year-on-year.
In the single quarter of Q3 2021, the revenue was 821 million yuan, an increase of 6.94% year-on-year, down 16.14% month-on-month; the net profit attributable to the mother was 0.04 billion yuan, down 88.99% year-on-year and 94.29% month-on-month.
Q3 revenue declined sequentially due to a slowdown in revenue growth in its enameled wire business. Net profit declined year-on-year and month-on-month, first, because the price of copper, upstream raw materials, rose by about 30% year-on-year; second, R&D investment increased by 138.15% year-on-year.
Chart: Revenue, net profit and growth of Luxiao Technology in the past 8 quarters
2) Track growth in previous quarters:
In Q4 2019, the net profit loss was 186 million yuan because the subsidiary Shanghai Zhengyun did not meet its performance commitments and the goodwill impairment was 268 million yuan.
Third, Tianyue Advanced - In the first three quarters of 2021, the cumulative revenue was 370 million yuan, an increase of 29.91% year-on-year; the net profit attributable to the mother was 0.54 billion yuan, an increase of 108.69% year-on-year.
1) Analysis from the growth rate of a single quarter:
In the single quarter of Q3 2021, the revenue was 123 million yuan, an increase of 29.47% year-on-year, 48.19% month-on-month, and the net profit attributable to the mother was 0.06 billion yuan, an increase of 100.9% year-on-year.
The Q3 quarter revenue increase was due to the expansion of its production capacity and the increase in sales scale. The net profit turned into a profit because there were no large share payment fees in the current period.
Chart: Tianyue Advanced's revenue, net profit and growth in the past 8 quarters
In 2020 and 2021, its operating income scale increased significantly because of the growth of its semiconductor grade silicon carbide substrate sales, and its sales volume in 2020 increased by 112.65% year-on-year.
(Wanton)
After comparing the growth, let's look at the change in the profit margin:
First, the gross profit margin
Chart: Gross Margin Comparison (Changed)
Compared with the gross profit margin, Tianyue Advanced > Sanan Optoelectronics > Luxiao Technology.
The difference in gross profit is mainly due to the different product structures, Tianyue Advanced is dominated by silicon carbide substrates (gross profit margin of 35.19%), Sanan Optoelectronics is LED chips (gross profit margin of about 12%), and Luxiao Technology is enameled wire (gross profit margin of 5.8%).
Tianyue Advanced's higher gross profit margin is due to the fact that more than 82% of its main products are silicon carbide substrates with high technical barriers. Moreover, its gross profit margin has improved in the past three years, mainly 1) the price increase of product supply is in short supply, and 2) the yield of its substrate production has increased, and the unit cost has been reduced.
In 2019, the gross profit margin of semi-insulated substrate products increased by 16.77% year-on-year, 1) affected by foreign embargoes, resulting in an imbalance between supply and demand in the domestic market, and prices increased by 5,8%; 2) the yield increased, which reduced unit costs by 13.97%.
In 2020, the gross profit margin of semi-insulated products increased by 7.83% year-on-year, because the production process was improved and the pass rate was improved, resulting in a 20.37% year-on-year decrease in unit cost.
In the past three years, the gross profit margins of Sanan Optoelectronics and Luxiao Technology have declined:
Sanan Optoelectronics gross profit margin has declined, because of the oversupply of LED chips, resulting in a price decline, led to an overall decline in LED chip prices in 2019 by about 35%, and LED chip prices in 2020 fell by about 22%.
The gross profit margin of Luxiao Technology in the third quarter of 2021 fell by 31% year-on-year, mainly due to the impact of the price increase of the upstream raw material copper.
In summary, there are two main aspects that reflect the profitability of silicon carbide enterprises:
1) High level of production technology. The higher the pass rate of the production crystal, the larger the production scale, which can effectively improve the profit margin.
2) Main products. Silicon carbide > LED chips > enameled wires. The production process of silicon carbide is difficult, there is more downstream demand, while the supply is slower and the unit price is higher, while the LED chip and enameled wire market is more mature, easy to expand production, and prone to price wars.
Second, the cost structure
From Tianyue Advanced, where silicon carbide is the main business, for example, more than 50% comes from manufacturing costs, direct materials account for about 40%, and less than 10% are direct labor. Among them, the manufacturing cost is mainly equipment depreciation.
Figure: Cost structure of silicon carbide enterprises
Source: Tianyue Advanced Prospectus
Note that the core equipment required to produce silicon carbide wafers is a long-grain furnace and a cutting and grinding equipment. Silicon carbide enterprises usually have a large number of longcrystalline furnaces for the production of crystals, taking Tianyue Advanced as an example, it has a total of 668 sets of production equipment, of which 585 are longcrystalline furnaces, accounting for 88%, which is the main production equipment.
Third, the net interest rate
Chart: Net Interest Margin Comparison
The difference in net interest margin between the three is mainly due to the difference in gross profit margin. From the perspective of the change in net interest rate, from 2020Q3 to Q4 of 2020, tianyue advanced net profit margin is about -200%, which is due to large share payments.
Fourth, the period of expense ratio
Overall, the R&D expense rate of Sanan Optoelectronics and Luxiao Technology is about 6%, and the advanced R&D expense rate of Tianyue is relatively high and grows rapidly, mainly to increase the research and development of new products such as large-size substrates.
Figure: R&D expense ratio
Tianyue Advanced's management expense rates in 2019 and 2020 fluctuated abnormally, accounting for 96.94% and 164.56% of the revenue, because its share payment increased the management fee by 1030% and 168% respectively.
Figure: Sales expense ratio (left) vs. Management expense ratio (right)
Fifth, the return on net assets
Sanan Optoelectronics ROE is more advanced because the net interest rate is higher, the roE decline in the past three years is also due to the decline in net interest rate, and the decline in net interest rate is because of the decline in LED chip prices.
Chart: Return on Net Assets (% %)
(Wu)
The third generation of semiconductors is mainly divided into two categories: silicon carbide and gallium nitride. Both raw materials are prepared using silicon carbide substrates, but the epitaxial layer is different, resulting in different devices and application areas:
Gallium nitride device, using a semi-insulated substrate, growth gallium arsenide extension made of RF devices, suitable for high-frequency, high-temperature working environment, used in rf frequency fields, such as 5G communications.
Silicon carbide devices, using conductive silicon carbide substrates, growth of silicon carbide extension to produce MOSFETs, IGBTs and other power devices, used in new energy vehicles inverters, converters, motor drives, inverters in photovoltaic power generation, etc.
Figure: Silicon carbide substrate application areas
Considering the different downstream application areas and growth drivers, today, we focus on forecasting the size of the SiC devices market.
The market size can be expressed as follows:
Silicon carbide device market size = new energy vehicle market * silicon carbide device penetration * price + photovoltaic inverter market * penetration * price
Then, the above factors, we disassemble them one by one:
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