GUOXIN MICRO(002049)1H22 EARNINGS REVIEW：STRONG GROWTH OF GOODS IN TRANSIT MORE REVENUE RECOGNITION EXPECTED IN 2H22

In 1H22, Unigroup Guoxin Microelectronics (“Guoxin Micro”) posted revenue of Rmb2.91bn (+26.72% YoY) and attributable net profit (ANP) of Rmb1.20bn (+36.81% YoY). The subsidiary Shenzhen StateMicro Electronics achieved revenue of Rmb1.95bn (+42.54% YoY) and net profit of Rmb1.09bn (+43.10% YoY). By the end of Jun, the Company recorded Rmb0.28bn goods in transit (+147.41% YoY), which is expected to contribute to earnings after delivery and revenue recognition in 2H22. The Company has a leading market share in the highly independent and controllable market. During the reporting period, its special field-programmable gate array (FPGA) and analog chips business advanced smoothly, and automotive-grade chips were applied in batches.
With comps valuation as a reference and considering the Company's industry status and future development prospects, we maintain the "BUY" rating.
Shenzhen StateMicro Electronics’ interim revenue increased by +43%, and increased proportion of special (high reliability) products enhanced overall profitability.
In 1H22, Guoxin Micro posted revenue of Rmb2.91bn (+26.72%) (YoY growth, same below), ANP of Rmb1.20bn (+36.81%) and ex-one-off ANP of Rmb1.15bn (+43.89%). In 2Q22, the revenue was Rmb1.56bn (+16.68%), ANP was Rmb0.67bn (+20.92%) and ex-one-off ANP was Rmb0.65bn (+30.87%). The subsidiary Shenzhen StateMicro Electronics posted revenue of Rmb1.95bn (+42.54%) and net profit of Rmb1.09bn (+43.10%) during the period. The special IC business maintained the high-growth trend, driving robust revenue growth. On the profit side, due to the increase in the proportion of high-margin special IC business and improved profit margin in all segments, the overall gross profit margin increased to 65.77% (+8.75ppts), of which special IC increased to 78.64% (+1.87ppts). With increased R&D investment, the R&D expense rose to Rmb0.38bn (+88.28%), resulting in higher blended expense ratio at 21.60% (+4.59ppts). Based on the above factors, the Company's 1H22 net profit margin was 41.45% (+2.90ppts).
Significant growth in goods in transit will likely increase the income in 2H22, and prepayment increased by 79% to ensure raw materials supply.
In 1H22, the Company's inventories increased to Rmb1.66bn (+60.89%). Raw materials increased by 51.21% to Rmb0.28bn, implying its sufficient backlog orders and active stocking to prepare for production. The regional pandemic may have affected product delivery and revenue recognition, thus the finished products and goods in transit increased by 112.95%/147.41% to Rmb0.39bn/0.28bn, respectively, and will likely increase the earnings in 2H22.
The prepaid accounts increased by 79.07% to Rmb0.53bn, reaching a historical high, an indication of its efforts to secure the supply of raw materials.
We expect the earnings realization to gather pace in 2H22 after the supply chain is smoothed out. With an increasing scale of IC business, the accounts receivable increased to Rmb3.04bn (+15.65%). Net cash flow from operating activities increased to Rmb0.37bn (+101.75%), mainly due to the increase in profit and smooth revenue recognition under the growth of business scale, and the increase in the business deposit collected.
The new-gen 1x nano special FPGA, ADC analog chips and power products made great progress.
In 1H22, the Company received strong demand for special IC products, and the development of various products went smoothly. It launched the 2x nano low-power FPGA and advanced the new-gen of 1x high-performance FPGA.
System-level chips represented by special SoPC platform products have seen all-round applications with high customer acceptance and made great contribution to revenue. The Company successfully introduced serialization products such as single-chip power supply and power module, providing one-stop solution of secondary power supply for clients, contributing to a rapid increase in the market share in analog chips. The high-speed RF ADC and isolated chips launched in 1H22 have been basically recognized by the main clients. The special IC business is likely to maintain a high-speed growth, providing robust support for the long-term performance growth.
Completion of Tsinghua Unigroup’s equity transfer removed the debt risk, and the automotive-grade business may become a new growth point, with the smooth progress of the investment project.
On Jul 11, the Company announced that Tsinghua Unigroup (its original indirect controller) had completed relevant registration procedures to transfer of its 100% equity to an entity named Zhiguangxin. As Zhiguangxin has no controlling shareholder or actual controller, it means that Guoxin Micro also has no actual controller. The resolution of Tsinghua Unigroup's debt risk will ease the market's concerns over the Company. After the transactions, the Company is poised to conduct capital operation in an orderly manner. During the reporting period, the progress of its fund-raising investment projects was advanced smoothly: 1. The new high-end security chip project focusing on chip algorithm performance has expanded to the realms of 5G applications, 5G vehicle networking, servers and cloud computing, with accumulated investment proportion of 21.13% and expected revenue contribution of Rmb1.47bn per year; 2. The vehicle controller chip project promotes the key technology research and industrialization of vehicle chips to form volume delivery capacity, with accumulated investment of 29.19% and expected revenue contribution of Rmb1.10bn per year. In 1H22, the automotive- grade safety chips were largely implemented in various programs such as digital car key and vehicle eSIM. With the operation of the investment projects, the Company’s market share of high-end safety chips may be further expanded, covering automotive-grade chips and improving its product layout and core competitiveness.
Potential risks: A decline in industry prosperity; less-than-expected stimulus from policies in semiconductor industry; lower-than-expected development of 5G and cloud computing; upgrade of US technical blockade; lower-than-expected progress of technical research; frictions between the Company and the new shareholders, etc.
Investment recommendation: Considering the expansion of market size under the informationization construction of safety system, and enhanced competitive edge of the Company as a special IC leader under the trend of autonomy and control, as well as the gradual landing of the automotive-grade chip project, we maintain our 2022E-24E ANP forecasts at Rmb3.0bn/4.2bn/5.7bn, corresponding to EPS forecasts of Rmb3.49/4.95/6.71 and PE of 50x/35x/26x at the current stock price. Considering the 44x/53x/47x 2023E PE of comparable companies Great Microwave Technology (688270)/ Fudan Microelectronics (688385) /Chengchang Technology (001270) based on Wind consensus estimates, we assign 45x 2023E PE to derive a target market value of Rmb190bn for Guoxin Micro and a target price of Rmb225. Maintain the “BUY” rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。