(Report Producer/Author: Western Securities, Luo Yamei)
<h1 class="pgc-h-arrow-right" data-track="2" >, the world's leading semiconductor and communication products integration enterprise</h1>
1.1 The company has a long history, stable shareholding structure and rich management experience
Founded in 2006, Wingtech transformed from IDH (independent design house) to ODM (original design manufacturer). ODM means that the manufacturer entrusted by the purchaser to provide all services from research and development, design to production and post-maintenance. In 2016, the company was listed on the Shanghai Stock Exchange on the backdoor zhongyin shares, with a stock code of 600745, and its main business includes three major sectors: semiconductor IDM, optical module, and communication product integration. At present, it has formed a whole industry chain layout from semiconductor chip design, wafer manufacturing, packaging and testing, semiconductor equipment manufacturing, to optical modules, communication terminals, notebook computers, IoT, servers, and automotive electronic products R&D and manufacturing. The company has established cooperative relations with many mainstream brands and continues to deepen.
Nexperia, a subsidiary of Wingtech Technology, is a world-renowned semiconductor IDM company, the original Philips Semiconductor Standard Products Division, with more than 60 years of semiconductor R & D and manufacturing experience. Headquartered in Nijmegen, the Netherlands, the company has more than 25,000 customers, more than 15,000 product categories, and more than 800 new products are added every year, all of which are vehicle-grade products. Nexperia is committed to bringing durable and innovative manufacturing solutions to semiconductor manufacturers around the world, providing semiconductor, RFID and MiniLED manufacturing equipment and systems to serve customers with high-productivity levels of assembly, testing, inspection and intelligent manufacturing platforms.
The company's shareholding structure is stable. As of H1 2021, the company's largest shareholder, Wentianxia Investment Co., Ltd., Lhasa Economic and Technological Development Zone, holds 12.36% of the company's shares, and Mr. Zhang Xuezheng, chairman and founder of the company, directly holds 2.97% of the company's shares, and indirectly holds 12.36% of the company's shares through holding 99% of the shares of Wentianxia Investment, holding a total of 15.33% of the shares of Wingtech Technology. In the process of acquiring Nexperia, the company added shareholders such as Wuxi Guolian, Yunnan Provincial City Investment, Kunming Production and Investment, and Gree Electric.
The management is experienced in the industry. Mr. Zhang Xuezheng, Chairman of the Board, holds a bachelor's degree in electronic information engineering from Guangdong University of Technology, a master's degree in advanced business administration from Tsinghua University, a doctorate degree in finance from Tsinghua University/University of Geneva, and has worked in companies such as STMicroelectronics. Ms. Zhang Qiuhong, a director, has served as the deputy general manager and director of a number of technology companies for many years and has rich industry experience. Mr. Gao Yan, a director, was the deputy general manager of Jiaxing Fine Plastic Communication Technology Co., Ltd. Mr. Wang Yanhui, an independent director, was the Secretary-General of the China Mobile Phone China Alliance of the China Communications Industry Association, the Deputy Secretary-General of the Embedded System Branch of the China Software Industry Association, and the founder of Jiwei Network.
Two acquisitions helped the company achieve strategic expansion. The Company began acquiring Nexperia Semiconductor (China) Co., Ltd. in 2018, and after the initial acquisition, the Company holds a 98.23% stake in Nexperia Group. In September 2020, the company announced further acquisition of the remaining shares of Nexperia, which is now 100% controlled. Nexperia is the world's leading manufacturer of discrete, logic and MOSFET devices. Its main customers are in Europe and the United States and other countries, and its products account for a relatively high proportion of the automotive electronics field, with more than 12,000 employees in Asia, Europe and the United States. The acquisition of Nexperia has effectively improved the company's control over upstream costs, achieving synergies and resource conversion.
On March 29, 2021, the Company signed a relevant agreement with OFILM Group Co., Ltd. and its subsidiaries to purchase 100% of the equity of Guangzhou Delta Imaging Technology Co., Ltd. and related equipment owned by Jiangxi Jingrun Optics Co., Ltd. in cash, with a total transaction price of 2.42 billion yuan. Through this acquisition, the company has strategically expanded from the product integration business to the upstream electronic components business, and built a customer service capability of the whole industry chain. On the basis of comprehensively coordinating the development of the product integration business segment and the semiconductor business segment of Nexperia Group, the company further extends to the upstream of the industrial chain through this acquisition, and carries out the layout and integration of industrial vertical fields, so as to better seize the development opportunities of the rapid growth of demand in the fields of 5G, IoT and intelligent vehicles, and promote the long-term sustainable growth of the company's performance.
1.2 The two major business sectors work together, and the company's product performance is leading the world
The company's communication business is mainly for the research and development and manufacturing of communication terminal products, and the semiconductor business is mainly for the research and development and manufacturing of semiconductors and new electronic components. The company's business model is to provide new product development, ID design, structural design, hardware research and development, software research and development, manufacturing, supply chain management and other services for global mainstream brands.
