Domestic small-pitch LED display chip manufacturers continue to expand production

Domestic small-pitch LED display chip manufacturers continue to expand production. At present, the demand for small-pitch LED displays for chips is further expanding. Due to the high density of high-definition LED displays per square meter, the rapid development of chips and packages is driven. , the most competitive Sanan chip in China has sprung up, and has become the focus of the industry's LED chip headlines. Sanan Company released its 2017 mid-year report. From January to June, it achieved revenue of 4.066 billion yuan, a year-on-year increase of 46.37%; realized net profit attributable to the parent company of 1.514 billion yuan, a year-on-year increase of 56.76%. In Q2, the revenue in the single quarter was 2.077 billion yuan, a year-on-year increase of 30%, and a quarter-on-quarter increase of 4%; the net profit attributable to the parent was 823 million yuan, a year-on-year increase of 62%, and a quarter-on-quarter increase of 19%.

1. The construction of new production capacity is gradually in place in Q3, and the overall global production capacity expansion is limited, and the industry price is still worth looking forward to. Since the second half of last year, the relationship between LED supply and demand has continued to improve, and some products have even seen a certain increase. The company began to increase MOCVD construction in the first half of the year, and the production capacity will gradually start from August.

By the end of the year, the production capacity may reach 450 MOCVD. However, from a global perspective, overseas only Osram has expanded its production capacity, Nichia has slightly increased its production capacity, and Cree, Samsung, and Philips have all increased their production capacity through cooperation with companies. At present, only some domestic manufacturers expect larger production expansion, but they are quite different from the company's product structure.

On the demand side, the lighting business has grown steadily, and the demand for small-pitch LED displays, car lights, and plant lighting has grown rapidly. It is expected that subsequent prices will remain at a relatively good level. The release of new production capacity of the company will further promote the growth of revenue and profit. 2. The demand for LED is strong, the price is stable, the income is growing rapidly, and the profit margin has improved significantly.

In the first half of the year, the overall demand for LEDs was strong, the production capacity was limited, and the price of LEDs was relatively stable, driving a 46.37% increase in revenue. The company's main LED subsidiary Xiamen San'an's revenue increased by 98%, Tianjin San'an and Wuhu San'an increased by 34.6% and 29.65% respectively. The car lighting business expanded smoothly, and achieved revenue of 320 million in the first half of the year, an increase of nearly 50%.

As the capacity utilization rate remained at a relatively high level and the scale effect was further enhanced, the gross profit margin reached 48.3% in the first half of the year, a significant increase of more than 10 percentage points compared with the same period last year. Net profit growth was significantly faster than revenue growth, reaching 56.76%. Excluding the increase in financial expenses and the reduction in non-operating expenses, etc., the growth rate of non-net profit deducted reached 103.04%.

3. Optical communication is gradually making progress, steadily promoting compound semiconductors, and deploying Micro-LEDs and filters. The company is actively promoting new business. It has already produced and sold receiving-end chips, and expanded its application to the consumer electronics market. At present, the company has fully deployed the R&D and production of optical communication transmitter and receiver chips. The compound semiconductor business has developed steadily, and samples have been submitted to 47 companies, of which 11 chips have entered micro-production. Due to the low base, the revenue in the first half of the year has nearly doubled.

In addition, the company actively deploys new technologies such as Micro-LED and filters, and conducts research and development with downstream customers on technologies such as Micro-LED core Mass-Transfer. Optical communication business development. With the gradual maturity of corresponding products, new growth space will be opened for the company's business. Valuation and investment advice.

Benefiting from the increase in industry concentration and the rebound in chip prices, the company's small-pitch LED display chip business continued to improve, and its performance growth accelerated. We are optimistic about the company's development prospects in the fields of LED, compound semiconductors and optical communications, and welcome a round of high growth in the "core". We expect the company's EPS in 2017/18/19 to be RMB 0.76/1.04/1.37, respectively, and the dynamic PE corresponding to the current stock price is 25.6/18.8/14.3 times, which is obviously underestimated.

Maintain the "strongly recommended-A" investment rating with a target price of 26 yuan. .