The company's communications business continues to expand its production capacity to meet the needs of customers around the world. The construction of the company's 5G intelligent manufacturing industry park in Kunming, Yunnan Is about to enter the final stage, which will greatly alleviate the pressure on product delivery. At present, the company already has a certain degree of injection molding, spraying and CNC precision machining capabilities, can provide customers with plastic and metal frame, front shell, back cover, hardware and other parts, the future will continue to increase the production capacity and variety of components. The company has set up a product center, supply center, central research institute, application research institute, Ark laboratory, and through Nexperia semiconductor integration of communications and semiconductor business products, customers, supply chain resources, increase investment in large-scale technological innovation, to achieve mutual empowerment, to promote the company from ODM service company to product company transformation.
The company's semiconductor business product line mainly includes transistors (including protection devices ESD/TVS, etc.), MOSFET power transistors, analog and logic ICs. In 2020, the revenue of the three major categories of products accounted for 49% (of which protection devices accounted for 15%), 30% and 19% respectively. Referring to IHS 2020 data, the company's semiconductor product line ranks first in global shipments of diode transistors, second in global shipments of standard logic devices, and second in global shipments of small model MOSFETs. Referring to IHS 2019 data, the company's ESD protection device products are the first in global shipments, and the company's automotive POWER MOSFET market position is second only to Infineon.
1.3 Revenue growth is strong and expenses are well controlled
Revenue grew at a compound annual growth rate of 40%. Since the company went public in 2016, its operating income has increased significantly. From 13.417 billion yuan in 2016 to 51.707 billion yuan in 2020. The CAGR for 2016-2020 was 40.1%. The slowdown in the company's revenue growth in 2018 was mainly due to the downturn in the mobile phone market that year, and the company's order volume declined. The Company's operating income increased significantly in 2019, mainly due to the merger with Nexperia and the optimization of the Company's customer structure.
Attributable net profit grew at a COMPOUND annual growth rate of 266%. In 2020, the company's net profit attributable to the mother was 2.415 billion yuan, and the net profit attributable to the mother in 2016-2020 WAS CAGR of 266.4%. Due to the company's net profit attributable to the parent in 2016 was only 48 million yuan, the base was low, and the company's acquisition of Nexperia Semiconductor was completed in 2019, and the company's net profit attributable to the mother was completed and consolidated, and the company's net profit attributable to the mother was at a high compound annual growth rate.
In 2021, H1's operating income and net profit attributable to the mother were 24.769/1.210 billion yuan, respectively, +3.9% / -27.6% year-on-year, respectively. Profit in the first half of 21 years was mainly affected by the continuous rise in the price of upstream accessories and chips. In the future, the company will further actively cooperate with the upstream supply chain and downstream customers to cope with price increases, and it is expected that the price impact will gradually weaken.
R&D investment has increased, and the comprehensive expense ratio is generally stable. The company continues to pay attention to R & D investment, as of the end of 2020, the company's R & D personnel totaled 5459 people, accounting for 21.8% of the company's total number. In 2020, the company's R&D investment reached 2.801 billion yuan, and the company's R&D expense ratio of 2021H1 was 4.57%, a record high. The company's sales, management, financial expense ratio is relatively stable overall. The increase in the company's financial expense ratio in 2019 was mainly due to the acquisition of Nexperia. The increase in the 2021H1 management expense ratio is mainly due to the equity incentive expenses resulting from the equity incentive policy implemented in the second half of 2020.
Profit margins are at record highs and cash flows are increasing year on year. In 2018, due to the downturn in the mobile phone industry market and the intensification of industry competition, the company's net profit margin declined. Except for 2018, the company's gross and net profit margins have increased year by year. As the company's leading position in the ODM industry becomes more stable and the scale effect continues to emerge, the gross profit margin climbed from 8.0% in 2016 to 15.2% in 2020. Net margin climbed from 1.4% in 2016 to 4.8% in 2020 as a result of consolidation resulting from the company's acquisition of Nexperia. In 2021, H1 Company had a gross margin of 16.2% and a net profit margin of 4.9%. Since the company's listing in 2016, the net operating cash flow has continued to grow, and in 2021H1, due to the different payment and collection terms and the company's increase in raw material stockpiling, the net operating cash flow was -831 million yuan. With the disappearance of seasonal factors and the company's product innovation and business development, it is expected that the company's net operating cash flow will maintain a growth trend in the future, and the quality of profitability will continue to strengthen.
The turnover rate is stable and good. Since 2016, the company's accounts receivable turnover rate has been generally stable, and it has increased in 2020 to 5.06 times. With the expansion of the scale of operation, the company's bargaining power with upstream manufacturers has improved, and the company's account payable turnover rate has decreased steadily, falling to 3.16 times in 2020. In 2020, the company's sales scale expanded, increased stockpiling, and the inventory turnover rate declined. Overall, the turnover rate of accounts receivable is stable, the turnover rate of accounts payable is declining, the inventory turnover rate is declining, and the operating conditions are stable.
Profitability recovered and capital structure was excellent. Due to increased competition and declining order volumes, the company's ROE declined in 2018. In recent years, the company has continuously increased investment in research and development, and acquired Nexperia to expand its business areas. In 2019, the company's ROE and ROIC increased significantly, with ROE of 9.6% and ROIC of 7.9% in 2020. The company equity multiplier has decreased year by year since 2018, with a company equity multiplier of 2.49 in 2020.
1.4 The advantages of gross profit margin and management efficiency are constantly expanding
We selected Huaqin Technology, Pegatron and Hon Hai as comparable companies in the company's ODM field.
In terms of gross profit margin, the gross profit margin of the company's communication business has been higher than that of comparable companies since 2017, and in recent years, thanks to the emergence of the company's scale effect and good cost control capabilities, the gross profit margin advantage has been expanding. The gross profit margin of the company's communications business in 2020 was 12.1%, and the gross profit margin of comparable companies Huaqin/Pegatron/Hon Hai was 9.9%/3.5%/5.7%, respectively. In terms of net profit margin, the company's net profit margin in 2016-2018 was inferior to that of comparable companies, but thanks to the company's good expense control capabilities and the synergy effect of the acquisition of Nexperia in recent years, the company's net profit margin gradually overtook comparable companies and gradually widened the gap. The company's net profit margin for 2020 was 4.8%, and the net profit margin of comparable companies Huaqin/Pegatron/Hon Hai was 3.7%/1.6%/2.1%, respectively.
We selectEd Infineon Technologies, Silan Micro, China Resources Micro and Taiji As comparable companies in the semiconductor field.
Nexperia Group's gross profit margin in 2016-2020 is at the industry average, and Wingtech's acquisition of Nexperia will help Nexperia to develop rapidly in the consumer field, and the gross profit margin is expected to further increase in the future. From 2016 to 2018, Nexperia Group's net profit margin was at an average level in the industry and showed an upward trend, and in 2019, the company's net profit margin reached 12.2% with good expense control capabilities, surpassing four comparable companies to rank first in the industry.
From 2016 to 2019, nexperia's management efficiency has been continuously improved, and the management expense ratio has decreased year by year and is significantly lower than that of comparable companies, and its advantages have been expanding. In 2019, Nexperia's management expense ratio was only 4.9%, and the management expense ratio of Silan Micro/China Resources Micro/Taiji was 18.2%/15.0%/15.6% respectively. Nexperia Has a high level of inventory management and a higher inventory turnover rate than the industry average. In 2018, the company's inventory turnover rate was 4.52 times, ranking first in the industry; in 2019, it was 3.33 times, second only to China Resources Micro.
<h1 class="pgc-h-arrow-right" data-track="34" > second, the ODM volume and price have risen together, and power semiconductors are facing development opportunities</h1>
2.1 The wave of 5G replacement opens up the growth space of the ODM industry
According to the positioning of mobile phone manufacturers and product strategies, the outsourcing strategy of mobile phone products varies greatly. ODM has the absolute advantage of R&D efficiency and cost control, so the original design manufacturer (ODM) in the thousand-yuan smartphone market is the best choice. With the comprehensive improvement of the R&D strength, supply chain control, manufacturing and quality management level of the bellwethers Wingtech and Huaqin, and the wave of replacement brought about by the popularization of 5G, the ODM industry will usher in new development opportunities.
2.1.1 The wave of 5G replacement will drive smart phone shipments to increase
With the advent of the 5G replacement wave, smartphone shipments have ushered in new growth. After global smartphone shipments peaked at 1.471 billion units in 2016, shipments fell for four consecutive years from 2017 to 2020. In 2020, combined with the impact of the epidemic, global smartphone shipments fell to 1.292 billion units, down 5.9% year-on-year. The smartphone replacement cycle is long, and the popularity of 5G technology and the rise of 5G mobile phones will become a new outlet for mobile phone consumption upgrades. As the impact of the epidemic fades, the global smartphone market is rebounding in sales under the catalyzation of 5G. According to StrategyAnalytics, global smartphone shipments in Q1 2021 were 340 million units, up 24% year-over-year and the highest growth rate since 2015. Q2 2021 global smartphone shipments reached 314 million units, up 11% year-over-year. With the promotion of a variety of 5G packages by operators, the increasing market penetration rate of 5G mobile phones by mobile phone manufacturers and the expansion of the 5G mobile phone user group, the smartphone market will usher in another golden growth point. According to IDC's forecast, global smartphone shipments will grow by 6.8% to 1.38 billion units in 2021, of which global 5G smartphone shipments will account for more than 40% of total shipments, and the proportion will increase to 69% by 2025. Between 2020 and 2025, the compound annual growth rate (CAGR) of the global smartphone market is expected to reach 3.6%.
According to the annual report data of the three major operators, as of the end of June 2021, the number of China Telecom 5G package users reached 131 million, with a penetration rate of 36.2%, the number of China Mobile 5G package users reached 251 million, with a penetration rate of 26.5%, and the number of 5G package users of China Unicom reached 113 million, with a penetration rate of 36.5%. As of the first half of 2021, the number of 5G package users in China has reached 495 million. The rapid growth of carrier 5G packages has driven the smartphone market to continue to expand.
2.1.2 The demand for outsourcing of low- and medium-end models has increased, and ODM shipments have increased
ODM shipments rose against the trend, and the proportion increased. ODM has significant advantages, customers only need to put forward product functions, performance requirements or even product ideas to the ODM service provider, and the ODM service provider can realize product design and production. ODM has a strong technical barrier to increase the efficiency of the principal and reduce the cost of the consignor.
According to HIS and Counterpoint data, from 2016 to 2020, the global mobile phone ODM shipments were 4.18 /4.50/4.30/4.10/480 million units, accounting for 28.4%/30.7%/30.6%/29.9/37.2% of the total global shipments, respectively. Although global smartphone shipments declined in 2020, ODM shipments increased by 22.0% year-on-year, accounting for 7.3pct to 37.2% of total global shipments. Among them, the top three mobile phone manufacturers in ODM/IDH project shipments are Xiaomi (115 million units), OPPO (105 million units), and Samsung (0.81 billion units). In addition, Huawei, Lenovo and other ODM/IDH shipments are also about 300 million units. In 2020, Samsung shipments increased by 269% year-on-year, OPPO shipments increased by 69% year-on-year, and ODM/IDH shipments from Huawei and Lenovo both decreased year-on-year.
The ODM requirements of low-end models have increased, and the development potential is great. At present, the global mobile phone design and production mode is: brand manufacturers concentrate resources on developing high-end models, and low-end models are delivered to ODM company design and production. ODM enterprises have certain R & D capabilities, and there are upstream and downstream supply chains, large shipment scale, short delivery cycle, can bring huge profits to mobile phone manufacturers. Taking OPPO as an example, as of 2020, 65.6% of the smartphones produced by OPPO and its brands Realme and Oneplus have adopted the ODM/IDH model. The ODM model has achieved a substantial increase in shipments for OPPO, with a total of 160 million OPPO shipments in 2020, and the global mobile phone shipment ranking has risen to fifth place, ranking second in the domestic Android mobile phone market share with 16.64%. With the further maturity of the ODM model, the advantages are becoming more and more obvious, and more and more mobile phone manufacturers will choose the ODM mode to produce low-end mobile phones. According to IDC, global smartphone shipments will reach 1.38 billion units in 2021. We expect that the proportion of low-end mobile phones will remain about 50%, and it is expected that 90% of low-end mobile phones will adopt the ODM production mode in 2021, and the global mobile phone ODM industry market space will be about 621 million units in 2021, an increase of about 30% over 2020.
2.1.3 ODM has a high degree of market share concentration and obvious advantages of leading manufacturers
Small and medium-sized ODM vendors have limited living space. First-line brand owners outsourced most of the shipments of ODM models are tens of millions. The pre-evaluation cycle of these goods is long, occupies a lot of R&D resources, and has high requirements for quality and supply chain cost control, so the threshold for ODM companies is very high. At the same time, the first-line mobile phone brand owners have strong strength and strong bargaining power in the supply chain, so they will continue to squeeze the profit margins of ODM manufacturers. Small and medium-sized ODM manufacturers have weak R&D capabilities, do not have scale effects, and have limited living space.
The market presents a three-oligopoly pattern, and the market share is concentrated in the head. According to Sainuo data, in 2019, Wingtech Technology took the lead in achieving mobile phone shipments exceeding 100 million units, reaching 108 million units, an increase of 25% year-on-year. In 2020, Wingtech's mobile phone shipments increased again, reaching 110 million units, ranking second. In 2020, Huaqin's mobile phone shipments increased by 101% to 162 million units, ranking first in the industry; Longqi, ranked third, achieved shipments of 97.7 million units, an increase of 32% year-on-year; and ranked fourth and fifth were Tianlong and Zhongnuo, with shipments of 28.7 million units and 23 million units respectively, which was a significant gap between the shipments of the industry's top 3 manufacturers. Overall, the pattern of top 3 manufacturers in the ODM industry is stable, the market concentration is constantly improving, and the market share has increased year by year since 2016. In 2016, the shipment volume of TOP3 manufacturers accounted for less than 30%, and in 2020, it has increased to 77.1%, and the industry head effect is obvious. The competitive landscape of the ODM industry will continue to be maintained for some time to come, and the leading manufacturers will benefit deeply in the growth wave of the ODM industry.
2.2 The power semiconductor market space is large, and the demand for power semiconductors driven by new energy vehicles is growing rapidly
2.2.1 New energy vehicles drive the demand for downstream power devices
Sales of new energy vehicles have increased significantly, and the demand for power semiconductors has increased. The world's new energy vehicles are in a stage of rapid development, and China is expected to completely stop using fuel vehicles by 2050. Europe has introduced the strictest carbon emissions policy, announcing that it will stop selling fuel vehicles in 2035. The U.S. announced that it will achieve zero emissions of half of all new cars sold by 2030. In 2020, even under the influence of the epidemic, global sales of new energy vehicles still achieved a substantial increase of 43%, with sales reaching 3.12 million units. It is expected that in the future, the sales of new energy vehicles in the world, especially in China, will continue to grow significantly, and the penetration rate will continue to increase.
With the growth of new energy vehicle sales, the demand for power semiconductors will increase significantly. According to Gartner data, the global automotive semiconductor market reached $41 billion in 2019 and is expected to reach $65.1 billion in 2022, accounting for 12% of the global semiconductor market, making it the fastest growing market in the global semiconductor segment. According to IHS forecasts, the global power semiconductor devices market size will be $44.1 billion by 2021. According to the statistics of Zhiyan Consulting, the value of power semiconductors in the automotive field accounted for 35% of the global power semiconductor market in 2019. If this ratio remains unchanged, we expect the global automotive power semiconductor market to reach $15.4 billion by 2021.
In new energy vehicles, the value of power semiconductors has increased. Power semiconductors are mainly used in automotive systems, automotive engines and body electronics. Compared with traditional fuel vehicles, the value of power semiconductors in new energy vehicles has increased significantly. According to the data of Zhiyan Consulting, the semiconductor value of traditional fuel vehicles is 375 US dollars / car, the semiconductor value of 48V / MHEV new energy vehicle is 475 US dollars / car, FHEV / PHEV is 740 US dollars / car, and BEV is 750 US dollars / car. Based on the average value of automotive semiconductors in the three new energy vehicles, the value of semiconductors in new energy vehicles increased by about 70%, of which power semiconductors were the largest part of the growth.
At present, the global automotive semiconductors, including power semiconductors, are in a state of tight supply. With reference to IHS and Infineon's statistics, the price of xEV single-vehicle power semiconductors will increase from $90 to $330. Affected by factors such as the long introduction time period and high verification standards for wafer production capacity and packaging and testing production, the matching of supply and demand of automotive power semiconductors will take a long time, and it is expected that the next two years will be a relatively tense state. The company's semiconductor business further accelerates capacity investment, increases capital expenditure, expands the capacity of its two existing European fabs, and invests in a 12-inch vehicle-grade power semiconductor fab in Shanghai Lingang, which is expected to be put into operation in the second half of 2022. The company will seize the opportunity of the era of automobile electrification, give full play to the advantages of vehicle-grade semiconductors, and seize more market share.
2.2.2 The power semiconductor market is large, and the share of domestic manufacturers needs to be improved
The power semiconductor market is large, and China is the world's largest consumer of power semiconductors. According to IHS data, the global power semiconductor device market size was $42.2 billion in 2020, an increase of 4.7% year-on-year. As the world's largest consumer of power semiconductors, China's power semiconductor device market size in 2020 was 15.4 billion US dollars, an increase of 6.2% year-on-year, accounting for 36.5% of the global market size. According to IHS forecast, the global power semiconductor device market will reach $44.1 billion in 2021, and the market size of China's power semiconductor devices is expected to reach $15.9 billion in 2021, accounting for 36.1% of the global market.
From the perspective of downstream applications, automotive, industrial and consumer electronics are the top three end markets. According to the Data of China Commercial Industry Research Institute, the automotive market accounted for 35.4% of the global power semiconductor market in 2019, the industrial sector accounted for 26.8%, and the consumer electronics sector accounted for 13.2%. In terms of the domestic market, the proportion of automotive, consumer electronics and industrial power supply applications in 2019 was 27%, 23% and 19% respectively. Benefiting from the downstream demand driven by new energy vehicles, 5G base stations, inverter home appliances, etc., superimposed "new infrastructure", encouraging the development of third-generation semiconductors and other policies to fully boost, power devices ushered in a boom cycle. Taking SiC semiconductors, an important segment of power semiconductors, as an example, market research firm Yole predicts that the SiC power semiconductor market will reach $2 billion in 2024 and a CAGR of 29% in 2020-2024.
Overseas manufacturers dominate, and Nexperia is expected to fill the domestic vacancy. From the perspective of competition pattern, the industry leaders are Infineon, ON Semiconductor, STMicroelectronics and other major European and American manufacturers. Mainland manufacturers started late, technical capabilities, customer channels and other aspects of the gap with overseas enterprises, products are mainly diodes, medium and low voltage MOSFETs, thyristors, etc., the overall situation of insufficient supply of high-end products, about 90% dependent on imports. According to the statistics of The Core Strategy Research, among the top 20 companies in the global power discrete device industry in 2020, there are only 5 Chinese companies, and the only one that ranks in the top ten is Nexperia, which was acquired by Wingtech Technology, ranking 9th. After Entering the Chinese market, Nexperia is making up for domestic shortcomings and helping China improve the self-sufficiency rate of power semiconductors.
<h1 class="pgc-h-arrow-right" data-track="62" > third, the company's strength is outstanding, and nexperia resources are complementary and coordinated development</h1>
3.1 R&D and production capacity create barriers, and new customer development promotes the sustainable development of the company
In 2020, the company invested 2.8 billion yuan in research and development, and the five R&D centers have a number of advanced patented technologies and excellent R&D talents. The company's 5 ODM intelligent manufacturing centers continue to expand their production capacity. In 2018, the company successfully introduced new customers such as OPPO and Samsung, which promoted the company's mobile phone shipments and significantly improved the profitability of the company's stand-alone machines. Since 2018, the company has carried out a number of cooperation with Qualcomm and is Qualcomm's only 5G ALPHA customer and priority strategic partner in the world.
3.1.1 Super R&D capabilities and production capacity to escort the company's development
The company's R & D investment continues to expand, R & D capabilities strengthened. In 2020, the company has 5459 R&D personnel and invested 2.8 billion yuan in R&D. The company's single R&D project cost has increased from 20 million to 30 million yuan to 50-80 million yuan. The company has five R & D centers in Shanghai, Shenzhen, Xi'an, Wuxi and Jiaxing. Among them, the Shanghai R&D Center has more than 1,000 technical trains, including a number of international advanced technologies. The scale of the company's communication business R & D team has expanded rapidly, and R&D centers such as Shanghai, Xi'an, Wuxi, Jiaxing, and Shenzhen have continued to recruit, introducing a large number of outstanding talents to enhance the company's R&D strength in the fields of tablets, laptops, IoT, servers, and automotive electronics.
The company's communications business continues to expand its production capacity to meet the needs of customers around the world. On July 23, 2021, Wingtech Technology Kunming Intelligent Manufacturing Industrial Park was officially put into operation, greatly alleviating the pressure of overseas delivery, and the Jiaxing and Wuxi factories are also expanding. The company has 5 ODM intelligent manufacturing centers located in Jiaxing, Wuxi, Kunming, India and Indonesia. Among them, the production capacity of Jiaxing Manufacturing Center is 30 million units/year; the production capacity of Wuxi Manufacturing Center is 10 million units/year; the production capacity of Kunming Manufacturing Center phase I is 20 million units/year, and the planned production capacity of Phase 2 (2023) is 50 million units/year; the shipment volume of Indian manufacturing center is more than 2 million units; and the current planned production capacity of The Indian Manufacturing Center is 1 million units/month. The expanding production capacity will ensure the company's product delivery capabilities.
3.1.2 Customer structure optimization, mobile phone ODM shipments increased
Actively expand new customers, ODM shipments lead the world. Since its establishment, the company has reached in-depth cooperation with xiaomi, Huawei, Lenovo and other mobile phone dragon head enterprises. Traditional customers such as Huawei and Xiaomi generally only outsource the research and development process, and Wingtech's profit model is mainly based on collecting design and sales commissions. In 2018, the company successfully introduced new customers such as OPPO and Samsung. Samsung, OPPO and other new customers mainly produce low-end models, for the sake of cost control, R & D procurement and product manufacturing and other aspects of almost complete outsourcing to the company, in order to promote the company's mobile phone shipments to increase at the same time significantly improve the company's single machine profitability. In 2019, the company's mobile phone ODM shipments exceeded 100 million units, ranking first in the industry. Although the epidemic in 2020 has an impact on mobile phone production and sales, the company's mobile phone ODM business still achieved growth, and the company's ODM mobile phone shipments in 2020 were 110 million units, ranking second in the industry. We expect that the number of mobile phone manufacturers using ODM production strategies will continue to increase in the future, and the proportion of outsourced mobile phone products of various manufacturers will also increase. With its many years of R & D and manufacturing experience and industry leader brand position, the company will gain more orders and market share.
3.1.3 Holding hands with Qualcomm and grabbing 5G
With Qualcomm cooperation for many years, 5G product layout to run the industry. By 2021, 5G smartphone shipments will account for more than 40% of global sales, and will grow to 69% by 2025. The company firmly grasps the opportunities of 5G development and has begun to lay out in the embryonic stage of 5G. In January 2018, at the Qualcomm China Technology and Cooperation Summit, Qualcomm, together with Chinese manufacturers OPPO, VIVO, ZTE and Wingtech, announced the "5G Pilot" plan to provide Chinese manufacturers with the platform they need to develop global 5G commercial terminals, while also focusing on transformative technologies such as artificial intelligence (AI) and the Internet of Things (IoT). In October 2018, Qualcomm announced that Wingtech and other manufacturers have become key partners of Qualcomm and will be the first to release Snapdragon X50 baseband 5G mobile phones. In February 2019, at the Mobile World Congress (MWC) in Barcelona, Qualcomm and China Mobile and industry partners such as Wingtech Technology released the 5G PC Boom Program.
The company maintains a close cooperative relationship with Qualcomm, is Qualcomm's only 5G ALPHA customer and priority strategic cooperation partner in the world, and many of Qualcomm's new platform debut projects have Wingtech participated in research and development. The company has rich experience in joint development with Qualcomm team, and cooperates with Qualcomm in a number of key projects every year. At present, 5G mobile phones, VR integrated headsets, AR smart glasses, T-BOX car machine systems, embedded intelligent electric vehicle computing units, 5G laptops, 5G servers, etc. developed by Wingtech Based on Qualcomm Snapdragon chip platform have been shipped in large quantities or are under development. The company's 5G layout will open up new growth space.
3.2 Nexperia's market share is industry-leading, and it cooperates with Wingtech to develop synergistically
Nexperia, a wholly-owned subsidiary of the company, is a world-renowned semiconductor IDM company headquartered in Nijmegen, the Netherlands, delivering more than 90 billion products per year and is widely used in various electronic designs around the world. The company's products include diodes, bipolar transistors, analog and logic ICs, ESD protection devices, MOSFET devices, and Gallium nitride field-effect transistors (GaN FETs). In the competition with international semiconductor giants, Nexperia is in a global leading position in various segments. According to IHS data, the company has the world's largest shipments of diodes and transistors, the second largest global shipments of logic chips, the world's first shipments of ESD protection devices, and the ninth largest shipment of power devices. Nexperia has signed strategic cooperation agreements with heavyweight customers in 2020, and according to the research data of The Core, Nexperia ranked among the world's ninth-largest power semiconductor companies in the first quarter of 2021, up two places compared with 2019, and ranked first among domestic power semiconductor companies.
In 2020, Nexperia's semiconductor business achieved revenue of 9.89 billion yuan, and due to the cost of the epidemic, the gross profit margin fell slightly to 27.16%, with a total shipment of 88.99 billion units. The company's semiconductor business resumed growth in the third quarter of 2020 and began to achieve significant growth in the fourth quarter. In 2020, Nexperia's largest proportion of revenue is the automotive sector, and the largest proportion of product line revenue is transistor (including protective devices ESD/TVS, etc.). In the first half of 2021, the company's semiconductor business achieved revenue of 6.773 billion yuan, an increase of 53.3% year-on-year, gross profit margin of 35.1%; net profit of 1.310 billion yuan, an increase of 234.5% year-on-year, profitability reached the highest level in history.
The company's R & D investment continues to expand, R & D capabilities strengthened. In 2020, the company invested 650 million yuan in R&D in the semiconductor business, further strengthening R&D investment in medium and high voltage MOSFETs, compound semiconductor products SiC and GaN products, and analog products. R&D investment is expected to be 940 million yuan in 2021. In 2020, the Company's semiconductor business capital expenditure was approximately $860 million, and it is expected to further expand capital expenditure in 2021 to expand production capacity and R&D-related equipment investment.
The company has several R&D centers around the world. ITEC, the Industrial Equipment R&D Center in the Netherlands, is responsible for the research and development, modernization and maintenance of the company's semiconductor assembly and test equipment, as well as mass production of products. ITEC has good and lasting cooperative relations with surrounding universities, research institutions and other semiconductor equipment manufacturers such as ASML. The Penang R&D Centre in Malaysia is responsible for the company's simulated market, and a number of simulated product projects have been launched. The Shanghai R&D center focuses on power MOSFETs, acceleration interfaces, analog, power management, and actively expands cooperation with local customers to expand into new markets. At present, Nexperia has tens of thousands of hot-selling product models, thousands of MOSFET device products and more than 4,000 bipolar transistors and diode products.
The research and development of new products is progressing smoothly. Nexperia offers the leading performance of third-generation semiconductor gallium nitride power devices (GaN FETs) in target markets including electric vehicles, data centers, telecom equipment, industrial automation and high-end power supplies. Gallium nitride technology is the technology of choice for traction inverters used in plug-in hybrid or pure electric vehicles. The company's 650V gallium nitride (GaN) technology has passed vehicle-grade testing and will begin delivery to automaker customers in 2021. The company's products have passed a number of quality standards (ISO 9001 / IATF 16949), health and safety standards (ISO 14001, OHSAS 18001) certification and environmental compliance certification, high reliability.
The company continues to expand its semiconductor production capacity to meet the growing demand of the market. According to the company's annual report, the front-end Manchester wafer factory is adding capacity to the 8-inch production line, with the first phase scheduled for completion in the third quarter of 2021. The back-end packaging and testing plant was simultaneously renovated and upgraded, with the Dongguan factory being expanded, adding a new fourth-floor plant, and adopting new technologies such as a new automated production line and SiP (System-in-Package). The production capacity of the Philippines and Malaysia plants is also being expanded. With the integration of Nexperia into Wingtech, Nexperia is expected to further expand production capacity and increase market share and industry ranking with the help of Wingtech's production site.
3.2.2 Nexanter Develop synergistically, covering a wide range of downstream areas and abundant customer resources
Mergers and acquisitions deepen the integration of resources, and Nexperia Wingtech develops synergistically. In 2020, Wingtech completed the acquisition of a 100% stake in Nexperia, the largest semiconductor acquisition ever made in China and the first acquisition by a Chinese company of a globally leading semiconductor company. Wingtech and Nexperia are in the upstream and downstream of the industry, Wingtech is mainly responsible for the research and development and manufacturing of terminal products, in the middle of the industrial chain, the business covers mobile phones, tablets, laptops, IoT, automotive electronics and other segments. Its upstream manufacturers are suppliers of electronic components, including semiconductors. Downstream customers are mainly xiaomi, Huawei, Lenovo, OPPO and other electronic giants, the company maintains close cooperation with major brand customers, with a huge shipment volume; Nexperia Group is in the upstream of Wingtech, is the world's leading discrete devices, logic devices and MOSFET devices professional manufacturers. Major customers include manufacturers and electronics companies such as Bosch, Apple, Samsung, Asus, and Dell.
Nexperia and Wingtech are highly aligned with the development direction, and after the completion of the acquisition, Wingtech's communication business and semiconductor business complement each other's advantages and share the same advantages with customers, which can produce strong synergies. Wingtech and Nexperia will complement each other's resources in terms of customers, supply chains, R&D resources, and innovation capabilities, so as to help Nexperia make rapid breakthroughs in the consumer field and Wingtech Technologies in the automotive field, realize the coordinated development of their communication business and semiconductor business, and seize the development opportunities brought by 5G and open up new market opportunities. In March 2021, Nexperia and the main suppliers of the domestic automotive industry jointly cooperated with automotive companies in the field of power semiconductor gallium nitride (GaN). In April 2021, Wingtech and Gree joined hands to acquire OFILM's camera business for specific overseas customers, laying out the intelligent manufacturing industry chain. In the future, Wingtech and Nexperia will continue to work together to seize more opportunities in the development of 5G emerging markets and increase market share in the two major areas.
<h1 class="pgc-h-arrow-right" data-track="86" >4. Profit forecast</h1>
Key assumptions
(1) Communication business: According to IDC's forecast data, global smartphone shipments will increase by 6.8% to 1.38 billion units in 2021, of which global 5G smartphone shipments will account for more than 40% of total shipments. In 2020, ODM mobile phone shipments increased by 17.1% year-on-year, accounting for 7.3pct to 37.2% of total global shipments. We expect the global mobile phone ODM industry market space to be approximately 621 million units in 2021, an increase of about 30% over 2020. As a leading company in the ODM industry, the company will benefit from the growth wave of the ODM industry. We believe that the company's business maintains rapid growth, and it is expected that the company's revenue for this business in 21-23 will be 54.167/704.18/92.247 billion yuan, an increase of 30.0%/30.0%/30.1% year-on-year, and the gross profit margin will be 11.0%/11.0%/10.9%.
(2) Semiconductor business: According to Gartner data, the global automotive semiconductor market reached $41 billion in 2019 and is expected to reach $65.1 billion in 2022, accounting for 12% of the global semiconductor market, making it the fastest growing market in the global semiconductor segment. We expect the global automotive power semiconductor market to reach $15.4 billion by 2021. Judging from the competitive landscape, mainland power semiconductor manufacturers started late and have a big gap with overseas enterprises. After Entering the Chinese market, Nexperia is making up for domestic shortcomings and helping China improve the self-sufficiency rate of power semiconductors. With the addition of Nexperia, the company's business will continue to grow rapidly and its market share will continue to rise. We expect the company's revenue in this business to be 13.255/169.66/21.547 billion yuan in 21-23, an increase of 34.0%/28.0%/27.0% year-on-year, and a gross profit margin of 27.0%/27.0%/26.5%.
(3) Cost and three rates: The company's cost control ability is strong, the scale effect is obvious, and the three rates will remain at a low level. We expect the company's gross margin for 21-23 to be 14.2%/14.2%/13.9% and an expense ratio of 8.1%/8.0%/8.4%.
(This article is for informational purposes only and does not represent any of our investment advice.) For usage information, see the original report. ）
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